[Federal Register Volume 65, Number 24 (Friday, February 4, 2000)]
[Notices]
[Pages 5711-5713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2450]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24269; 812-11630]


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

January 28, 2000.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
12(d)(3) 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 permit 
(a) certain series of unit investment trusts to invest up to 10.5%, 
certain other series to invest up to 15.5%, and certain other series to 
invest up to 20.5% of their respective total assets in securities of 
issuers that derived more than 15% of their gross revenues in their 
most recent fiscal year from securities related activities; and (b) 
certain series to sell portfolio securities to certain new series.

APPLICANTS: Salomon Smith Barney Inc. (the ``Sponsor''), The Uncommon 
Values Trust, Equity Focus Trusts, Angels with Dirty Faces Trust, The 
CountryFund Opportunity Trust, Robinson-Humphrey Annual Themes Series 
and certain other future unit investment trusts sponsored by the 
Sponsor (collectively, the ``Trusts'' and the various series of the 
Trusts, each a ``Series'').

FILING DATES: The application was filed on May 26, 1999. Applicants 
have agreed to file an amendment to the application during this notice 
period, the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the SEC orders 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 February 
22, 2000; 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC 
20549-0609. Applicants, 7 World Trade Center, 36th Floor, New York, NY 
10048.

FOR FURTHER INFORMATION CONTACT: Michael W. Mundt, Branch Chief, at 
(202) 942-0564 (Office of Investment Company Regulation, Division of 
Investment Management).

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, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each Trust is a unit investment trust registered under the Act 
with multiple series. Each Trust is created by a trust indenture 
between the Trust, the Sponsor, and the Chase Manhattan Bank, which is 
a bank within the meaning of section 2(a)(5) of the Act that satisfies 
the criteria in section 26(a) of the Act and is unaffiliated with the 
Sponsor (the ``Trustee''). Applicants also request belief for any 
future Trust sponsored by the Sponsor.\1\
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    \1\ All existing Trusts that intend to rely on the order are 
named as applicants. Any existing of future Trust that relies on the 
order in the future will comply with the terms and conditions of the 
application.
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    2. Certain Series of the Trusts will hold a portfolio of common 
stocks of growth companies (each such Series, a ``Growth Series''). The 
investment objective of each Growth Series is to seek capital 
appreciation. Other Series (each an ``Index Series'') will hold a 
portfolio of common stocks which represent a portion of a specific 
index. The investment objective of each Index Series is to seek a 
greater total return than that achieved by the stocks comprising the 
entire related index over the life of the Index Series.
    3. Certain of the Index Series (each, a ``Ten Series'') will invest 
approximately 10%, but no more than 10.5% of their total assets in each 
of the ten common stocks in the Dow Jones Industrial Average 
(``DJIA''), the Financial Times Industrial Ordinary Share Index (``FT 
Index''), the Nikkei 225 Index (the ``Nikkei Index''), or the Hang Seng 
Index (each an ``Index,'' and together the ``Indexes''), as the case 
may be, having the highest dividend yields no more than three business 
days prior to the Ten Series' initial date of deposit. Certain other 
Index Series (each, a ``Five Series'') will invest approximately 20%, 
but in no event more than 20.5%, of their total assets in each of the 
five lowest dollar price per share stocks of the ten common stocks in 
one of the Indexes, as the case may be, having the highest dividend 
yields no more than three business days prior to the Five Series' 
initial date of deposit. The other Index Series (each a ``Ten/A+ 
Series'') will invest approximately 50% of their total assets in the 
ten common stocks contained in the DJIA having the highest dividend 
yields and 50% in the common stocks contained in the DJIA having a 
quality ranking of A+ by Standard & Poor's (``S&P'') no more than three 
business days prior to the Ten/A+ Series initial date of deposit.\2\
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    \2\ Applicants state that the number of common stocks listed on 
the DJIA that have received S&P ratings of A+ has ranged from six to 
eleven stocks over the past 25 years.
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    4. Applicants state that each of the Indexes is a recognized 
indicator of the stock market in its respective country, and that S&P 
has been ranking common stock for quality since 1956. \3\ The 
publishers of the Indexes and S&P are not affiliated with any Index 
Series or the Sponsor, and do not participate in any way in the 
creation of any Index Series or the selection of its stocks. The common 
stocks included in the Indexes may include stocks of issuers that 
derive more than 15% of their gross revenues from securities related 
activities, as that term is defined in rule 12d3-1 under the Act, as 
discussed below (``Securities Related Issuers'').
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    \3\ The DJIA, which is owned by Dow Jones & Company, Inc., 
comprises 30 widely-held common stocks listed on the New York Stock 
Exchange, which are chosen by the editors of The Wall Street 
Journal. The FT Index comprises 30 widely-held common stocks listed 
on the London Stock Exchange, which are chosen by the editors of The 
Financial Times. The Nikkei Index comprises 225 common stocks listed 
on the Tokyo Stock Exchange. The Hang Seng index comprises 33 common 
stocks listed on the Stock Exchange of Kong, Ltd. ``A+'' is the 
highest S&P ranking for earning and dividends of common stock and is 
based on per-share earnings and dividend records of the most recent 
ten years.
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    5. The securities deposited in each Index Series will be chosen 
solely according to the formulas described below, and will not 
necessarily reflect the research opinions or buy or sell 
recommendations of the Sponsor. The Sponsor is authorized to determine 
the date of deposit, to purchase securities for deposit in the Index 
Series, and to

