[Federal Register Volume 66, Number 169 (Thursday, August 30, 2001)]
[Notices]
[Pages 45879-45881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21888]



[[Page 45879]]

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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25137; 812-11764]


Salomon Smith Barney Inc., et al.; Notice of Application

August 24, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'')

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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Summary of Application: Applicants Salmon Smith Barney Inc. (the 
``Sponsor''), The Country Fund Opportunity Trust (the ``CountryFund 
Trust'') and unit investment trusts ``UITs'') organized in the future 
and sponsored by the Sponsor (together with the CountryFund Trust, The 
``Trusts,'' and series of the Trusts, ``Trust Series'') request an 
order (a) under section 12(d)(1)(J) of the Act to permit Trust Series 
to offer and sell to the public units (``Units'') with a sales load 
that exceeds the limit in section 12(d)(1)(F)(ii) of the Act; (b) under 
sections 6(c) and 17(b) from section 17(a) of the Act to permit the 
Trust Series to invest in affiliated registered investment companies 
within the limits of section 12(d)(1)(F) of the Act; and (c) under 
section 6(c) of the Act from sections 14(a) and 19(b) of the Act to 
permit Units to be publicly offered without requiring the Sponsor to 
take for its own account or place with others $100,000 worth of Units, 
and to permit the Trusts to distribute capital gains resulting from the 
sale of portfolio securities within a reasonable time after receipt.

Filing Dates: The application was filed on August 27, 1999 and amended 
on August 20, 2001.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC ordres 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 September 18, 
2001 and should be accompanied by proof of service on the 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-
0609; Applicants, c/o Salomon Smith Barney Inc., 7 World Trades Center, 
40th Floor, New York, New York 10048.

FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at 
(202) 942-0528 or Nadya B. Roytblat, Assistant Director, 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, 450 Fifth Street, NY., Washington, DC, 
20549-0102 (tel. (202) 942-8090).

Applicant's Representations

    1. The Country Fund is registered under the Act as UIT. The 
Sponsor, a borker-dealer registered under the Securities Exchange Act 
of 1934, is the sponsor for the Trust Series. Each Trust Seriess will 
be organized under a trust indenture among thee Sponor, a banking 
insitution or trust company as trust (the ``Trustee'' ) and an 
evaluator. Pursuant to the trust indenture, the Sponsor will deposit 
into each Trust Series shares of existing registered investment 
companies (``Funds''), or contracts and monies for the purchase of 
sharesss of the Funds. Each of the Funds will be a closed-end 
investment company, an open-end investment company or a UIT.
    2. The purpose of each Trust Series is to provide retail investors 
an investment with a professionally selected asset allocation model or 
investment theme based upon the Sponsor's assessment of the overall 
economic climate and financial markets, and the opportunity for income 
and/or capital appreciation through a diversified fixed portfolio of 
Funds professionally selected by the Sponsor from the total population 
of available Funds within the various market sectors of the Sponsor's 
asset allocation model or consistent with the enunciated investment 
theme. Applicants anticipate that certain of the Funds selected may be 
advised and/or distributed by the Sponsor or one of its affiliates 
(``Affiliated Funds''). Applicants anticipate that most of the Funds 
selected will be unaffiliated with the Sponsor (``Unaffiliated 
Funds''). Applicants state that the Trusts' investments in Affiliated 
Funds and Unaffiliated Funds will comply with section 12(d)(1)(F) in 
all respects except for the sales load restriction of section 
12(d)(1)(F)(ii).
    3. The only Funds that will be eligible for inclusion in a Trust 
Series are either no load Funds or Funds which, although they offer 
shares with a front-end sales charge, agree to waive any otherwise 
applicable front-end sales load with respect to all shares sold or 
deposited in any Trust Series. Shares of each of the Funds (except 
closed-end Funds), therefore, will be sold for deposit into any Trust 
Series at net asset value. Shares of closed-ends Funds will be 
purchased by a Trust Series at market prices. Investors in the Trust 
Series (``Unitholders'') will pay a specified sales load to the Sponsor 
in connection with the purchase of their Units.
    4. No evaluation fee will be charged with respect to determining 
the value of the Fund's shares that comprise the Trusts' portfolio. The 
Trustee will receive service fees under a rule 12b-1 plan from the 
Funds to compensate it for providing servicing and sub-accounting 
functions with respect to Fund shares held by a Trust Series. The 
Trustee will reduce its regular fee to a Trust directly by the fees it 
receives from the Funds and rebate any excess fees it receives to the 
Trusts. Any fees so rebated will be utilized by the Trusts to absorb 
other bona fide trust expenses. To the extent that these fees exceed 
the total Trust expenses, the excess will be distributed along with 
other income earned by the Trusts.

