# RESPONSE OF THE OFFICE OF

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

PUBLIC
RESPONSE OF THE OFFICE OF
INVESTMNT COMPANY REGULATION
DIVISION OF INVESTMENT MAAGEMENT

Our Ref. No. 93-4-ICR
Shearson Lehman Brothers Inc.
and Smith Barney, Harris Upham
& Co. Incorporated

In your letter dated June 7, 1993, you state that on March

12 ( 1993, Shearson Lehman Brothers Inc. ( II Shearson II) entered an
asset purchase agreement with Primerica Corporation and its

subs idiary, Smith Barney, Harris Upham & Co. Incorporated (II Smi th

Barney

II ). The agreement provides for the sale to Smith Barney

and its designated affiliates of substantially all of the assets
of the Shears
on Lehman Brothers Division and the SLB Asset
Management Division of Shears

on (the IITransaction").

You state that the registered investment companies sponsored
by Shears

on (the II Funds II) have been granted orders exempting them

from various provisions of the Investment Company Act of 1940.
Certain of the orders that are essential to the continued
operations of the Funds include as a named party Shearson (or one
of its predecessors or affiliates) in its capacity as distributor
or underwriter of the Funds. These orders (the IIExemptive
Orders") contemplate the compliance by Shears
on (or one of its
predecessors or affiliates) with certain undertakings and
conditions. ~I After consummation of the Transaction, however,
Smith Barney or one of its affiliates will serve as distributor
or underwri ter of the Funds.

You state that because the Transaction is structured as an
asset purchase, Smith Barney will not be acquiring the entity to
on Lehman Brothers
~I The Exemptive Orders are: Shears
Appreciation Fund Inc., Investment Company Act Release Nos. 19176

(Dec. 22, 1992) (notice) and 19216 (Jan. 19, 1993) (order);

on Lehman Brothers Appreciation Fund Inc., Investment
Company Act Release Nos. 18770 (June 11, 1992) (notice) and 18832
on Lehman Brothers Income Trust,
(Jul. 7, 1992) (order); Shears
Investment Company Act Release Nos. 18565 (Feb. 24, 1992)
on Lehman
(notice) and 18623 (Mar. 23, 1992) (order); Shears
Brothers Inc., Investment Company Act Release Nos. 18145 (May 14,
1991) (notice) and 18191 (June 11, 1991) (order); Shearson Lehman
Hutton Unit Trusts, Investment Company Act Release Nos. 16904
Shears

(Apr. 6, 1989) (notice) and 16940 (Apr. 27, 1989) (order); E.F.

Hutton & Co., Investment Company Act Release Nos. 14182 (Oct. 5,
1984) (notice) and 14219 (Oct. 31, 1984) (order); E.F. Hutton &
Co., Investment Company Act Release Nos. 13733 (Jan. 20, 1984)
(notice) and 13787 (Feb. 24, 1984) (order); Shearson Daily
Dividend Inc., Investment Company Act Release Nos. 13316 (June
10, 1983) (notice) and 13382 (July 13, 1983) (order); and
Shearson Daily Dividend Inc., Investment Company Act Release Nos.

11671 (Mar. 6, 1981) (notice) and 11716 (Apr. 3, 1981) (order).

-2­
whom an Exemptive Order was issued. In addition, Smith Barney
has not formally undertaken to meet the conditions that may have
been imposed in the Exemptive Orders on that entity.
Accordingly i the Exemptive Orders may not be available to the

Funds and Smith Barney after consumtion of the Transaction 0

The Funds and Smith Barney therefore have agreed and intend
promptly to file applications (the IIRenewal Applications II) with
the Commission in which they would request exemptive orders
(IlRenewal Orders II) that would effectively continue the relief
previously granted in the Exemptive Orders.

You request assurance that the Division of Investment
Management will not recommend that the Commission take
enforcement action if the Funds and Smith Barney rely on the
Exemptive Orders pending receipt by the Funds of the Renewal
Orders 0 Smith Barney specifically agrees that, pending receipt
of the Renewal Orders
8 it will comply with the terms and
conditions in the Exemptive Orders imposed on Shearson (or one of
its predecessors or affiliates) as though such terms and
conditions were imposed directly on Smith Barney. The Funds
agree that they will rely on the Renewal Orders when they are
granted, rather than continuing to rely on the Exemptive Orders.

