[Federal Register Volume 68, Number 107 (Wednesday, June 4, 2003)]
[Notices]
[Pages 33541-33545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14047]



[[Page 33541]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26063; 812-12972]


Soci[eacute]t[eacute] G[eacute]n[eacute]rale, et al.; Notice of 
Application

May 29, 2003.
AGENCY: Securities and Exchange Commission (``Commission'')

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
section 12(d)(1)(F)(ii) of the Act, under section 6(c) of the Act for 
an exemption from section 12(d)(3) of the Act and section 14(a) of the 
Act, and under sections 6(c) and 17(b) of the Act for an exemption from 
section 17(a) of the Act.

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Summary of Application: Applicants request an order that would (a) 
permit certain existing and future registered closed-end investment 
companies (each, an ``SG Trust,'' and collectively ``SG Trusts'') that 
are sponsored by SG Cowen Securities Corporation (``SG Cowen''), or any 
entity controlling, controlled by or under common control with SG 
Cowen, to offer and sell shares to the public with a sales load that 
exceeds the limit in section 12(d)(1)(F); (b) permit the SG Trusts to 
purchase certain securities from Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale (``SG Paris'') or other issuers that are 
involved in securities-related activities; (c) exempt the SG Trusts 
from the initial net worth requirements of section 14(a); (d) permit SG 
Cowen to deposit with each SG Trust the components of that SG Trust's 
portfolio; and (e) permit SG Paris to write certain put or index 
options deposited with an SG Trust and to make payments pursuant to the 
terms of such options to the SG Trust, and to purchase and exercise 
certain call options from the SG Trust.

Applicants: SG Paris, SG Cowen, and SG Cowen Principal Protection Trust 
I (``SG Trust I'').

Filing Dates: The application was filed on May 9, 2003, and amended on 
May 22, 2003.

Hearing of Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on June 23, 2003, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: SG Cowen and SG Trust I, 1221 Avenue of the 
Americas, New York, New York 10020; SG Paris, 29, Boulevard Haussmann, 
75009 Paris, France.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Michael W. Mundt, Senior Special Counsel, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each SG Trust will be organized as a limited life grantor trust 
under Delaware law and registered under the Act as a closed-end 
management investment company. SG Cowen, or an entity controlling, 
controlled by or under common control with SG Cowen, will serve as 
sponsor to GS Trust I and all future SG Trusts.\1\ No SG Trust will 
have a separate investment adviser, but each will be managed by a board 
of trustees (``Board'') consisting of three or more trustees, a 
majority of whom are not interested persons, as defined in section 
2(a)(19) of the Act, of the SG Trust or SG Cowen (``Independent 
Trustees''). A Commercial bank or trust company, unaffiliated with SG 
Cowen and qualified to serve as a trustee under the Trsut Indenture Act 
of 1939, will serve as administrator to each SG Trust to carry out the 
day-to-day administration of that SG Trust. SG Cowen will serve as 
principal underwriter, as defined in section 2(a)(29) of the Act, of 
the shares issued by SG Trust I. Future SG Trusts may employ different 
principal underwriters. The investment objectives of each SG Trust will 
be to preserve the initial capital of investors at maturity of the SG 
Trust, while also giving investors the opportunity to participate in a 
possible increase in the value of a securities market index during the 
term of the investment.
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    \1\ SG Trust I is currently the only existing SG Trust intending 
to rely on the requested order. Any other existing and future entity 
that relies on the order will comply with the terms and conditions 
of the application.
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    2. SG Cowen is a broker-dealer registered with the Commission under 
the Securities Exchange Act of 1934 and is a member of the National 
Association of Securities Dealers, Inc. (``NASD''). SG Paris is a 
French limited liability company, registered in France and having the 
status of a bank. SG Cowen and SG Paris are part of the 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale Group (the ``Group''), an 
international banking and financial services group based in France that 
includes approximately 300 French and foreign banking and non-banking 
companies.
    3. Before an SG Trust begins operations, SG Cowen will purchase 
units of the Nasdaq-100 Trust (``QQQ''),\2\ securities issued by 
another ETF, or securities issued by one or more other issuers not 
registered or required to be registered as an investment company, such 
as an operating company\3\ (these securities are collectively referred 
to as ``Reference Securities''). SG Cowen will purchase the Reference 
Securities on the open market at their market price at the time of 
purchase (``Purchase Price''). In addition, the Board of an SG Trust 
will employ an unaffiliated agent (``Independent Agent'') to solicit 
competitive offers from at least three unaffiliated third party 
derivatives dealers and SG Paris to sell to SG Cowen over-the-counter 
put options on the Reference Securities (``Portfolio Puts'').\4\ The 
strike price of each Portfolio Put will equal the Purchase Price. The 
Independent Agent will also solicit competitive bids from at least 
three Unaffiliated Bidders and SG Paris to purchase from SG Cowen over-
the-counter call options on the Reference Securities (``Portfolio 
Calls'') at the same