Applicants' Legal Analysis

Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if those securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if the securities, together with the securities of any other 
acquired investment companies, represent more than 10% of the acquiring 
company's total assets.
    2. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
does not apply to an acquiring company if the company and its 
affiliates own no more than 3% of an acquired company's total 
outstanding securities, provided that the acquiring company does not 
impose a sales load of more than 1.5%. In addition, the section 
provides that no acquired company may be obligated to honor any 
acquiring company redemption request in excess of 1% of the acquired 
company's securities during any period of less than 30 days, and the 
acquiring company must vote its acquired company shares either in 
accordance with instructions from its shareholders or in the same 
proportion as all other shareholders of the acquired company.

[[Page 45880]]

    3. The Trust Series will invest in Affiliated and Unaffiliated 
Funds in reliance on section 12(d)(1)(F) of the Act. If the requested 
relief is granted, the Trust Series will offer Units to the public with 
a sales load that exceeds the 1.5% limit in section 12(d)(1)(F)(ii).
    4. 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 such exemption is consistent with the public 
interest and the protection of investors.
    5. Applicants have agreed, as a condition to the requested relief, 
that any sales charges and/or service fees with respect to Units of a 
Trust Series will not exceed the limits set forth in rule 2830 of the 
NASD Conduct Rules applicable to a fund of funds. Applicants believe 
that it is appropriate to apply the NASD's rule to the proposed 
arrangement instead of the sales load limitation in section 12(d)(1)(F) 
because the proposed limit would cap the aggregate sales charges of the 
Units and the Funds. Applicants assert that the NASD's rule more 
accurately reflect today's regulatory environment with respect to the 
methods by which investment companies finance sales expenses.
    6. Applicants state that, with respect to shares of closed-end 
Funds held by a Trust Series, no front-end sales load, contingent 
deferred sales charges, rule 12b-1 fees, or other distribution fees or 
redemption fees will be charged. Applicants state that although the 
Trust Series likely will incur brokerage commissions in connection with 
its market purchases of shares of closed-end Funds, these commissions 
will not differ from commissions otherwise incurred in connection with 
the purchase of sale of comparable portfolio securities.
    7. Applicants also agree, as a condition to the requested relief, 
that no Fund will acquire securities of any other investment company in 
excess of the limits contained in section 12(d)(1)(A) of the Act.

Section 17(a) of the Act

    1. With regard to the Trust Series' investments in Affiliated 
Funds, applicants request relief from section 17(a) of the Act under 
sections 6(c) and 17(b). Section 17(a) of the Act generally prohibits 
an affiliated person, or an affiliated person of an affiliated person, 
of a registered investment company from selling securities to, or 
purchasing securities from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include: (a) Any 
person that directly or indirectly owns, controls, or holds with power 
to vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person; and (d) if the other person is an investment company, any 
investment adviser of that company. Applicants submit that the Trust 
Series and Affiliated Funds may be deemed to be affiliated persons of 
one another by virtue of being under common control of the Sponsor. 
Applicants state that purchases and redemptions of shares of the 
Affiliated Funds by a Trust Series could be deemed to be principal 
transactions between affiliated persons under section 17(a).
    2. Section 6(c) of the Act provides that the SEC may exempt persons 
or transactions from any provision of the Act if 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. Section 17(b) of the Act provides that the 
SEC will exempt a proposed transaction from section 17(a) if evidence 
establishes that (a) the terms of the proposed transaction, including 
the consideration to be paid or received, are reasonable and fair and 
do not involve overreaching; (b) the proposed transaction is consistent 
with the policies of the registered investment company involved; and 
(c) the proposed transaction is consistent with the general purposes of 
the Act.
    3. Applicants state that shares of Affiliated Funds will be sold to 
the Trusts at net asset value, or, in the case of closed-end Funds, at 
market prices. As a result, applicants believe that the proposed terms 
and conditions of the Trusts' transactions in Affiliated Fund shares, 
including the consideration to be paid or received, will be reasonable 
and fair and will not involve overreaching on the part of any person 
involved. Furthermore, applicants believe that the proposed 
transactions will be consistent with the policies of the Trusts as 
recited in their registration statements.

