[Federal Register Volume 62, Number 216 (Friday, November 7, 1997)]
[Notices]
[Pages 60293-60296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29471]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22871; File No. 812-10854]


Salomon, Inc.

November 3, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
15(f)(1)(A) of the Act.

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SUMMARY OF APPLICATION: Applicant Salomon Inc (``Salomon'') requests an 
order to permit Salomon and its investment advisory subsidiaries, 
Salomon Brothers Asset Management (``SBAM'') and Salomon Brothers Asset 
Management Limited (``SBAM Limited'') that act as investment adviser on 
subadviser (collectively, ``Advisers'') to one or more registered 
investment companies, to receive payment in connection with the sale of 
applicant's advisory business. Without the requested exemption, an 
investment company advised by an Adviser would have to reconstitute its 
board of directors (``Board'') to meet the 75 percent non-interested 
director requirement of section 15(f)(1)(A).

FILING DATE: The application was filed on November 3, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be

[[Page 60294]]

issued unless the SEC orders a hearing. Interested persons may request 
a hearing by writing to the SEC's Secretary and serving applicant with 
a copy of the request, personally or by mail. Hearing requests should 
be received by the SEC by 5:30 p.m. on November 24, 1997 and should be 
accompanied by proof of service on applicant, 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, N.W., Washington, D.C. 
20549. Applicant, 7 World Trade Center, New York, NY 10048

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at 
(202) 942-7120, or Christine Y. Greenlees, 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 at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicant's Representations

    1. Salomon is a global investment banking and securities and 
commodities trading company. Salomon Brothers Inc and its subsidiaries 
(``Salomon Brothers'') conduct Salomon's investment banking and 
securities trading activities. Salomon's asset management business is 
conducted primarily through SBAM and SBAM Limited, both indirect, 
wholly-owned subsidiaries of Salomon and investment advisers registered 
under the Investment Advisers Act of 1940.
    2. The relief requested relates to the following registered 
investment companies for which SBAM or SBAM Limited acts as investment 
adviser, investment manager, or subadviser: The Emerging Markets Income 
Fund Inc., The Emerging Markets Income Fund II Inc., The Emerging 
Markets Floating Rate Fund Inc., Global Partners Income Fund Inc., 
Municipal Partners Fund Inc., Municipal Partners Fund II Inc., New 
England Zenith Fund (``New England''), JNL Series Trust, North American 
Funds, WNL Series Trust, SEI International Trust, Nationwide Separate 
Account Trust (``Nationwide''), The Americas Income Trust, Inc., 
Heritage Income Trust, Latin America Investment Fund, and Irish 
Investment Fund, Inc. (``Irish Investment'') (collectively, the 
``Companies''). \1\
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    \1\ In each of the foregoing cases, whether acting as investment 
adviser, investment manager or subadviser, SBAM or SBAM Limited (as 
applicable) is acting as an investment adviser within the meaning of 
section 2(a)(20) of the Act, and serves as investment adviser, 
investment manager or subadviser under a contract subject to section 
15 of the Act.
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    3. Travelers Group Inc. (``Travelers'') is a diversified, 
integrated financial services company engaged in investment services, 
consumer finance, and life and property-casualty insurance services.
    4. On September 24, 1997, Travelers and Salomon entered into a 
merger agreement, under which a wholly-owned subsidiary of Travelers 
will be merged into Salomon, with Salomon continuing as the surviving 
entity, becoming a wholly-owned subsidiary of Travelers, and changing 
its name to Salomon Smith Barney Holdings, Inc. (``Salomon Smith 
Barney''). Then, Smith Barney Holdings, Inc., a wholly-owned subsidiary 
of Travelers, will merge with Salomon Smith Barney. After the two 
mergers (collectively, the ``Transaction''), the combined company will 
hold the investment banking, proprietary trading, retail brokerage and 
asset management operations of both Salomon and Smith Barney Holdings, 
Inc. Upon consummation of the Transaction, SBAM and SBAM Limited will 
remain wholly-owned subsidiaries of Salomon Smith Barney and will 
continue to operate in the same fashion. Applicant anticipates that the 
Transaction will be consummated in late November 1997.
    5. In connection with the Transaction, the parties to the 
Transaction have determined to seek to comply with the safe harbor 
provisions of section 15(f) of the Act. The Board and the shareholders 
of each Company are being asked to consider and approve new contracts 
with SBAM and, in certain cases, SBAM Limited in connection with the 
Transaction.\2\
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    \2\ In certain instances, Companies have obtained or, in the 
case of Nationwide, have applied for exemptive relief permitting the 
investment adviser to the Company to hire and fire subadvisers 
without shareholder approval. See NASL Financial Services, Inc., et 
al., Investment Company Act Release Nos. 22382 (December 9, 1996) 
(notice) and 22429 (December 31, 1996) (order); SEI Institutional 
Managed Trust, et al., Investment Company Act Release Nos. 21863 
(April 1, 1996) (notice) and 21921 (April 29, 1996) (order). To the 
extent permitted by their respective orders, these Companies will 
not seek shareholder approval of new contracts with SBAM and SBAM 
Limited.
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    6. Applicant states that, absent exemptive relief, following 
consummation of the Transaction, more than 25% of the Board of a 
Company would be ``interested persons'' for purposes of section 
15(f)(1)(A) of the Act. The Companies have informed applicant that 
reconstituting each Company's Board is not in the best interests of the 
Companies or their shareholders.