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strike price. Because the sale price of the Portfolio Calls should 
exceed the purchase price of the Portfolio Puts, an amount of cash will 
be generated (``Net Premium'') which SG Cowen will use to purchase 
over-the-counter cash-settled options tied to the performance of a 
securities market index (``Index Options'').\5\ The Independent Agent 
will also solicit competitive offers from at least three Unaffiliated 
Bidders and SG Paris to sell these Index Options to SG Cowen. The 
Portfolio Puts, Portfolio Calls and Index Options (collectively, the 
``Derivatives'') will be European-style options, and will all expire on 
the same day (``Termination Date'').
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    \2\ QQQ are units of an exchange-traded fund (``ETF''). An ETF 
is an investment company that is registered under the Act as an 
open-end management investment company or unit investment trust 
(``UIT'') and that has received certain exemptive relief in order 
that its securities may be traded at ``negotiated prices'' on a 
national securities exchange in the same manner as other equity 
securities.
    \3\ Issuers will not include entities that rely on sections 
3(c)(1) or 3(c)(7) of the Act.
    \4\ The derivatives dealers will consist of major broker-dealers 
and/or financial institutions that are in the business of making 
bids or offers on Derivatives (as defined below) and that are not 
affiliated persons, promoters or principal underwriters of an SG 
Trust, or affiliated persons of such persons (``Unaffiliated 
Bidders''). The Independent Agent will solicit offers only from 
derivatives dealers with a credit rating of A or better by S&P and 
A2 or better by Moodys' and that are subject to bankruptcy or 
insolvency laws providing exemptions from any automatic stay imposed 
under those laws to the extent necessary to permit the liquidation 
of the Portfolio Puts and Index Options (as defined below).
    \5\ The Index options may be based on indices that are broad-
based, narrow-based, sector specific, customized, or based on the 
performance of a single security. The value of any index will be 
publicly disseminated throughout the trading day on each day that 
the American Stock Exchange (``AMEX'') is open for normal trading.
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    4. The Independent Agent will solicit bids or offers for each 
Derivative pursuant to procedures adopted by the Board and communicated 
to the Independent Agent as set forth in condition 1 below. No bidder, 
including SG Paris, will have access to any bids until after the 
respective Derivatives have been purchased or sold. SG Cowen may not 
purchase a Portfolio Put or Index Option from or sell a Portfolio Call 
to SG Paris on behalf of an SG Trust unless two bona fide bids have 
been received for the relevant Derivative from Unaffiliated Bidders. 
The purchase or sale of a Derivative in a transaction with SG Paris 
will be subject to approval by the Board, including a majority of 
Independent Trustees.
    5. SG Cowen will deposit with each relevant SG Trust the Reference 
Securities, the obligations under the Portfolio Calls, the Portfolio 
Puts, the Index Options, and an amount of cash for operational expenses 
(collectively, the ``Portfolio''). Except in the event of the 
bankruptcy or insolvency of the writer of a Portfolio Put or Index 
Option, the SG Trust will hold each component of the Portfolio until 
the Termination Date. Certain future SG Trusts may also hold a separate 
guarantee of principal provided by a bank or insurance company that 
would provide additional protection in the event that a writer of a 
Portfolio Put defaulted.\6\
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    \6\ No guarantee would be purchased from an affiliate of SG 
Cowen unless applicants first obtained a separate order of exemption 
permitting such a purchase, the Commission issued one or more 
exemptive rules that would permit such a purchase, or the guarantee 
were structured in a manner that complied with, among other things, 
the then-current interpretations of the Commission and its staff 
regarding sections 12(d)(3) and 17(a) of the Act.
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    6. During the initial offering, shares of an SG Trust (``Shares'') 
will be sold to the public at a price equal to the net asset value per 
share, as determined by or under the direction of the Board, plus a 
sales load and an amount intended to compensate SG Cowen for the 
organizational expenses of the relevant SG Trust.\7\ Shares will be 
listed on the AMEX, and will subsequently trade at market prices. 
Applicants state that the secondary market value of the Shares is 
expected to depend primarily on market interest rates, market 
volatility, and the value of the Index Options. Each SG Trust will 
calculate the net asset value of its Shares on a weekly basis in 
accordance with procedures adopted by the Board.
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    \7\ SG Cowen will retain a portion of the Net Premium as 
compensation for organizing, structuring, and paying the operational 
expenses of an SG Trust. In addition, the Portfolio will include an 
amount of cash to be periodically disbursed to SG Cowen to cover 
structuring, organization and ongoing expenses of the SG Trust. Any 
expenses in excess of the cash amount will be borne by SG Cowen; any 
cash in excess of the actual expenses will be retained by SG Cowen. 
These expenses will be disclosed in advance in the prospectus for 
each SG Trust.
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    7. Applicants state that an SG Trust will protect principal 
primarily through the use of the Portfolio Puts. Applicants indicate 
that the combination of the Portfolio Puts and Portfolio Calls will 
effectively eliminate any possibility of gain or loss on the Reference 
Securities. Applicants state that the potential return on the 
investment in an SG Trust is therefore derived solely from the 
performance of the Index Options. Applicants believe that structuring 
the SG Trusts in this manner will offer investors certain advantages 
over other types of principal protected products, including certain tax 
and performance benefits.

