[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62842-62844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27987]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26240; 812-12960]


Citigroup Global Markets Inc., f/k/a Salomon Smith Barney Inc., 
et al.; Notice of Application and Temporary Order

October 31, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for a permanent order 
under section 9(c) of the Investment Company Act of 1940 (``Act'').

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SUMMARY OF APPLICATION: Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Citigroup Global Markets Inc., f/k/a Salomon 
Smith Barney Inc. (``SSB'') on October 31, 2003, by the U.S. District 
Court for the Southern District of New York (the ``Federal 
Injunction''), until the earlier of the date the Commission takes 
action on an application for a permanent order, or two years from the 
date of the Federal Injunction. Applicants have requested a permanent 
order.

APPLICANTS: SSB, CEFOF GP I Corp. (``CEFOF''), CELFOF GP Corp. 
(``CELFOF''), Citi Fund Management Inc. (``Citi Fund''), Citibank, N.A. 
(``Citibank''), Citicorp Life Insurance Company (``Citicorp Life''), 
Citigroup Alternative Investments LLC (``Citigroup Alternative''), 
Citigroup Asset Management Limited (``Citigroup Asset''), CitiStreet 
Equities LLC (``CitiStreet Equities''), CitiStreet Funds Management LLC 
(``CitiStreet''), First Citicorp Life Insurance Company (``First 
Citicorp Life''), PFS Distributors, Inc. (``PFS Distributors''), SSBCP 
GP I Corp. (``SSBCP''), SSBPIF GP Corp. (``SSBPIF''), Salomon Brothers 
Asset Management Inc. (``Salomon Brothers''), Salomon Brothers Asset 
Management, Ltd. (``Salomon Brothers Ltd.''), Smith Barney Fund 
Management LLC (``Smith Barney''), Smith Barney Global Capital 
Management Inc. (``Smith Barney Global''), Travelers Asset Management 
International Co., LLC (``TAMIC''), Travelers Distribution LLC 
(``Travelers Distribution''), The Travelers Insurance Company 
(``TIC''), Travelers Investment Adviser, Inc. (``TIMCO''), The 
Travelers Investment Management Company (``Travelers''), the Travelers 
Life and Annuity Company (``TLAC''), and Winter Capital International 
LLC (``Winter''), (together, the ``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which SSB is or 
hereafter becomes an affiliated person (together with the 
Applicants, the ``Covered Persons'').

FILING DATES: The application was filed on April 29, 2003 and amended 
on June 19, 2003. Applicants have agreed to file an amendment to the 
application during the notice period, the substance of which is 
reflected in this notice. Applicants have also agreed to file 
amendments to the application reflecting the issuance of each State 
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Injunction (as defined below).

HEARING OR 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 November 25, 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, SSB and Salomon Brothers, 399 Park Avenue, New 
York, New York 10022; CEFOF, CELFOF, Citi Fund and Travelers, 100 First 
Stamford Place, Stamford, Connecticut 06902-6729; Citibank, 153 East 
53rd Street, 5th Floor, New York, New York 10043; Citicorp Life, 
Travelers Distribution, Travelers Insurance and Travelers Life, One 
Cityplace, Hartford, Connecticut 06103-3415; Citigroup Alternative, 399 
Park Avenue, 7th Floor, New York, New York 10043; Citigroup Asset, 
Salomon Brothers Ltd. and Smith Barney Global, Citigroup Centre, Canada 
Square, Canary Wharf, London, England, E14 5LB; CitiStreet Equities and 
CitiStreet, Two Tower Center, East Brunswick, New Jersey 08816; First 
Citicorp Life, 666 Fifth Avenue, 3rd Floor, New York,

[[Page 62843]]

New York 10103; PFS Distributors, 3120 Breckinridge Boulevard, Building 
200, Duluth, Georgia 30099-0001; SSBCP and SSBPIF, 338 Greenwich 
Street, New York, New York 10013; Smith Barney and TIMCO, 399 Park 
Avenue, 4th Floor, New York, New York 10022; TAMIC, 242 Trumbull 
Street--6TS, Hartford, Connecticut, 06115-0449; and Winter, 153 East 
53rd Street, 3rd Floor, New York, New York 10043.

FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, or 
Todd F. Kuehl, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a temporary order and 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 (telephone 202-942-8090).

Applicants' Representations

    1. SSB, a New York corporation, is a full service investment 
banking firm engaged in securities underwriting, sales and trading, 
investment banking, financial advisory services, and investment 
research services. Certain Applicants serve as investment adviser or 
sub-adviser for one or more registered investment companies 
(``Funds''). Certain Applicants act as the depositor or principal 
underwriter for Funds.\2\
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    \2\ Any registered unit investment trust (``UIT'') or registered 
face amount certificate company for which Applicants may serve as 
principal underwriter or depositor are also included in the defined 
term Funds.
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    2. On October 31, 2003, the U.S. District Court for the Southern 
District of New York entered the Federal Injunction against SSB in a 
matter brought by the Commission.\3\ The Commission alleged in the 
complaint (``Complaint'') that SSB violated certain Conduct Rules of 
the National Association of Securities Dealers (``NASD'') and Rules of 
the New York Stock Exchange (``NYSE'') (the NASD Conduct Rules and NYSE 
Rules together, the ``Exchange Rules''). The Complaint alleged that 
SSB's research department (``Research Department'') and investment 
banking department (``Investment Banking Department'') issued research 
reports that were fraudulent, violated SRO rules regulating their 
members' communications with the public, and allocated hot IPO shares 
to executives of current or potential investment banking clients and 
provided special treatment for these executives. The Federal Injunction 
enjoined SSB directly or through its officers, directors, agents and 
employees, from violating the specific rules cited in the Complaint. 
Without admitting or denying the allegations in the Complaint, SSB 
consented to the entry of the Federal Injunction as well as the payment 
of disgorgement and penalties and other equitable relief. Applicants 
state that SSB has entered, and expects to enter into settlement 
agreements relating to the activities referred to in the Complaint with 
certain state and territorial agencies which may result in an 
injunction by a court of competent jurisdiction that is based on the 
same conduct and the same facts as the Complaint (each, a ``State 
Injunction,'' and, together with the Federal Injunction, the 
``Injunctions''). Applicants request that this application cover any 
disqualifications of the Applicants under section 9(a) resulting from 
the Injunctions.
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    \3\ Securities and Exchange Commission v. Citigroup Global 
Markets Inc., f/k/a Salomon Smith Barney Inc., 03 Civ. 2945 (WHP) 
(S.D. N.Y., filed April 28, 2003) (the ``Action'').
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Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security from 
acting, among other things, as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered UIT or registered 
face-amount certificate company. Section 9(a)(3) of the Act makes the 
prohibition in section 9(a)(2) applicable to a company, any affiliated 
person of which has been disqualified under the provisions of section 
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person. Applicants state that 
SSB is an affiliated person of each of the other Applicants within the 
meaning of section 2(a)(3) of the Act. Applicants state that the entry 
of the Injunctions would result in Applicants being subject to the 
disqualification provisions of section 9(a) of the Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
Applicants, are unduly or disproportionately severe or that the 
Applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the application. 
Applicants have filed an application pursuant to section 9(c) seeking a 
temporary and permanent order exempting the Applicants and the other 
Covered Persons from the disqualification provisions of section 9(a) of 
the Act.
    3. Applicants believe they meet the standard for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them would be unduly and disproportionately 
severe and that the conduct of Applicants has been such as not to make 
it against the public interest or the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state that the conduct giving rise to the Injunctions 
did not involve any of the Applicants acting in the capacity of 
investment adviser, sub-adviser, depositor, or principal underwriter 
for a Fund. Applicants state that the Complaint did not expressly 
reference the conduct of any current or former officer or employee of 
any of the Applicants who is or was involved in providing advisory, 
sub-advisory or underwriting services to the Funds advised or 
underwritten by Applicants.\4\ While the Applicants' portfolio managers 
had access to research reports issued by the Research Department, there 
is no indication that the portfolio managers relied on these research 
reports more than any other data that would have been considered by the 
investment adviser or sub-adviser in making investment decisions for 
the Funds, except as noted in the application.\5\ Although some of the 
Funds held securities in their portfolios at the time that SSB issued 
research reports concerning the issuers of such securities, none of the 
Applicants are aware that any of their investment personnel, including 
employees, officers, or portfolio managers, had any knowledge of any 
non-public information relating to, or had any involvement in, the 
conduct underlying the Injunctions. In addition, each of the Applicants 
that is an investment adviser or sub-adviser to Funds has adopted 
policies regarding information barriers (the ``Policies'') designed to 
protect the