[[Page 5712]]

supervise each Index Series' portfolio. The Sponsor will have no 
discretion as to which securities are purchased.
    6. The Index Series' portfolios will not be actively managed. Sales 
of portfolio securities will be made in connection with redemptions of 
units, payment of expenses, and the termination of an Index Series. The 
Sponsor has no discretion as to when securities will be sold except 
that it is authorized to sell securities in extremely limited 
circumstances, such as when an issuer defaults on the payment of any 
outstanding obligations, or when the price of a security has declined 
to such an extent or other credit factors exist so that in the opinion 
of the Sponsor, it would be detrimental to the Index Series to retain 
the securities. The adverse financial condition of an issuer will not 
necessarily require the sale of its securities from an Index Series' 
portfolio.
    7. Certain Series have either (i) a contemplated date (``Rollover 
Date'')on which unitholders in a terminating Series (``Terminating 
Series'') may at their option redeem their units and receive units of a 
subsequent Series of the same type (``New Series''), which will be 
created on or about the Rollover Date or (ii) a contemplated date or 
dates (an ``Exchange Date'') on which unitholders in an existing series 
(the ``Exchange Series'') may at their option redeem their units and 
receive units of a New Series which is created on or about the Exchange 
Date (the Terminating Series and Exchange Series collectively, the 
``Rollover Series'').
    8. Certain Rollover Series may have a portfolio containing equity 
securities many, if not all, of which are either (i) listed by the 
Sponsor on a ``top picks'' list disseminated to customers and the 
general public as securities recommended for purchase (``Top Picks 
Securities'') and that have (a) a minimum market capitalization of U.S. 
$1 billion and (b) had an average daily trading volume in the preceding 
60 trading days of at least 50,000 shares equal in value to at least 
U.S. $250,000 on a Qualified Exchange (defined below), or (ii) are not 
Top Picks Securities and are actively traded (i.e., have had an average 
daily trading volume in the preceding six months of at least 500 shares 
equal in value to at least U.S. $25,000) on an exchange (a ``Qualified 
Exchange'') which is either (a) a national securities exchange which 
meets the qualifications of Section 6 of the Securities Exchange Act of 
1934, (b) a foreign securities exchange (a ``Qualified Exchange'') 
which meets the qualifications set out in the proposed amendment to 
Rule 12d3-1(d)(6) under the Act as proposed by the SEC \4\ and which 
releases daily closing prices or (c) the Nasdaq-National Market System 
(``Nasdaq-NMS'') (securities meeting the preceding tests in (i) and 
(ii) above are referred to as ``Qualified Securities'').
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    \4\ Investment Company Act Release No. 17096 (Aug. 3, 1989) 
(proposing amendments to rule 12d3-1). The proposed amended rule 
defined a ``Qualified Foreign Exchange'' to mean a stock exchange in 
a country other than the United States where (a) trading generally 
occurred at least four days a week; (b) there were limited 
restrictions on the ability of acquiring companies to trade their 
holdings on the exchange; (c) the exchange had a trading volume in 
stocks for the previous year of at least U.S. $7.5 billion; and (d) 
the exchange had a turnover ratio for the preceding year of least 
20% of its market capitalization. The version of the amended rule 
that was adopted did not include the part of the proposed amendment 
defining the term ``Qualified Foreign Exchange.''
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    9. Applicants state that there is normally some overlap form one 
year to the next in the stocks having the highest dividend yields in 
each of the Indexes, as well as the DJIA stocks rated A+ by S&P. The 
Sponsor anticipates that there will be some overlap from one year to 
the next in the stocks selected for the portfolios of a Growth Series 
that is a Rollover Series and a Growth Series that is a New Series. 
Absent the requested relief, each Rollover Series would sell all of its 
securities and each New Series investing in any of theses securities 
would acquire them on the applicable Qualified Exchange. This procedure 
would result in the unitholders of both the Rollover Series and the New 
Series incurring brokerage commissions on the same securities.