Applicant's Legal Analysis

    1. Section 15(f) of the Act is a safe harbor that permits an 
investment adviser to a registered investment company (or an affiliated 
person of the investment adviser) to realize a profit on the sale of 
its business if certain conditions are met. One of these conditions is 
set forth in section 15(f)(1)(A). This condition provides that, for a 
period of three years after such a sale, at least 75 percent of the 
board of directors of an investment company may not be ``interested 
persons'' with respect to either the predecessor or successor adviser 
of the investment company. Section 2(a)(19)(B)(v) defines an interested 
person of an investment adviser to include any broker or dealer 
registered under the Securities Exchange Act of 1934 or any affiliated 
person of such broker or dealer. Rule 2a19-1 provides an exemption from 
the definition of interested person for directors who are registered as 
brokers or dealers, or who are affiliated persons of registered brokers 
or dealers, provided certain conditions are met.\3\
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    \3\ The rule generally provides that the exemption is available 
only if: (a) The broker or dealer does not execute any portfolio 
transactions for, engage in principal transactions with, or 
distribute shares for, the fund complex, (b) the fund's board 
determines that the fund will not be adversely affected if the 
broker or dealer does not effect the portfolio or principal 
transactions or distribute shares of the fund, and (c) no more than 
a minority of the fund's directors are registered brokers or dealers 
or affiliated persons thereof.
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    2. Upon consummation of the Transaction, the Board of each Company 
will consist of a majority of directors who are not interested persons 
of any Adviser within the meaning of section 2(a)(19)(B). However, each 
Board also will consist of one or more directors who may be considered 
interested persons of one of the Advisers (``Interested Directors''), 
for a total of thirty-two Interested Directors in the sixteen fund 
complexes involved.\4\

[[Page 60295]]