Applicants' Legal Analysis

A. 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 
total outstanding voting stock, more than 5% of the acquiring company's 
total assets, or if the securities, together with the securities of any 
other required investment companies, represent more than 10% of the 
acquiring company's total assets. 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 affiliated persons own no more than 3% of an 
acquired company's total outstanding securities, provided that, among 
other provisions, the acquired company does not impose a sales load of 
more than 1.5%. Section 12(d)(1)(J) of the Act provides that the 
Commission 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.
    2. An SG Trust will invest in shares of QQQs or other ETFs in 
reliance on section 12(d)(1)(F). Applicants request an exemption under 
section 12(d)(1)(J) from section 12(d)(1)(F)(ii) so that the SG Trusts 
may offer shares to the public with a sales load that exceeds 1.5%. 
Applicants have agreed, as a condition to the requested relief, that 
any sales charges and/or service fees with respect to shares of any SG 
Trust will not exceed the limits set forth in rule 2830 of the NASD 
Conduct Rules applicable to a fund or 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)(ii) because 
the aggregate sales charges would not exceed the limit that otherwise 
lawfully could be charged at any single level. Applicants assert that 
the NASD's rule more accurately reflects today's regulatory environment 
with respect to the methods by which investment companies finance sales 
expenses.

B. Section 12(d)(3) of the Act

    1. Section 12(d)(3) of the Act generally prohibits a registered 
investment company from acquiring any security issued by any person who 
is a broker, dealer, investment adviser, or engaged in the business of 
underwriting. Rule 12d3-1 under the Act exempts certain transactions 
from the prohibition of section 12(d)(3) if certain conditions are met. 
One of these conditions, set forth in rule 12d3-1(c), provides that the 
exemption provided by the rule is not available when the issuer of the 
securities is the investment adviser, promoter, or principal 
underwriter of the investment company, or an affiliated person of those 
entities. In addition, rule 12d3-1(b)(3) does not permit a registered 
investment company to invest more than five percent of the value of its 
total assets in securities of an issuer that derived more than 15% of 
its gross revenues from securities related activities. Section 6(c) of 
the Act authorizes the Commission to exempt any person or transaction 
from any provision 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