Applicants' Legal Analysis

A. Purchases of Stocks of Securities Related Issuers in Excess of Rule 
12d3-1 Limits

    1. Section 12(d)(3) of the Act, with limited exceptions, prohibits 
an investment company form acquiring any security issued by any person 
who is a broker, dealer, underwriter, or investment adviser. Rule 12d3-
1 under the Act exempts the purchase of securities of a Securities 
Related Issuer, provided that, among other things, immediately after 
the acquisition, the acquiring company has invested not more than five 
percent of the value of its total assets in securities of the 
Securities Related Issuer.\5\
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    \5\ Under rule 12d3-1, a Securities Related Issuer is a person 
that derives more than 15% of its gross revenues from activities as 
a broker, dealer, underwriter, investment adviser registered under 
the Investment Advisers Act of 1940, or investment adviser to a 
registered investment company.
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    2. As noted above, applicants state that some of the stocks 
comprising the Indexes include securities of Securities Related 
Issuers. Applicants assert that, in order to comply with rule 12d3-1, 
absent the requested relief, each Index Series may be precluded from 
most effectively implementing its investment objective.
    3. Under section 6(c), SEC may exempt classes of transactions, if 
and 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 intended by the policy and provisions of the Act.
    4. Applicants request an exemption under section 6(c) from section 
12(d)(3) to permit a Ten Series to invest up to approximately 10%, but 
in no event more than 10.5%, of the value of its total assets in 
securities of a Securities Related Issuer, to permit a Ten/A+ series to 
invest up to 15%, but in no event more than 15.5% of the value of its 
total assets in securities of a Securities Related Issuer, and to 
permit a Five Series to invest up to approximately 20%, but in no event 
more than 20.5%, of the value of its total assets in securities of a 
Securities Related Issuer.
    5. Applicants state that the proposed transactions satisfy the 
requirements of section 6(c). Applicants state that section 12(d)(3) 
was intended to prevent investment companies from exposing their assets 
to the entrepreneurial risks of securities related businesses, to 
prevent potential conflict so interest, and to eliminate certain 
reciprocal practices between investment companies and securities 
related businesses. One potential conflict could occur if an investment 
company purchased securities or other interests in a broker-dealer to 
reward that broker-dealer for selling fund shares, rather than solely 
on investment merit. Applicants state that this concern does not arise 
in connection with the Index Series because the selection of securities 
is based on certain set formulas, and neither the Index Series nor the 
Sponsor has discretion in choosing the securities of a Securities 
Related Issuer or the amount purchased.
    6. Applicants also state that the effect of an Index Series' 
purchase on the stock of a Securities Related Issuer would be de 
minimis. Applicants assert that the Securities Related Issuers 
represented in the Indexes are widely held and have active markets, and 
that potential purchases by any Index Series would represent an 
insignificant amount of the outstanding common stock and trading volume 
of any of these Securities Related Issuers.
    7. Another potential conflict of interest could occur if an 
investment

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company directed brokerage to a broker-dealer in which the company has 
invested to enhance the broker-dealer's profitability or to assist it 
during financial difficulty, even though that broker-dealer may not 
offer the best price and execution. To preclude this type of conflict, 
applicants agree, as a condition to the order, that no company held in 
a portfolio of an Index Series, nor any affiliated person of the 
company, will act as a broker for any Index Series in the purchase or 
sale of any security for such Series' portfolio.

