Federal Register / Vol. 65, No. 24 / Friday, February 4, 2000 / Notices 5711

1All 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.

2Applicants 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.

3The 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.

Funds’ assets for shares in the Acquiring

Funds will be based on the Funds’

relative net asset values.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–2449 Filed 2–3–00; 8:45 am]

BILLING CODE 8010–01–M

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.

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

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

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’’).

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

5712 Federal Register / Vol. 65, No. 24 / Friday, February 4, 2000 / Notices

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.’’

5Under 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.

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 SEC4 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’’).

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

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 brokerdealer 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

Federal Register / Vol. 65, No. 24 / Friday, February 4, 2000 / Notices 5713

company directed brokerage to a brokerdealer 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