Section 14(a) of the Act

    1. Section 14(a) of the Act requires in substance that an 
investment company have $100,000 of net worth prior to making a public 
offering. Applicants believe that each Trust Series will comply with 
this requirement because the Sponsor will deposit substantially more 
than $100,000 of Fund shares in each Trust Series. Applicants assert, 
however, that a Trust Series would not satisfy section 14(a) because of 
the Sponsor's intention to sell all of the Units.
    2. Rule 14a-3 under the Act exempts UITs from section 14(a) if 
certain conditions are met, one of which is that the UIT invest only in 
``eligible trust securities,'' as defined in the rule. Applicants 
submit that the Trusts cannot rely on the rule because Fund shares are 
not eligible trust securities. Consequently, applicants seek an 
exemption under section 6(c) from the net worth requirement of section 
14(a). Applicants state that the Trusts and the Sponsor will comply in 
all respects with the requirements of rule 14a-3, except that the 
Trusts will not restrict their portfolio investments to ``eligible 
trust securities.''

Section 19(b) of the Act

    1. Section 19(b) of the Act and rule 19b-1 under the Act provide 
that, except under limited circumstances, no registered investment 
company may distribute long-term gains more than once every twelve 
months. Rule 19b-1(c), under certain circumstances, excepts a UIT 
investing in ``eligible trust securities'' (as defined in rule 14a-3) 
from the requirements of rule 19b-1. Because the Trusts do not limit 
their investments to ``eligible trust securities,'' the Trusts do not 
qualify for the exemption in paragraph (c) of rule 19b-1. Therefore, 
applicants request an exemption under section 6(c) from section 19(b) 
and rule 19b-1 to the extent necessary to permit capital gains earned 
in connection with the redemption and sale of Fund shares to be 
distributed to Unitholders along with the Trusts' regular 
distributions. Applicants state that, in all other respects, the Trusts 
will comply with section 19(b) and rule 19b-1. Applicants assert that 
the abuses that section 19(b) and rule 19b-1 were designed to prevent 
do not arise with regard to the Trusts. Applicants state that any gains 
from the redemption or sale of Fund shares would be triggered by the 
need to meet Trust expenses or by requests to redeem Units, events over 
which the Sponsor and the Trusts have no control.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Each Trust Series will comply with section 12(d)(1)(F) in all 
respects except for the sales load limitation of section 
12(d)(1)(F)(ii).
    2. Any sales charges and/or service fees (as those terms are 
defined in

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NASD Conduct Rule 2830) charged with respect to Units of a Trust will 
not exceed limits set forth in NASD Conduct Rule 2830 applicable to a 
fund of funds (as defined in NASD Conduct Rule 2830).
    3. No Fund will acquire securities of any other investment company 
in excess of the limits contained in section 12(d)(1)(A) of the Act.
    4. The Trusts and the Sponsor will comply in all respects with the 
requirements of rule 14a-3, except that the Trusts will not restrict 
their portfolio investments to ``eligible trust securities.''
    5. No Trust Series will terminate within thirty days of the 
termination of any other Trust Series that holds shares of one or more 
common Funds.
    6. The prospectus of each Trust Series and any sales literature or 
advertising that mentions the existence of an in-kind distribution 
option will disclose that Unitholders who elect to receive Fund shares 
will incur any applicable rule 12b-1 fees.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-21888 Filed 8-29-01; 8:45 am]
BILLING CODE 8010-01-M