Based on the facts and representations contained in your
letter i we would not recommend that the Commission take
enforcement action against the Funds or Smith Barney if, pending
the issuance of the Renewal Orders, the Funds and Smith Barney
rely on the Exemptive Orders 0 In particular, we base our
position upon your representation that Smith Barney will comply
with the terms and conditions imposed upon Shears
on (or one of
its predecessors or affiliates) as though such terms and
conditions were imposed directly on Smith Barney. This
assurance
8 however, is not a substitute for exemptive relief 0
Accordingly, this position shall be effective until the earlier
of the issuance by the Commission of the Renewal Orders, or one
year from the date of this letter.

This response expresses the Division iS position on
enforcement action only i and does not purport to express any

legal conclusions on the questions presented. Facts or

conditions different from those presented in your letter might
require a different conclusion. Moreover i this letter provides
no assurance that the Commission will issue the Renewal Orders p
or that the staff will not comment upon or seek modification of
any Renewal Application.

~i~ 0 i ~"J\i
ohn V. 0' Hanlon

taff Attorney
June 8, 1993

WILLKIE FARR& GALLAGHER

New York
Washington, DC

London

Paris

1940 Act/Sections
2 (a) (19), 2 (a) (32), 2 (a) (35),

12(d) (1), 14 (a), 17 (b),

17(d), 18(f), 18(g),
18 (i), 22 (c), 22 (d) and

.....-.
:

June 7, 1993

Rules 17d-1 and 22c-1

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d.f 1'l~D -"~

I¡¡b~

tnule

Jeremy N. Rubenstein, Esq. ~lPub~l1('

Assistant Director .. vallabllity
Office of Investment Company Regulation
Division of Investment Management
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street
Washington, D. C. 20549-1004

" !P/9 il --." ~ J

Re: Shearson Lehman Brothers Inc. and
Smith Barney, Harris Upham & Co. Incorporated

Dear Mr. Rubenstein:
On behalf of Shearson Lehman Brothers Inc. ("Shearson") and
Smith Barney, Harris Upham & Co. Incorporated ("Smith
Barney"), we request that the staff (the "Staff") of the
Division of Investment Management of the Securities and
Exchange Commission (the "Commission") advise us that it
will not recommend that the Commission take any enforcement
action under the Investment Company Act of 1940, as amended
(the "1940 Act"), under the circumstances described below.
In addition, the registered investment companies sponsored
by Shearson (the "Funds") and Smith Barney intend to file
applications with the Commission, which, if granted, would
continue existing exemptive relief previously granted by
the Commission.

Background
On March 12, 1993, Shearson entered into an asset purchase
agreement (the "Asset Purchase Agreement") with Primerica
Corporation ("Primerica") and its indirect, wholly owned
subsidiary, Smith Barney, providing for the sale to Smith
One Citicorp Center

Telex: RCA 233780

153 East 53 rd Street

RCA 238805
WU 12 7679
Fax: 212 752 2991

New York, NY 10022-4669
212 935 8000

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 2

Barney and its designated affiliates of substantially all
of the assets of the Shearson Lehman Brothers Division of
Shearson and the SLB Asset Management Division of Shearson
(the "Transaction"). Upon the closing of the Transaction,
Shearson will receive, subject to adjustment, $850 million
in cash, $125 million in value of convertible preferred
stock of Primerica, $25 million in value of warrants to
purchase Primerica common stock, a three-year participation
in the revenues of the combined companies (with revenue
participation payments to Shearson limited to $50 million
per year) and a five-year 10% participation in the net
profits (in excess of $250 million) of the combined

companies.
The closing of the Transaction, scheduled for early July
1993, is subject to certain conditions, including the
condition that the new investment advisory contracts with
Smith Barney or an affiliate of Smith Barney shall have
been approved by (a) the Boards of Directors or Trustees
(the "Boards"), as the case may be, (i) of the registered
investment management companies sponsored by Shears