Twenty-two of the Interested Directors may be considered interested 
persons of one of the Advisers within the meaning of section 
2(a)(19)(B)(v) by virtue of their relationship to a registered broker-
dealer. The exemption provided by rule 2a19-1 will not be available 
with respect to these Interested Directors because the broker-dealers 
with which they are affiliated act as distributors for the Companies in 
question or engage in transactions with other members of each Company's 
complex.\5\
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    \4\ Applicants believe that the 75% disinterested board 
requirement set forth in section 15(f)(1)(A) of the Act should not 
apply to investment company directors who are interested persons of 
an investment adviser to a registered investment company within the 
meaning of section 2(a)(19)(B) of the Act, unless that investment 
adviser is involved in the relevant change of control. Accordingly, 
applicants assert that a director who is an interested person of an 
investment adviser to a Company counts against the 75% disinterested 
board requirement only if that director also is an interested person 
of one of the Advisers, either before or following consummation of 
the Transaction.
    \5\ The exemption provided by rule 2a19-1 of the Act may not be 
available with respect to the director of Irish Investment because 
the Board has not made the determinations required by the rule.
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    3. Three of the directors are the beneficial owners of Travelers 
stock and, therefore, will be interested persons within the meaning of 
section 2(a)(19)(B)(iii).\6\ While applicant is not aware of any other 
director owning Travelers stock, it is possible that other Company 
directors may be beneficial owners of up to 1,000 shares of Travelers 
stock in similar situations where the amount of the advisory fees paid 
by the Company to SBAM or SBAM Limited in relationship to the total 
revenues of Travelers is such that the income derived by the director 
from his or her holdings of Travelers stock will not be affected by 
advisory fees paid by the Company.\7\
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    \6\ Two of these directors serve on the Board of New England, 
and each is the beneficial owner of one thousand shares and four 
hundred shares, respectively, of Travelers stock, which constitutes 
.00016% and .00006% of Travelers 641,114,000 shares outstanding as 
of July 31, 1997. The third director serves on the Board of Irish 
Investment, and beneficially owns 8,300 shares of Travelers stock, 
which constitutes .00129% of Travelers shares outstanding as of July 
31, 1997.
    \7\ In any of these instances, (i) the director would have been 
on the Board of the respective Company on the date the Transaction 
was consummated, (ii) the director would have owned the Travelers 
stock on the date the Transaction was consummated and would not have 
acquired additional Travelers stock after the date the Transaction 
was consummated, (iii) no more than two directors per Company would 
be beneficial owners of Travelers stock, and (iv) the Travelers 
stock owned by any of the directors will not represent a material 
portion of the director's assets.
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    4. The remaining seven director positions will be filled by one 
individual who is an officer and director of SBAM and Salomon Brothers, 
affiliates of one of the parties to the Transaction. As such, this 
director will be an interested person of one of the Advisers. With the 
exception of this director, none of the members of the Companies' 
Boards will be affiliated persons (within the meaning of section 
2(a)(3) of the Act) of any party to the Transaction.
    5. Without the requested exemption, a Company would have to 
reconstitute its Board to meet the 75 percent non-interested director 
requirement of section 15(f)(1)(A). Under the relief requested, during 
the three years following consummation of the Transaction, directors 
who are ``interested persons'' of an Adviser solely by reason of being 
(i) affiliated persons of brokers or dealers who are affiliated persons 
of another investment adviser to a Company, or (ii) on the Board of a 
Company on the date the Transaction is consummated beneficially owning 
Travelers stock as described in the application, will not be considered 
``interested persons'' of SBAM or SBAM Limited for purposes of 
calculating the 75 percent requirement in section 15(f)(1)(A) of the 
Act.
    6. Section 6(c) of the Act permits the SEC to exempt any person or 
transaction from any provision of the Act, or any rule or regulation 
under 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.
    7. Applicant believes that the requested exemption is necessary and 
appropriate in the public interest. Applicant states that compliance 
with section 15(f)(1)(A) would require a Company to reconstitute its 
Board. In applicant's view, this reconstitution would serve no public 
interest and would be contrary to the interests of the shareholders of 
the Companies. Applicant submits that the addition of directors to 
achieve the 75% disinterested director ratio required by section 
15(f)(1)(A) could make the Boards unduly large and unwieldy, make 
decisional and operational matters cumbersome, unnecessarily increase 
the expenses of the Transaction, and would cause the Companies to incur 
additional expenses in connection with the selection and election of 
the additional directors. In addition, applicant submits that shrinking 
the Boards by eliminating previously existing Interested Director 
positions would deny the Companies the valued services and insights 
these insiders bring to their respective Boards.
    8. Although directors who are affiliated persons of broker-dealers 
may be viewed as interested persons of the Advisers, these directors 
and the broker-dealers with which they are affiliated are not 
affiliated persons of any party to the Transaction. In addition, 
applicant argues that a director's affiliation with a Company's 
distributor should not preclude the requested exemption, despite the 
unavailability of the rule 2a19-1 exemption, because a Company's 
distributor is retained directly by the Company. As a result, retention 
of a distributor depends upon approval from the Company's Board and not 
upon the identity of or transactions involving the Company's Adviser. 
Further, applicant submits that each distributor's compensation is 
based on asset levels and/or the receipt of sales loads, and each 
distributor therefore has a direct economic interest in the financial 
success of the Company that retains it, an interest that is consistent 
with the interests of the Company's shareholders.
    9. Applicant asserts, with respect to the directors who are 
shareholders of Travelers, that the immaterial number of shares owned 
by these directors should have no affect on fulfilling their 
responsibilities to their respective Companies. Applicant asserts that 
the income derived by each director from ownership of Travelers stock 
will not be affected in any noticeable degree by the advisory fees paid 
by the applicable Companies. Applicant maintains, therefore, that the 
beneficial ownership of Travelers stock should not prevent these 
directors from carrying out their fiduciary duties.
    10. Applicant believes that the requested exemption is consistent 
with the protection of investors. Applicant states that the parties to 
the Transaction will comply with section 15(f)(1)(B) of the Act for at 
least two years following consummation of the Transaction. Accordingly, 
applicant argues that no unfair burdens will be placed on the Companies 
as a result of the Transaction. The Board and shareholders of each 
Company are being asked to consider and approve new contracts with SBAM 
and, in certain cases, SBAM Limited in connection with the Transaction. 
The adviser arrangements will continue only if the Board has determined 
that they continue to be in the best interests of the Company's 
shareholders, and then only in the event that the Company's 
shareholders also approve the continuation of the arrangements. 
Applicant also states that the Companies will continue to treat the 
Interested Directors as interested persons of the Companies and the 
Advisers for all purposes other than section 15(f)(1)(A) of the Act for 
so long as the directors are ``interested persons'' as defined in 
section 2(a)(19) of the Act and are not exempted from that definition 
by any applicable rules or orders of the SEC.
    11. Applicant also submits that the requested exemption is 
consistent with the purposes fairly intended by the policies and 
provisions of the Act.

