[Federal Register Volume 63, Number 155 (Wednesday, August 12, 1998)]
[Notices]
[Pages 43220-43223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21593]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23380; 812-11216]


CIBC Oppenheimer Corp.; Notice of Application

August 5, 1998.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 12(d)(1) of the Act, under section 6(c) of the Act for an 
exemption from section 14(a) of the Act, and under section 17(b) of the 
Act for an exemption from section 17(a) of the Act.

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SUMMARY OF APPLICATION: CIBC Oppenheimer Corp. (``CIBC'') requests an 
order with respect to the REDSS trusts (``REDSS Trusts'') and future 
trusts that are substantially similar to the REDSS Trusts and for which 
CIBC will serve as a principal underwriter (collectively, the 
``Trusts'') that would (i) permit other registered investment 
companies, and companies excepted from the definition of investment 
company under section 3(c)(1) or (c)(7) of the Act, to own a greater 
percentage of the total outstanding voting stock (the ``Securities'') 
of any Trust than that permitted by section 12(d)(1), (ii) exempt the 
Trusts from the initial net worth requirements of section 14(a), and 
(iii) permit the Trusts to purchase U.S. government securities from 
CIBC at the time of a Trust's initial issuance of Securities.

FILING DATES: The application was filed on July 8, 1998.
    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 CIBC with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on August 31, 1998, 
and should be accompanied by proof of service on CIBC, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial Center, 
New York, New York 0281. Copy to Thomas A. McGavin, Jr., Esq., Rogers & 
Wells LLP, 200 Park Avenue, New York, New York 10166.

FOR FURTHER INFORMATION CONTACT: Brian T. Hourihan, Senior Counsel, at 
(202) 942-0526, or Mary Kay Frech, 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 from 
the SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC. 20549 (tel. (202) 942-8090).

Applicant's Representations

    1. Each Trust will be a limited-life, grantor trust registered 
under the Act as a non-diversified, closed-end management investment 
company. CIBC will serve as a principal underwriter (as defined in 
section 2(a)(29) of the Act) of the Securities issued to the public by 
each Trust.
    2. Each Trust will, at the time of its issuance of Securities, (i) 
enter into one or more forward purchase contracts (the ``Contracts'') 
with a counterparty to purchase a formulaically-determined number of a 
specified equity security or securities (the ``Shares'') of one 
specified issuer,\1\ and (ii) in some cases, purchase certain U.S. 
Treasury securities (``Treasuries''), which may include interest-only 
or principal-only securities maturing at or prior to the Trust's 
termination. The Trusts will purchase the Contracts from counterparties 
that are not affiliated

[[Page 43221]]