B. Purchases and Sales Between Series

    1. Section 17(a) of the Act prohibits 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, in pertinent part, 
any person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Each Series will have a common 
sponsor. Since the Sponsor of a series may be deemed to control the 
Series, all of the series may be deemed to be under common control and 
affiliated persons of each other.
    2. Rule 17a-7 under the Act permits registered investment advisers, 
directors, and/or officers, to purchase securities from, or sell 
securities to, one another at an independently determined price, 
provided certain conditions are met. Applicants represent that they 
will comply with all of the provisions of rule 17a-7, other than 
paragraph (e).
    3. Paragraph (e) of the rule requires an investment company's board 
of directors to adopt and monitor certain procedures to assure 
compliance with the rule. Since a unit investment trust does not have a 
board of directors, the Series would be unable to comply with this 
requirement.
    4. Section 17(b) of the Act provides that the SEC will exempt a 
proposed transaction from section 17(a) if evidence establishes that: 
(a) that terms of the proposed transaction 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. As noted above, section 6(c) of the Act provides that the SEC 
may exempt classes of transactions 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. Applicants request relief under sections 6(c) 
and 17(b) to permit any Rollover Series to sell Qualified Securities to 
a New Series, and to permit the New Series to purchase the Qualified 
Securities.
    5. Applicants state that the proposed transactions satisfy the 
standards of sections 6(c) and 17(b). Applicants represent that 
purchases and sales between Series will be consistent with the policy 
of each Series. Applicants state that the Qualified Securities to be 
sold to a New Series will be Qualified Securities that are available 
fro a Rollover Series by reason of units tendered for redemption that 
day or termination of the Rollover Series. Applicants note that the 
Trustee will continue its general practice of redeeming units of an 
Exchange Series by selling securities in a manner that maintains the 
same portfolio composition, and in the same proportions, as prior to 
the sale. Applicants further state that permitting the proposes 
transactions would result in savings on brokerage fees for the Series.
    6. Applicants state that the condition that the Qualified 
Securities must be actively traded on a Qualified Exchange protects 
against overreaching. In addition, applicants state that the Sponsor 
will make an initial determination that the Rollover Series and the New 
Series are on the opposite side of a transaction in Qualified 
Securities. The Sponsor then will certify to the Trustee, no later than 
the close of business on the business day following each sale from a 
Rollover series to a New Series: (a) that the transaction is consistent 
with the investment objective and policies of both the Rollover Series 
and the New Series, as recited in their respective registration 
statements and reports filed under the Act, (b) the reason that the 
Rollover Series is selling the Qualified Securities, (c) the date of 
the transaction, (d) how the securities being sold meet the definition 
of Qualified Securities set forth in the requested order, and (e) the 
closing sale price of the Qualified Securities on the Qualified 
Exchange for the date the Qualified Securities are sold to the New 
Series (``Sale Date''). The Trustee will then countersign the 
certificate, unless, in the event that the Trustee disagrees with the 
closing sales price listed on the certificate, the Trustee immediately 
informs the Sponsor orally of any such disagreement and returns the 
certificate within five days to the Sponsor with corrections duly 
noted. Upon the Sponsor's receipt of a corrected certificate, if the 
Sponsor can verify the corrected price by reference to an independently 
published list of closing sales prices for the date of the transaction, 
the Sponsor will ensure that the price of the units of the New Series, 
and distributions to holders of the Rollover Series with regard to 
redemption of their units or termination of the Rollover Series, 
accurately reflect the corrected price. To the extent that the Sponsor 
disagrees with the Trustee's corrected price by reference to a mutually 
agreeable, independently published list of closing sales prices for the 
date of the transaction.

Applicants' Conditions

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

A. Purchases of Stocks of Securities Related Issuers in Excess of Rule 
12d3-1 Limits

    No company held in a Ten Series portfolio, a Five Series portfolio, 
or a Ten/A+Series portfolio, nor any affiliated person of the company, 
will act as broker for any Ten Series, any Five Series or any Ten/
A+Series in the purchase or sale of any security for such Series' 
portfolio.

B. Purchases and Sales Between Series

    1. Each sale of Qualified Securities by a Rollover to a New Series 
will be effected at the closing price of the Qualified Securities sold 
on a Qualified Exchange on the Sale Date, without any brokerage charges 
or other remuneration except customary transfer fees, if any.
    2. The nature and conditions of such transactions will be fully 
disclosed to investors in the prospectus of each Rollover Series and 
New Series.
    3. The Trustee of each Rollover Series and New Series will review 
the procedures relating to the sale of securities from a Rollover 
Series and the purchase of those securities for deposit in a New 
Series, and make such changes to the procedures as the Trustee deems 
necessary to ensure compliance with paragraphs (s) through (d) of rule 
17a-7.
    4. A written copy of these procedures and a written record of each 
transaction effected pursuant to the order will be maintained as 
provided in rule 17a-7(f).


    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-2450 Filed 2-3-00; 8:45 am]
BILLING CODE 8010-01-M