on that

are money market funds (each a "Money Fund" and
collectively, the "Money Funds") (subject to later
shareholder approval) and (ii) of the registered investment
management companies sponsored by Shearson other than the
Money Funds (the "Non-Money Funds"), including, in each
case a majority of the Board members who are not
"interested persons'" of the Money Funds or the Non-Money
Funds as defined under the 1940 Act ("Independent Board
Members"), and (b) shareholders of the Non-Money Funds
which, as of February 28, 1993, represented at least 75% of
all of the assets of such funds, upon terms virtually
identical with the investment advisory contracts of each
such fund currently in effect (other than changes in the
identity of the parties and the commencement and
termination dates of the contracts). In addition, the
closing of the Transaction is subject to the condition that
the Board, including a majority of Independent Board
Members, of each of the Money Funds and Non-Money Funds
shall have approved new underwriting, distribution or
dealer contracts, if any, with Smith Barney pursuant to
other requirements
Section 15 of the 1940 Act and any
applicable thereto contained in the 1940 Act. Shearson is
currently in the process of soliciting proxies from
shareholders of these funds for shareholder meetings
scheduled to be held on various dates during June 1993.

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 3

The Exemptive Orders
Over time, the Funds have applied for, and been granted by
from various provisions
the Commission, orders of exemption
of the 1940 Act; Certain of these exemptive orders
(described in more detail below (the "Exemptive Orders"))
have included as named parties not only the Funds but also
Shearson (or one of its predecessors or affiliates) in its
capacity as distributor or underwriter of the Funds and
contemplate the performance by Shearson (or one of its
predecessors or affiliates) of certain conditions. After
consummation of the Transaction, it is contemplated that
Smith Barney or one of its affiliates, rather than Shears

on

(or one of its predecessors or affiliates), will serve a~
distributor or underwriter of the Funds. Since the
Transaction is structured as an asset purchase, Smith
Barney will not be acquiring the entity to whom an
Exemptive Order was issued, nor has Smith Barney formally
undertaken specifically to meet the conditions that may
have been imposed in the Exemptive Orders on that entity.
Accordingly, the Staff has advised that the Exemptive
Orders may not be available to the Funds and Smith Barney
after consummation of the Transaction. The Funds and Smith
Barney, therefore, have agreed and intend promptly to file
applications (the "Renewal Applications") with the
Commission in which they would request exemptive orders
("Renewal Orders") that would effectively continue the
exemptive relief previously granted to the Funds by the
Commission in the Exemptive Orders.

The following is a brief description of the Exemptive
Orders for which it is contemplated that Renewal

Applications would be filed: i

lOur research indicates that since 1970 approximately 140 orders
have been issued to Shearson (or one of its predecessors or
affiliates). Of these orders, approximately 110 orders were issued
(a) to specific Funds that will remain in existence after

consumtion of the Transaction; (b) in connection with

deregistration under Section 8 (f) of the 1940 Act; (c) in connection

with disciplinary proceedings; and (d) with respect to specific

transactions (e. g., relief under Section 17 of the 1940 Act for
mergers of funds in the Shearson family). Approximately 30 orders
name Shearson (or one of its predecessors) as a party and imposed
ongoing obligations on that party. With the exception of the
Exemptive Orders described in the accompanying text, however, these
orders are no longer necessary as a result of subsequently issued
exemptive orders, elimination of affiliations that necessitated

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 4

1. Variable Pricinç. Investment Company Act
Release Nos. 19~16 (January 19, 1993) (order) and 19176
(December 22, 1992) (notice); Investment Company Act
Release Nos. 18832 (July 7, 1992) (order) and 18770 (June
11, 1992) (notice). Exemption from sections 2 (a) (32),

2 (a) (35), 18 (f), 18 (g), 18 (i), 22 (c) and 22 (d) of the 1940

Act and Rule 22c-1 thereunder relating to implementation of
multiple class distribution arrangements and establishment
of contingent deferred sales charges.

2 . Income Trust CDSC. Investment Company Act
Release Nos. 18623 (March 23, 1992) (order) and 18565
(February 24, 1992) (notice). Exemption from sections

2 (a) (32), 2 (a) (35), 22 (c) and 22 (d) of the 1940 Act and
Rule 22c-1 thereunder relating to establishment of a
contingent deferred sales charges for Shearson Lehman
Brothers Income Trust.