[[Page 33543]]

intended by the policies and provisions of the Act.
    2. Applicants state that because SG Pairs is an affiliated person 
of SG Cowen, a promoter of the SG Trust, the exemption afforded by rule 
12d3-1 would not be available to an SG Trust with respect to the 
purchase of Portfolio Puts and/or Index Options from SG Paris at the 
time SG Cowen deposits the Portfolio into an SG Trust. Applicants also 
state that it is possible that the Index Options or the Portfolio Puts 
may represent more than five percent of the value of the total assets 
of an SG Trust. Applicants request an exemption under section 6(c) from 
section 12(d)(3) to the extent necessary to permit SG Cowen to make the 
initial deposit of Portfolio Puts and Index Options into each SG Trust.
    3. Applicants state that section 12(d)(3) was intended to prevent 
investment companies form exposing their assets to the entrepreneurial 
risks of securities related businesses and to prevent reciprocal 
practices between investment companies and securities related 
businesses. Applicants assert that the SG Trusts' holdings of Portfolio 
Puts and Index Options will not raise these concerns. Applicants state 
that neither the Portfolio Puts nor the Index Options will subject an 
SG Trust to the entrepreneurial risks of an investment in a general 
partnership interest in a securities related issuer. In addition, 
Applicants assert that there will be no conflicts of interest or 
potential for reciprocal practices because the Portfolio Puts and Index 
Options will be purchased from the derivatives dealer offering the best 
value on the Portfolio Puts and Index Options, and the Portfolio Puts 
and Index Options will be deposited with an SG Trust before sales of an 
SG Trust's Shares are effected. In addition, each SG Trust will have a 
fixed portfolio.

C. Section 14(a) of the Act

    1. Section 14(a) of the Act requires, in pertinent part, that a 
registered 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 under the Act exempts from section 14(a) UITs that 
meet certain conditions in recognition of the fact that once the units 
are sold, a UIT requires much less commitment on the part of the 
sponsor than does a management investment company. Rule 14a-3 provides 
that a UIT investing in eligible trust securities shall be exempt from 
the net worth requirement, provided that the UIT holds at least 
$100,000 of eligible trust securities at the commencement of a public 
offering.
    2. Applicants request an order under section 6(c) exempting the SG 
Trusts from the requirements of section 14(a), provided that each SG 
Trust complies with all conditions of rule 14a-3 under the Act, other 
than the condition that all portfolio investments be limited to 
``eligible trust securities.'' Applicants assert that while each SG 
Trust will be registered as a closed-end management investment company, 
the SG Trusts will have the characteristics of UITs. Investors in an SG 
Trust, like investors in a UIT, will not be purchasing interests in a 
managed pool of securities, but rather in a fixed portfolio. Applicants 
believe therefore, that there will be no need for an ongoing commitment 
on the part of the underwriter.

D. Section 17(a) of the Act

    1. Section 17(a)(1) and (2) of the Act generally prohibit the 
promoter or principal underwriter, or any affiliated person of the 
promoter or principal underwriter, of a registered investment company, 
acting as principal, knowingly to sell or purchase any security or 
other property to or from such investment company. Section 17(b) of the 
Act authorizes the Commission to exempt a proposed transaction from the 
terms of section 17(a) 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.
    2. Applicants assert that section 17(a) precludes: (a) An SG Trust 
from purchasing a Portfolio from SG Cowen; (b) SG Paris from making 
payments under the Portfolio Puts and Index Options and/or exercising 
the Portfolio Calls upon the termination of any SG Trust; (c) SG Paris 
from purchasing the Portfolio Calls, and (d) SG Paris from writing the 
Portfolio Puts and Index Options deposited with any SG Trust. 
Applicants request an exemption under sections 6(c) and 17(b) to permit 
each of these proposed transactions.
    3. Applicants assert that given the static nature of the Portfolio, 
any overreaching by SG Paris would reduce the returns that an SG Trust 
is able to offer shareholders and would make the SG Trusts a relatively 
less attractive alternative to competing products. Applicants note that 
they are only seeking relief with respect to the initial purchase of 
and deposit of the underlying securities (and the sale of the Portfolio 
Calls and deposit of the obligations under the Portfolio Calls) and the 
exercise of the Derivatives upon the termination of the SG Trust, and 
not with respect to an ongoing course of business. Consequently, the 
terms of the components of the Portfolio and of their purchase will be 
fully disclosed to potential investors prior to their making an 
investment decision. Applicants also state that since there are 
relatively few equity derivatives dealers that can write instruments 
such as the Derivatives and since SG Paris is one of the largest 
participants in that market, the requested relief will help promote 
competition and allow the SG Trusts to obtain more favorable terms on 
the various Derivatives.
    4. Applicants also assert that SG Cowen will purchase Portfolio 
Puts and Index Options from SG Paris and sell Portfolio Calls to SG 
Paris only if the value offered by SG Paris on the relevant Derivative 
is more favorable than the value offered by Unaffiliated Bidders. 
Applicants state that the proposed bidding procedures for Derivatives 
will be designed to ensure that the bidding or offering process with 
respect to a Derivative is conducted in a neutral manner. Applicants 
state that the Group's roles as sponsor, principal underwriter, and 
bidder/offeror for the Derivatives will not give it an advantage in 
structuring the Derivatives or assessing their value. Applicants state 
that the participants in the over-the-counter options markets are 
various sophisticated, established, well-capitalized financial 
institutions including major investment banking firms, money center 
banks, insurance companies, and their affiliates, all of which employ 
similar valuation models and technology to price options. Furthermore, 
applicants state that prospective bidders will have a copy of an SG 
Trust's prospectus and a draft of the relevant Derivative a reasonable 
amount of time prior to the day the final bids are due. Applicants 
assert that the Portfolio Puts and Portfolio Calls are typical over-
the-counter options, and although the Index Options will not be typical 
over-the-counter options, they will not be of such a customized nature 
as to make it unlikely for other broker-dealers or financial 
institutions to submit offers. The form of each Derivative will be 
similar to other types of Derivatives used in privately negotiated 
transactions, and since all of the Derivatives' terms will have been 
set, other than price, applicants assert that the bidding/offering 
procedure has been made as simple as possible. Accordingly, applicants 
state that the