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Applicant asserts that the legislative history of section 15(f) 
indicates that Congress intended the SEC to deal flexibly with 
situations where the imposition of the 75 percent requirement might 
pose an unnecessary obstacle or burden on a fund. Applicant also states 
that section 15(f)(1)(A) was designed primarily to address the types of 
biases and conflicts of interest that might exists where the board of 
an investment company is influenced by a substantial number of 
interested directors to approve a transaction because the directors 
have an economic interest in the adviser. Because these circumstances 
do not exist in the present case, applicant believes that the SEC 
should be willing to exercise flexibility.

Applicant's Condition

    Applicant agrees that any order of the SEC granting the requested 
relief with respect to a particular Company will be subject to the 
following condition:

    If, within three years of the completion of the Transaction, it 
becomes necessary to replace any director of the Company, that 
director will be replaced by a director who is not an ``interested 
person'' of SBAM or SBAM Limited within the meaning of section 
2(a)(19)(B) of the Act, unless at least 75% of the directors at that 
time, after giving effect to the order granted pursuant to the 
application, are not interested persons of SBAM or SBAM Limited, 
provided that this condition will not preclude replacements with or 
additions of directors who are interested persons of SBAM or SBAM 
Limited solely by reason of being affiliated persons of brokers or 
dealers who are affiliated persons of another investment adviser to 
a Company, provided that the brokers or dealers are not affiliated 
persons of SBAM or SBAM Limited.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-29471 Filed 11-6-97; 8:45 am]
BILLING CODE 8010-01-M