with either the relevant Trust or CIBC. The investment objective of 
each Trust will be to provide to each holder of Securities (``Holder'') 
(i) current cash distributions from the proceeds of any Treasuries, and 
(ii) participation in, or limited exposure to, changes in the market 
value of the underlying Shares.
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    \1\ Initially, no Trust will hold Contracts relating to the 
Shares of more than one issuer. However, if certain events specified 
in the Contracts occur, such as the issuer of Shares spinning-off 
securities of another issuer to the holders of the Shares, the Trust 
may receive shares of more than one issuer at the termination of the 
Contracts.
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    3. In all cases, the Shares will trade in the secondary market and 
the issuer of the Shares will be a reporting company under the 
Securities Exchange Act of 1934. The number of Shares, or the value of 
the Shares, that will be delivered to a Trust pursuant to the Contracts 
may be fixed (e.g., one Share per Security issued) or may be determined 
pursuant to a formula, the product of which will vary with the price of 
the Shares. A formula generally will result in each Holder of 
Securities receiving fewer Shares as the market value of the Shares 
increases, and more Shares as their market value decreases.\2\ At the 
termination of each Trust, each Holder will receive the number of 
Shares per Security, or the value of the Shares, as determined by the 
terms of the Contracts, that is equal to the Holder's pro rata interest 
in the Shares or amount received by the Trust under the Contracts.\3\
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    \2\ A formula is likely to limit the Holder's participation in 
any appreciation of the underlying Shares, and it may, in some 
cases, limit the Holder's exposure to any depreciation in the 
underlying Shares. It is anticipated that the Holders will receive a 
yield greater than the ordinary dividend yield on the Shares at the 
time of the issuance of the Securities, which is intended to 
compensate Holders for the limit on the Holders' participation in 
any appreciation of the underlying Shares. In some cases, there may 
be an upper limit on the value of the Shares that a Holder will 
ultimately receive.
    \3\ The contracts may provide for an option on the part of a 
counterparty to deliver Shares, cash, or a combination of Shares and 
cash to the Trust at the termination of each Trust.
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    4. Securities issued by the Trusts will be listed on a national 
securities exchange or traded on The Nasdaq National Market System. 
Thus, the Securities will be ``national market system'' securities 
subject to public price quotation and trade reporting requirements. 
After the Securities are issued, the trading price of the Securities is 
expected to vary from time to time based primarily upon the price of 
the underlying Shares, interest rates, and other factors affecting 
conditions and prices in the debt and equity markets. CIBC currently 
intends, but will not be obligated, to make a market in the Securities 
of each Trust.
    5. Each Trust will be internally managed by three trustees and will 
not have a separate investment adviser. The trustees will have limited 
or no power to vary the investments held by each Trust. A bank 
qualified to serve as a trustee under the Trust Indenture Act of 1939, 
as amended, will act as custodian for each Trust's assets and as 
administrator, paying agent, registrar, and transfer agent with respect 
to the Securities of each Trust. The bank will have no other 
affiliation with, and will not be engaged in any other transaction 
with, any Trust. The day-to-day administration of each Trust will be 
carried out by CIBC or the bank.
    6. The Trusts will be structured so that the trustees are not 
authorized to sell the Contracts or Treasuries under any circumstances 
or only upon the occurrence of certain events under a Contract. The 
Trusts will hold the Contracts until maturity or any earlier 
acceleration, at which time they will be settled according to their 
terms. However, in the event of the bankruptcy or insolvency of any 
counterparty to a Contract with a Trust, or the occurrence of certain 
other events provided for in the Contract, the obligations of the 
counterparty under the Contract may be accelerated and the available 
proceeds of the Contract will be distributed to the Holders.
    7. The trustees of each Trust will be selected initially by CIBC, 
together with any other initial Holders, or by the grantors of the 
Trust. The Holders of each Trust will have the right, upon the 
declaration in writing or vote of more than two-thirds of the 
outstanding Securities of the Trust, to remove a trustee. Holders will 
be entitled to a full vote for each Security held on all matters to be 
voted on by Holders and will not be able to cumulate their votes in the 
election of trustees. The investment objectives and policies of each 
Trust may be changed only with the approval of a ``majority of the 
Trust's outstanding Securities'' \4\ or any greater number required by 
the Trust's constituent documents. Unless Holders so request, it is not 
expected that the Trusts will hold any meetings of Holders, or that 
Holders will ever vote.
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    \4\ A ``majority of the Trust's outstanding Securities'' means 
the lesser of (i) 67% of the Securities represented at a meeting at 
which more than 50% of the outstanding Securities are represented, 
and (ii) more than 50% of the outstanding Securities.
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    8. The Trusts will not be entitled to any rights with respect to 
the Shares until any Contracts requiring delivery of the Shares to the 
Trust are settled, at which time the Shares will be promptly 
distributed to Holders. The Holders, therefore, will not be entitled to 
any rights with respect to the Shares (including voting rights or the 
right to receive any dividends or other distributions) until receipt by 
them of the Shares at the time the Trust is liquidated.
    9. Each Trust will be structured so that its organizational and 
ongoing expenses will not be borne by the Holders, but rather, directly 
or indirectly, by CIBC, the counterparties, or another third party, as 
will be described in the prospectus for the relevant Trust. At the time 
of the original issuance of the Securities of any Trust, there will be 
paid to each of the administrator, the custodian, and the paying agent, 
and to each trustee, a one-time amount in respect of such agent's fee 
over its term. Any expenses of the Trust in excess of this anticipated 
amount will be paid as incurred by a party other than the Trust itself 
(which party may be CIBC).