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notice period and information provided in the bidding/offering process 
should be sufficient to ensure competitive, bona fide bids/offers.
    5. Applicants believe that the safeguards set forth in the 
application are sufficient to ensure that neither SG Cowen nor SG Paris 
will be able to overreach any SG Trust to the detriment of that SG 
Trust or its shareholders, and that the proposed transactions will be 
reasonable and fair, consistent with the general policy of the relevant 
SG Trust, and consistent with the general purposes of the Act. 
Applicants also submit that the requested relief is necessary and 
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' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Prior to recommending to the Board that an SG Trust purchase a 
Portfolio Put or Index Option from or sell a Portfolio Call to, SG 
Paris, an Independent Agent will conduct a competitive bidding process 
in which the Independent Agent solicits bids or offers on each type of 
Derivative form at least three Unaffiliated Bidders. At a reasonable 
amount of time prior to the date bids are to be submitted, the 
Independent Agent will solicit bids by supplying prospective bidders 
with a bid invitation letter that includes any requirement for the 
bidder to include audited financial statements in the SG Trust's 
registration statement, a copy of the draft prospectus of the SG Trust, 
and a draft of the terms of the relevant Derivative. No bidder, 
including SG Paris, will have access to any bids until after the 
respective Derivatives have been purchased or sold. An SG Trust may not 
purchase a Portfolio Put or Index Option from or sell a Portfolio Call 
to SG Paris unless two bona fide bids have been received for the 
relevant Derivative from Unaffiliated Bidders.
    2. If the Independent Agent recommends that the Board approve the 
purchase or sale of a Derivative in a transaction with SG Paris, the 
Independent Agent must provide the Board with an explanation of the 
basis for its recommendation and a summary of the material terms of any 
bids that were rejected.
    3. The Board will represent an SG Trust in any negotiations 
relating to a Derivative purchased from or sold to SG Paris, including 
the negotiation of the final terms of the Derivative and any 
negotiations with SG Paris in conjunction with a default on a 
Derivative.
    4. The purchase or sale of a Derivative in a transaction with SG 
Paris will be subject to approval by the Board, including a majority of 
Independent Trustees, who will determine that the purchase or sale of 
the Derivative is in the best interests of the SG Trust and its 
shareholders and meets the standards specified in section 17(b) of the 
Act. In considering the purchase and sale of the Derivatives, the Board 
will determine that (a) the offer price on a Portfolio Put and the bid 
price on a Portfolio Call will maximize the Net Premium, and (b) the 
offer price on an Index Option will maximize the return to the SG 
Trust. In the event that SG Paris and an Unaffiliated Bidder both 
submit the best bid for a particular Derivative, the bidders will be 
permitted to submit another bid. If the bids are still the same, the 
relevant Derivative will not be purchased from or sold to SG Paris, 
except as described below. Under normal circumstances, the Board will 
approve the purchase of the Portfolio Put and the sale of the Portfolio 
Call to the bidders offering the best price on each. However, to avoid 
potential adverse tax consequences, the Portfolio Call will not be sold 
to the same entity from which the Portfolio Put is purchased. 
Accordingly, if the same bidder offers the best price on both the 
Portfolio Call and the Portfolio Put, the Board will consider the 
second most favorable bids on both the Portfolio Call and Portfolio 
Put, and select the Derivatives that would maximize the Net Premium. In 
the event that the next best bid on either the Portfolio Call or 
Portfolio Put would generate an identical Net Premium and SG Paris has 
offered the next best bid on either the Portfolio Call or Portfolio 
Put, the Board will approve the purchase of the Portfolio Put from or 
