[Federal Register Volume 61, Number 29 (Monday, February 12, 1996)]
[Notices]
[Pages 5429-5430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3046]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21735; 812-9900]
J.P. Morgan Index Funding Company, LLC; Notice of Application
February 6, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: J.P. Morgan Index Funding Company, LLC.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
that would exempt applicant from all provisions of the Act.
SUMMARY OF APPLICATION: Applicant requests an order that would permit
it to sell certain preferred equity securities and use the proceeds to
finance the business activities of its parent company, J.P. Morgan &
Co. Incorporated (``J.P. Morgan''), and certain companies controlled by
J.P. Morgan.
FILING DATE: The application was filed on December 15, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on March 4, 1996,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicant, 60 Wall Street, New York, New York 10260-0060.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Alison E. Baur,
Branch Chief, at (202) 942-0564 (Division of Investment Management,
Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. Applicant is a Delaware limited liability company formed in
November, 1995. Applicant's outstanding voting securities are owned by
J.P. Morgan and J.P. Morgan Ventures Corporation.\1\ J.P. Morgan is a
holding company for a group of global subsidiaries that provide a
variety of financial services to corporations and other entities.
Morgan Guaranty Trust Company of New York (``Morgan Guaranty'') is a
New York State chartered banking institution, a member of the Federal
Reserve System and the Federal Deposit Insurance Corporation, and is a
subsidiary of J.P. Morgan.
\1\ Applicant's counsel has stated that J.P. Morgan Ventures
Corporation is a wholly-owned subsidiary of J.P. Morgan.
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2. Applicant was organized to engage in financing activities that
will provide funds for use in the operations of J.P. Morgan, Morgan
Guaranty, and certain of their subsidiaries (the ``Morgan Entities'').
Applicant proposes to obtain funds through the offer and sale of its
preferred equity securities in the United States and in overseas
markets, and to lend the proceeds to the Morgan Entities.
3. Due to the nature of the capital markets, applicant may, from
time to time, issue securities in amounts exceeding the amounts
required by the Morgan Entities at any given time. However, at least
85% of the cash or cash equivalents raised by applicant through the
sale of preferred securities will be loaned to the Morgan Entities as
soon as practicable, but in no event later than six months after
applicant's receipt of such cash or cash equivalents. Amounts that are
not loaned to the Morgan Entities will be invested in government
securities, securities of J.P. Morgan, Morgan Guaranty, or a company
controlled by J.P. Morgan or Morgan Guaranty (or, in the case of a
partnership or joint venture, the securities of the partners or
participants in the joint venture), or securities which are exempted
from the provisions of the Securities Act of 1933 by section 3(a)(3) of
that Act.
4. Before applicant issues any securities, J.P. Morgan will enter
into a master guarantee agreement (the ``Guarantee Agreement'') with
applicant under which J.P. Morgan will guarantee the payment of
principal and dividends on the securities issued by applicant, in
accordance with rule 3a-5(a)(2) as interpreted by the staff.\2\ The
Guarantee Agreement will give each holder of applicant's securities a
direct right of action against J.P. Morgan's obligations under the
Guarantee Agreement without first proceeding against applicant.
\2\ See Chieftain International Funding Corp., (pub. avail. Nov.
3, 1992) and Cleary, Gottlieb, Steen & Hamilton, (pub. avail. Dec.
23, 1985).
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Applicant's Legal Analysis
1. Applicant requests an exemption from all provisions of the Act.
The Commission has stated that it is appropriate to exempt a finance
subsidiary from all provisions of the Act where the primary purpose of
the finance subsidiary is to finance the business operations of its
parent or other subsidiaries of its parent and where any purchaser of
the finance subsidiary's securities ultimately looks
[[Page 5430]]
to the parent for repayment and not to the finance subsidiary.\3\
\3\ Investment Company Act Release No. 14275 (Dec. 14, 1984)
(release adopting rule 3a-5 under the Act). Rule 3a-5 provides an
exemption from the definition of investment company for certain
companies organized primarily to finance the business operations of
their parent companies or companies controlled by their parent
companies.
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2. Rule 3a-5(b)(2)(i) in relevant part defines ``parent company''
to be a corporation, partnership, or joint venture that is not
considered in investment company under section 3(a) or that is excepted
or exempted by order from the definition of investment company by
section 3(b) or by the rules or regulations under section 3(a). J.P.
Morgan technically is not a ``parent company'' within the meaning of
rule 3a-5(b)(2)(i) because it meets the definition of investment
company in section 3(a) of the Act and is excepted by such definition
by section 3(c)(6).
3. Rule 3a-5(b)(3)(i) in relevant part defines a ``company
controlled by the parent company'' to be a corporation, partnership, or
joint venture that is not considered an investment company under
section 3(a) or that is excepted or exempted by order from the
definition of investment company by section 3(b) or by the rules and
regulations under section 3(a). Certain of the Morgan Entities do not
fit within the technical definition of ``companies controlled by the
parent company'' because they derive their non-investment status from
section 3(c).
4. In the release adopting rule 3a-5, the Commission stated that it
may be appropriate to grant exemptive relief to the finance subsidiary
of a section 3(c) issuer, but only on a case-by-case basis upon an
examination of all relevant facts. According to the adopting release,
the concern was that a company may be considered a non-investment
company for the purposes of the Act under section 3(c) of the Act and
still be engaged primarily in investment company activities.
5. Section 6(c) provides, in relevant part, that the SEC may,
conditionally or unconditionally, by order, exempt any person or class
of persons from any provision of the Act or from any rule thereunder,
if such exemption is necessary or appropriate in the public interest,
consistent with the protection of investors, and consistent with the
purposes fairly intended by the policy and provisions of the Act.
Applicant states that none of the Morgan Entities to which applicant
may loan money are engaged primarily in investment company activities.
In addition, if J.P. Morgan or Morgan Guaranty were themselves to issue
the securities that are to be issued by applicant and use the proceeds,
none of the Morgan Entities would be subject to regulation under the
Act. While J.P. Morgan has chosen instead to use applicant as a
financing vehicle, the Guarantee Agreement ensures that holders of
applicant's securities will have direct access to J.P. Morgan's credit.
Accordingly, applicant submits that the relief requested satisfies the
section 6(c) standard.
Applicant's Condition
Applicant agrees that the order granting the requested relief shall
be subject to the following condition:
1. Applicant will comply with all of the provisions of rule 3a-5
under the Act, except: (a) J.P. Morgan will not meet the portion of the
definition of ``parent company'' in rule 3a-5(b)(2)(i) solely because
it is excluded from the definition of investment company under section
3(c)(6) of the Act; (b) Morgan Guaranty will not meet the portion of
the definition of ``company controlled by the parent company'' in rule
3a-5(b)(3)(i) solely because it is excluded from the definition of
investment company under section 3(c)(3) of the Act; and (c) applicant
will be permitted to invest in or make loans to corporations,
partnerships, and joint ventures that do not meet the portion of the
definition of ``company controlled by the parent company'' in rule 3a-
5(b)(3)(i) solely because they are excluded from the definition of
investment company by sections 3(c)(2), 3(c)(3), 3(c)(4), or 3(c)(6) of
the Act, provided that any such entity excluded from the definition of
investment company under section 3(c)(6) of the Act will not be engaged
primarily, directly or through majority owned subsidiaries, in one or
more of the businesses described in section 3(c)(5) of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3046 Filed 2-9-96; 8:45 am]
BILLING CODE 8010-01-M