Applicant's Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A)(i) of the Act prohibits (i) any registered 
investment company from owning in the aggregate more than 3% of the 
total outstanding voting stock of any other investment company, and 
(ii) any investment company from owning in the aggregate more than 3% 
of the total outstanding voting stock of any registered investment 
company. A company that is excepted from the definition of investment 
company under section 3(c)(1) or (C)(7) of the Act is deemed to be an 
investment company for purposes of section 12(d)(1)(A)(i) of the Act 
under sections 3(c)(1) and (c)(7)(D) of the Act. Section 12(d)(1)(C) of 
the Act similarly prohibits any investment company, other investment 
companies having the same investment adviser, and companies controlled 
by such investment companies from owning more than 10% of the total 
outstanding voting stock of any closed-end investment company.
    2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt 
persons or transactions from any provision of section 12(d)(1), if, and 
to the extent that, the exemption is consistent with the public 
interest and protection of investors.
    3. CIBC believes, in order for the Trusts to be marketed most 
successfully, and to be traded at a price that most accurately reflects 
their value, that it is necessary for the Securities of each Trust to 
be offered to large investment companies and investment company 
complexes. CIBC states that these investors seek to spread the fixed 
costs of analyzing specific investment opportunities by making sizable 
investments of those opportunities. Conversely, CIBC asserts that it 
may not

[[Page 43222]]

be economically rational for the investors, or their advisers, to take 
the time to review an investment opportunity if the amount that the 
investors would ultimately be permitted to purchase is immaterial in 
light of the total assets of the investment company or investment 
company complex. Therefore, CIBC argues that these investors should be 
able to acquire Securities in each Trust in excess of the limitations 
imposed by sections 12(d)(1)(A)(i) and 12(d)(1)(C). CIBC requests that 
the SEC issue an order under section 12(d)(1)(J) exempting the Trusts 
from the limitations.
    4. CIBC states that section 12(d)(1) was designed to prevent one 
investment company from buying control of other investment companies 
and creating complicated pyramidal structures. CIBC also states that 
section 12(d)(1) was intended to address the layering of costs to 
investors.
    5. CIBC believes that the concerns about pyramiding and undue 
influence generally do not arise in the case of the Trusts because 
neither the trustees nor the Holders will have the power to vary the 
investments held by each Trust or to acquire or dispose of the assets 
of the Trusts. To the extent that Holders can change the composition of 
the board of trustees or the fundamental policies of each Trust by 
vote, CIBC argues that any concerns regarding undue influence will be 
eliminated by a provision in the charter documents of the Trusts that 
will require any investment companies owning voting stock of any Trust 
in excess of the limits imposed by sections 12(d)(1)(A)(i) and 
12(d)(1)(C) to vote their Securities in proportion to the votes of all 
other Holders. CIBC also believes that the concern about undue 
influence through a threat to redeem does not arise in the case of the 
Trusts because the Securities will not be redeemable.
    6. Section 12(d)(1) also was designed to address the excessive 
costs and fees that may result from multiple layers of investment 
companies. CIBC believes that these concerns do not arise in the case 
of the Trusts because of the limited ongoing fees and expenses incurred 
by the Trusts and because generally these fees and expenses will be 
borne, directly or indirectly, by CIBC or another third party, not by 
the Holders. In addition, the Holders will not, as a practical matter, 
bear the organizational expenses (including underwriting expenses) of 
the Trusts. CIBC asserts that the organizational expenses effectively 
will be borne by the counterparties in the form of a discount in the 
price paid to them for the Contracts, or will be borne directly by 
CIBC, the counterparties, or other third parties. Thus, a Holder will 
not pay duplicative charges to purchase securities in any Trust. 
Finally, there will be no duplication of advisory fees because the 
Trusts will be internally managed by their trustees.
    7. CIBC believes that the investment product offered by the Trusts 
serves a valid business purpose. The Trusts, unlike most registered 
investment companies, are not marketed to provide investors with either 
professional investment asset management or the benefits of investment 
in a diversified pool of assets. Rather, CIBC asserts that the 
Securities are intended to provide Holders with an investment having 
unique payment and risk characteristics, including an anticipated 
higher current yield than the ordinary dividend yield on the Shares at 
the time of the issuance of the Securities.
    8. CIBC believes that the purposes and policies of section 12(d)(1) 
are not implicated by the Trusts and that the requested exemption from 
section 12(d)(1) is consistent with the public interest and the 
protection of investors.

