[Federal Register Volume 62, Number 120 (Monday, June 23, 1997)]
[Notices]
[Pages 33943-33945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16338]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--22713; 812-10572]
J.P. Morgan Index Funding Company I, et al.; Notice of
Application
June 17, 1997.
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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APPLICANTS: J.P. Morgan Index Funding Company I, J.P. Morgan Index
Funding Company II, J.P. Morgan Index Funding Company III, J.P. Morgan
Index Funding Company IV, and J.P. Morgan Index Funding Company V.
RELEVANT ACT SECTION: Order requested under section 6(c) of the Act
that would exempt applicants from all provisions of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would
permit them to sell their preferred beneficial interests and use the
proceeds to finance the business activities of their parent company,
J.P. Morgan & Co. Incorporated (``J.P. Morgan''), and certain
subsidiaries of J.P. Morgan.
FILLING DATES: The application was filed on March 12, 1997.
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 July 14,
1997, 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, N.W., Washington, DC
20549. Applicants, c/o J.P. Morgan, 60 Wall Street, New York, NY 10260.
FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Staff Attorney (202) 942-
0562, or Mercer E. Bullard, Branch Chief, (202) 942-0564 (Office of
Investment Company Regulation, Division of Investment Management).
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.
Applicants' Representations
1. Applicants were organized as Delaware business trusts on
December 12, 1996. J.P. Morgan, a Delaware corporation, owns all of the
outstanding beneficial voting interests of applicants. J.P. Morgan is
the holding company for a group of global subsidiaries that provide
financial services to corporations, governments, financial
institutions, institutional investors, professional firms, privately
held companies, nonprofit organizations, and financially sophisticated
individuals. The financial services that J.P. Morgan provides include
finance and advisory services, sales and trading, asset and liability
management, and equity investments. J.P. Morgan's largest subsidiary,
Morgan Guaranty Trust Company of New York (`'Morgan Guaranty''), is a
New York State chartered bank. Morgan Guaranty is subject to
restrictions on loans and extensions of credit to J.P. Morgan and
[[Page 33944]]
certain other affiliates and on certain other types of transactions
with them or involving their securities.
2. Applicants were organized to engage in financing activities that
will provide funds for use in the operations of J.P. Morgan, Morgan
Guaranty, and certain subsidiaries of either. Applicants' primary
function will be to obtain funds through the offer and sale of their
preferred beneficial interests in U.S., European, and other overseas
markets, and to lend the proceeds to J.P. Morgan, Morgan Guaranty and
direct or indirect subsidiaries of either.
3. Applicants expect that the securities they issue will consist
initially of preferred beneficial trust interests. Due to the nature of
capital markets, applicants may issue beneficial interests in amounts
exceeding the amounts required by J.P. Morgan, Morgan Guaranty and
their subsidiaries at the time. In accordance with rule 3a-5(a)(5)
under the Act, an applicant will loan at least 85% of the cash or cash
equivalents raised by that applicant to J.P. Morgan, Morgan Guaranty or
their subsidiaries as soon as practicable, but in no event later than
six months after that applicant's receipt of such cash or cash
equivalents.
4. In the event that applicants borrow amounts in excess of the
amounts required by J.P. Morgan, Morgan Guaranty, and their
subsidiaries, applicants will invest such excess in temporary
investments pending lending the money to J.P. Morgan, Morgan Guaranty
and their subsidiaries. In accordance with rule 3a-5(a)(6), all
applicants' investments will be made 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 exempt from the provisions of
the Securities Act of 1933 by section 3(a)(3) of the Act.
5. Before applicants issue any beneficial interests, J.P. Morgan
will enter into a guarantee agreement with applicants (the ``Guarantee
Agreement'') under which J.P. Morgan will unconditionally guarantee the
payment of principal and dividends on the beneficial interests when
due. The Guarantee Agreement also will fulfill the requirements of the
rule 3a-5(a)(2) under the Act, as interpreted by the SEC.\1\
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\1\ See, e.g., Chieftain International Funding Corp., (pub.
avail. Nov. 3, 1992); Cleary, Gottlieb, Stein & Hamilton, (pub.
avail. Dec. 23, 1985).
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6. Applicants believe that the Guarantee Agreement provides
assurance that the holders of each applicant's beneficial interests
will be able to look to J.P. Morgan for payment. The Guarantee
Agreement will give each holder of beneficial interests issued by an
applicant a direct right of action against J.P. Morgan to enforce J.P.
Morgan's obligations under the Guarantee Agreement without first
proceeding against the applicant. J.P. Morgan and an applicant may
amend or modify the Guarantee Agreement by agreement, but amendments or
modifications will apply only prospectively and will not relieve J.P.
Morgan of any of its obligations under the Guarantee Agreement with
respect to beneficial interests outstanding on the effective date of
the amendment or modification or adversely affect the beneficial
interest holders' rights. Neither an applicant nor J.P. Morgan may
terminate the Guarantee Agreement unless all beneficial interests
issued and guaranteed under it have been redeemed or paid in full.
Applicants' Legal Analysis
1. Applicants request an exemption from all provisions of the Act.
Applicants note that the SEC has stated that it generally 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 to the parent for repayment and not to the finance
subsidiary.\2\
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\2\ Investment Company Act Release No. 14725 (December 14, 1984)
(adopting rule 3a-5).
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2. 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. Under rule 3a-5(b)(2), a ``parent
company'' is one that derives its non-investment company status from
section 3(a) of the Act, or rules thereunder, or section 3(b) of the
Act. Applicants believe that J.P. Morgan may not qualify as a ``parent
company'' under rule 3a-5(b)(2) because it derives its non-investment
company status from section 3(c)(6) of the Act.
3. Under rule 3a-5(b)(3), a ``company controlled by the parent
company'' may only be a company that derives its non-investment company
status from section 3(a), or rules thereunder, or section 3(b).
Applicants initially will loan funds to Morgan Guaranty, which derives
its non-investment company status from section 3(c)(3) of the Act, and
may loan funds to certain subsidiaries which derive their non-
investment company status from section 3(c) of the Act. Consequently,
applicants believe that Morgan Guaranty does not, and certain of the
subsidiaries to which applicants may loan funds may not, qualify as a
``company controlled by the parent company'' under rule 3a-5(b)(3).
4. Applicants note that, in the release adopting rule 3a-5, the SEC
stated that it may be appropriate to grant exemptive relief to the
finance subsidiary of a section 3(c) issuer, upon examination of all
relevant factors.\3\ Applicants submit that the SEC also identified in
the release its concern that a company may be considered a non-
investment company under section 3(c) but still be engaged primarily in
investment company activities.\4\ Applicants state that J.P. Morgan is
a bank holding company whose primary activities involve managing the
activities of its banking and permitted non-banking subsidiaries.
Applicants submit that, because J.P. Morgan is highly regulated by the
Federal Reserve and various state banking agencies, regulation under
the Act is neither warranted nor relevant.
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\3\ Id.
\4\ Id.
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5. Section 6(c) of the Act provides that the SEC, by order upon
application, may exempt any person, security or transaction, or any
class or classes of persons, securities or transactions, from any
provision or provisions of the Act to the extent that such exemption is
necessary or appropriate in the public interest, and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Applicants submit that the exemptive
relief requested meets the standards of section 6(c).
Applicants' Condition
Applicants agree that the order granting the requested relief shall
be subject to the condition that each 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'' under 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) each applicant will be
[[Page 33945]]
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 section 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) 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 SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-16338 Filed 6-20-97; 8:45 am]
BILLING CODE 8010-01-M