[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