B. Section 14(a)

    1. Section 14(a) of the Act requires, in pertinent part, that an 
investment company have a net worth of at least $100,000 before making 
any public offering of its shares. The purpose of section 14(a) is to 
ensure that investment companies are adequately capitalized prior to or 
simultaneously with the sale of their securities to the public. Rule 
14a-3 exempts from section 14(a) unit investment trusts that meet 
certain conditions in recognition of the fact that, once the units are 
sold, a unit investment trust requires much less commitment on the part 
of the sponsor than does a management investment company. Rule 14a-3 
provides that a unit investment trust investing in eligible trust 
securities shall be exempt from the net worth requirement, provided 
that the trust holds at least $100,000 of eligible trust securities at 
the commencement of a public offering.
    2. CIBC argues that, while the Trusts are classified as management 
companies, they have the characteristics of unit investment trusts. 
Investors in the Trusts, like investors in a unit investment trust, 
will not be purchasing interests in a managed pool of securities, but 
rather in a fixed and disclosed portfolio that is held until maturity. 
CIBC believes that the make-up of each Trust's assets, therefore, will 
be ``locked-in'' for the life of the portfolio, and there is no need 
for an ongoing commitment on the part of the underwriter.
    3. CIBC states that, in order to ensure that each Trust will become 
a going concern, the Securities of each Trust will be publicly offered 
in a firm commitment underwriting, registered under the Securities Act 
of 1933, resulting in net proceeds to each Trust of at least 
$10,000,000. Prior to the issuance and delivery of the Securities of 
each Trust to the underwriters, the underwriters will enter into an 
underwriting agreement pursuant to which they will agree to purchase 
the Securities subject to customery conditions to closing. The 
underwriters will not be entitled to purchase less than all of the 
Securities of each Trust. Accordingly, CIBC states that either the 
offering will not be completed at all or each Trust will have a net 
worth substantially in excess of $100,000 on the date of the issuance 
of the Securities. CIBC also does not anticipate that the net worth of 
the Trusts will fall below $100,000 before they are terminated.
    4. Section 6(c) of the Act provides that the SEC may exempt persons 
or transactions if, and to the extent that, the 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. CIBC requests that the SEC issue an order 
under section 6(c) exempting the Trusts from the requirements of 
section 14(a). CIBC believes that the exemption is appropriate in the 
public interest and consistent with the protection of investors and the 
policies and provisions of the Act.

C. Section 17(a)

    1. Sections 17(a) (1) and (2) of the Act generally prohibit the 
principal underwriter, or any affiliated person of the principal 
underwriter, of a registered investment company from selling or 
purchasing any securities to or from that investment company. The 
result of these provisions is to preclude the Trusts from purchasing 
Treasuries from CIBC.
    2. Section 17(b) of the Act provides that the SEC shall exempt a 
propsed transaction from section 17(g) if evidence establishes that the 
terms of the proposed transaction are reasonable and fair and do not 
involve overreaching, and the proposed transaction is consistent with 
the policies of the registered investment company involved and the 
purposes of the Act. CIBC requests an exemption from sections 17(a)(1) 
and (2) to permit the Trusts to purchase Treasuries from CIBC.