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investment adviser's or sub-adviser's clients, including Fund 
shareholders, from any conflict of interest that may arise between the 
investment adviser's or sub-adviser's portfolio managers and SSB's 
investment banking business as referenced in the Complaint. The 
Policies, which were in effect at the time of the conduct described in 
the Complaint, restrict communications between portfolio managers of 
the investment adviser or sub-adviser and other employees of SSB.
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    \4\ The Complaint also refers to general practices regarding the 
relationship between SSB's Investment Banking and Research 
Departments. It is possible that one or more current or former 
officers or employees of the Applicants who is or was involved in 
providing advisory, sub-advisory or underwriting services to the 
Funds was at some time an officer or employee of the Investment 
Banking or Research Departments of SSB.
    \5\ Applicants state that they act as principal underwriter or 
depositor to certain UITs whose portfolio selection process placed 
special emphasis on equity research issued by the Research 
Department.
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    5. The Applicants will distribute written materials, including an 
offer to meet in person to discuss the materials, to the board of 
directors or trustees of each Fund (each, a ``Board''), including the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Fund, and their independent legal counsel, 
if any, regarding the Federal Injunction,\6\ any impact on the Funds, 
and this application.\7\ The Applicants will provide the Boards with 
all information concerning the Injunctions and this application that is 
necessary for the Funds to fulfill their disclosure and other 
obligations under the federal securities laws.
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    \6\ Applicants state that they will advise the Boards of any 
State Injunctions that are issued.
    \7\ With respect to the Funds discussed in footnote 4 that are 
UITs, Applicants state that they will provide written notification 
to the trustee for each of these UITs concerning the Injunctions, 
any impact on the UITs, and this application and will provide any 
other related information as may be requested by a trustee.
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    6. Applicants state that the inability to continue providing 
advisory services to the Funds and the inability to continue serving as 
principal underwriter to the Funds would result in potentially severe 
hardships for the Funds and their shareholders. Applicants also assert 
that, if they were barred from providing services to the Funds, the 
effect on their businesses and employees would be severe. The 
Applicants state that they have committed substantial resources to 
establish an expertise in advising and distributing Funds. Certain 
affiliated persons of SSB previously have received exemptions under 
section 9(c) as the result of conduct that triggered section 9(a) as 
described in greater detail in the application.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:

    Any temporary exemption granted pursuant to the application 
shall be without prejudice to, and shall not limit the Commission's 
rights in any manner with respect to, any Commission investigation 
of, or administrative proceedings involving or against, Applicants, 
including without limitation, the consideration by the Commission of 
a permanent exemption from section 9(a) of the Act requested 
pursuant to the application or the revocation or removal of any 
temporary exemptions granted under the Act in connection with the 
application.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It Is Hereby Ordered, pursuant to section 9(c) of the Act, that the 
Applicants and the other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective forthwith, 
solely with respect to the Injunctions, subject to the condition in the 
application, until the date the Commission takes final action on their 
application for a permanent order or, if earlier, October 31, 2005.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27987 Filed 11-5-03; 8:45 am]
BILLING CODE 8010-01-P