sale of the Portfolio Call to the Unaffiliated Bidder. All Board 
findings relating to the purchase and sale of the Derivatives, and the 
basis for the findings, will be reflected in the Board minutes. The 
terms of the Derivatives will not be subject to any material 
modification without the approval of the Board, including a majority of 
the Independent Trustees, after the purchase and sale of the 
Derivatives have been approved.
    5. SG Paris will not purchase or sell a Derivative to an SG Trust 
on less favorable terms than for similar transactions with unaffiliated 
parties that are similarly situated to the SG Trust.
    6. The Administrator will immediately report any default on either 
a Portfolio Put or Index Option to the Board. The Board, including a 
majority of Independent Trustees, will evaluate the default and will 
determine the amounts due to the SG Trust. The SG Trust will not settle 
any default for less than the full amount determined by the Board 
without obtaining a further exemptive order from the Commission.
    7. No less than a majority of a Board will consist of Independent 
Trustees.
    8. The Independent Trustees will be represented by independent 
legal counsel within the meaning of Rule 0-1 under the Act.
    9. The administrator, under the supervision of the Board, will 
maintain sufficient records to verify compliance with the conditions of 
the order. Such records will include, without limitation: (a) An 
explanation of the basis upon which the Independent Agent selected 
prospective bidders; (b) a list of all bidders to whom a bid invitation 
letter (or similar electronic invitation) was sent and copies of the 
bid invitation letters and accompanying materials; (c) copies of all 
bids received, including the winning bids; (d) the materials provided 
to the Board in connection with the Independent Agent's recommendation 
regarding the sale and purchase of each Derivative; (e) the final price 
and terms of each Derivative with an explanation of the reason the 
purchase or sale is considered an affiliated transaction; and (f) 
records of any negotiations with the counterparties to the Derivatives, 
including with respect to any default in connection with a Portfolio 
Put or Index Option and the satisfaction of any obligations to an SG 
Trust. All such records will be maintained for a period ending not less 
than six years after the Termination Date, the first two years in an 
easily accessible place, and will be available for inspection by the 
staff of the Commission.
    10. The underwriting allocations of an SG Trust will be determined 
at least one business day prior to the day the Independent Agent 
invites financial institutions to bid and will not in any way be based 
on participation in the bidding process.
    11. The applicants will not have any involvement with respect to 
the Independent Agent's selection of prospective bidders or the bids 
approved by the Board and will not attempt to influence or control in 
any way the sale or purchase of the Derivatives aside from placing a 
bid for each Derivative.
    12. Each SG Trust will comply with section 12(d)(1)(F) of the Act 
in all respects except for the sales load limitation of section 
12(d)(1)(F)(ii).
    13. No investment company whose shares are purchased by an SG Trust

[[Page 33545]]

will acquire securities of any other investment company in excess of 
the limits contained in section 12(d)(1)(A) of the Act.
    14. Any sales charges and/or service fees (as those terms are 
defined in NASD Conduct Rule 2830) charged with respect to Shares of an 
SG Trust will not exceed the limits set forth in NASD Conduct Rule 2830 
applicable to a fund of funds (as defined in NASD Conduct Rule 2830).
    15. The SG Trusts and SG Cowen will comply in all respects with the 
requirements of rule 14a-3 under the Act, except that the SG Trusts 
will not restrict their portfolio investments to ``eligible trust 
securities.''
    16. No fee, spread, or other remuneration shall be received by the 
SG Cowen in connection with the deposit of the Reference Securities and 
Derivatives with an SG Trust.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-14047 Filed 6-3-03; 8:45 am]
BILLING CODE 8010-01-M