[[Page 43223]]

    3. CIBC states that the policy rationale underlying section 17(a) 
is the concern that an affiliated person of an investment company, by 
virtue of this relationship, could cause the investment company to 
purchase securities of poor quality from the affiliated person or to 
overpay for securities. CIBC argues that it is unlikely that it would 
be able to exercise any adverse influence over the Trusts with respect 
to purchases of Treasuries because Treasuries do not vary in quality 
and are traded in one of the most liquid markets in the world. 
Treasuries are available through both primary and secondary dealers, 
making the Treasury market very competitive. In addition, market prices 
on Treasuries can be confirmed on a number of commercially available 
information screens. CIBC argues that because it is one of a limited 
number of primary dealers in Treasuries, it will be able to offer the 
Trusts prompt execution of their Treasury purchases at very competitive 
prices.
    4. CIBC states that it is only seeking relief from section 17(a) 
with respect to the initial purchase of the Treasuries and not with 
respect to an ongoing course of business. Consequently, investors will 
know before they purchase a Trust's Securities the Treasuries that will 
be owned by the Trust and the amount of the cash payments that will be 
provided periodically by the Treasuries to the Trust and distributed to 
Holders. CIBC also asserts that whatever risk there is of overpricing 
the Treasuries will be borne by the counterparties and not by the 
Holders because the cost of the Treasuries will be calculated into the 
amount paid on the Contracts. CIBC argues that, for this reason, the 
counterparties will have a strong incentive to monitor the price paid 
for the Treasuries, because any overpayment could result in a reduction 
in the amount that they would be paid on the Contracts.
    5. CIBC believes that the terms of the proposed transaction are 
reasonable and fair and do not involve overreaching on the part of any 
person, that the proposed transaction is consistent with the policy of 
each of the Trusts, and that the requested exemption is appropriate in 
the public interest and consistent with the protection of investors and 
purposes fairly intended by the policies and provisions of the Act.

Applicant's Conditions

    CIBC agrees that the order granting the requested relief will be 
subject to the following conditions:
    1. Any investment company owning voting stock of any Trust in 
excess of the limits imposed by section 12(d)(1) of the Act will be 
required by the Trust's charter documents, or will undertake, to vote 
its Trust shares in proportion to the vote of all other Holders.
    2. The trustees of each Trust, including a majority of the trustees 
who are not interested persons of the Trust, (1) will adopt procedures 
that are reasonably designed to provide that the conditions set forth 
below have been complied with; (ii) will make and approve such changes 
as are deemed necessary; and (iii) will determine that the transactions 
made pursuant to the order were effected in compliance with such 
procedures.
    3. The Trusts (i) will maintain and preserve in an easily 
accessible place a written copy of the procedures (and any 
modifications to the procedures), and (ii) will maintain and preserve 
for the longer of (a) the life of the Trusts and (b) six years 
following the purchase of any Treasuries, the first two years in an 
easily accessible place, a written record of all Treasuries purchased, 
whether or not from CIBC, setting forth a description of the Treasuries 
purchased, the identity of the seller, the terms of the purchase, and 
the information or materials upon which the determinations described 
below were made.
    4. The Treasuries to be purchased by each Trust will be sufficient 
to provide payments to Holders of Securities that are consistent with 
the investment objectives and policies of the Trust as recited in the 
Trust's registration statement and will be consistent with the 
interests of the Trust and the Holders of its Securities.
    5. The terms of the transactions will be reasonable and fair to the 
Holders of the Securities issued by each Trust and will not involve 
overreaching of the Trust or the Holders of Securities of the Trust on 
the part of any person concerned.
    6. The fee, spread, or other remuneration to be received by CIBC 
will be reasonable and fair compared to the fee, spread, or other 
remuneration received by dealers in connection with comparable 
transactions at such time, and will comply with section 17(e)(2)(C) of 
the Act.
    7. Before any Treasuries are purchased by the Trust, the Trust must 
obtain such available market information as it deems necessary to 
determine that the price to be paid for, and the terms of, the 
transaction are at least as favorable as that available from other 
sources. This will include the Trust obtaining and documenting the 
competitive indications with respect to the specific proposed 
transaction from two other independent government securities dealers. 
Competitive quotation information must include price and settlement 
terms. These dealers must be those who, in the experience of the 
Trust's trustees, have demonstrated the consistent ability to provide 
professional execution of Treasury transactions at competitive market 
prices. They also must be those who are in a position to quote 
favorable prices.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-21593 Filed 8-11-98; 8:45 am]
BILLING CODE 8010-01-M