3. Interested Person Relief. Investment Company
Act Release Nos. 13382 (July 13, 1983) (order) and 13316
(June 10, 1983) (notice) (Martin Brody); and Investment
Company Act Release Nos. 11716 (April 3, 1981) (order) and

11671 (March 6, 1981) (notice) (Judge James Crisona) .

Exemption from section 2 (a) (19) relating to relief for the
named individual from being deemed an "interested person"
with respect to certain Funds for which the person was a

director.

4. Shearson Sponsored Unit Investment Trusts.
Investment Company Act Release Nos. 18191 (June 11, 1991)
(order) and 18145 (May 14, 1991) (notice). Exemptive
relief pursuant to Section 11 (a) permitting certain offers
of exchange between the applicant Shears

on sponsored unit

investment trusts (the "UITs II) and pursuant to Section 6 (c)

exempting Shearson and any other underwriters for the UITs
from Section 14 (a) to the extent it would require them to
take and hold for their own accounts or privately place at
least $100,000 of units in each series of the UITs that do
not hold exclusively "eligible trust securities" within the

meaning of Rule 14a-3 (b) .

relief or subsequent Commission rulemaking under the 1940 Act (i. e.,

Rule 11a-3 and Rule 2a-7).

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 5

5. Shearson Unit Trusts. Investment Company Act
Release Nos. 16940 (April 27, 1989) (order) and 16904
(April 6, 1989), (notice). Relief pursuant to: (i) section

6 (c) exempting Shearson and the UITs from Section 12 (d) (1)

to permit the UITs to invest in portfolios consisting of

zero-coupon obligations, from Section 14 (a) to exempt the

UITs from the requirement that an investment company must
have a net worth of $100,000 at the time of public offering
of its securities, and from Section 22 (d) to permit the
waiver of deferred sales loads under certain circumstances;
and (ii) Section 17 (d) and Rule 17d-1 thereunder, approving
certain affiliated transactions.

6. Hutton Telephone Trust. Investment Company Act
Release Nos. 14219 (October 31, 1984) (order) and 14182
(October 5, 1984) (notice); Investment Company Act Release
Nos. 13787 (February 24, 1984) (order) and 13733 (January
20, 1984) (notice). Relief pursuant to Sections 6 (c) and
17 (b) permitting Shearson, the sponsor of Hutton Telephone
Trust (the "Trust"), acting as principal, to purchase, at a
1% discount, securities from the Trust which the Trust
receives in accordance with its participation in a dividend

reinvestment plan.

Reliance on the Exemptive Orders is essential for the
continued operations of the Funds, and the Funds' counsel
has discussed with the Staff the possibility of filing a
no-action request which would permit the Funds and Smith
Barney to rely on the Exemptive Orders during the interim
period from the closing of the Transaction until the
Renewal Orders have been granted.

Analysis
The Funds and Smith Barney propose that, pending receipt of
the Renewal Orders, the Funds and Smith Barney would rely
on the Exemptive Orders and would be subject to those

orders' terms and conditions. 2 Smith Barney specifically

2 In addition, where the ter. of the Exemptive Orders apply to
registered investment companies organized in the future that are in
the same "group of investment companies" (as defined in Rule 11a-3)
as the Funds or to future series of a UIT ("Future Funds"), it is
proposed that such Future Funds could rely on the Exemptive Orders,
subject to those orders' term and conditions, pending receipt of the

Renewal Orders.

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 6

agrees that, pending receipt of the Renewal Orders, it will
comply with the terms and conditions in the Exemptive
Orders imposed on Shearson (or one of its predecessors or
affiliates) as though such terms and conditions were
imposed directlý on Smith Barney. The Funds agree that
they would rely on the Renewal Orders when they are '
granted, rather than continuing to rely on the Exemptive
Orders in accordance with any Staff no-action letter issued
in response to this request. The Funds further agree that
such Staff no-action position shall remain in effect only
until the earlier of (i) the date on which the appropriate
Renewal Order is issued or (ii) one year from the date of
the Staff's letter setting forth its no-action position.
We believe that the Funds should be permitted to continue
relying on the Exemptive Orders because the factors
supporting the issuance of those orders are still
applicable to the Funds even though the Funds will have a
different distributor after the Transaction. Moreover,
since, as described above, substantially all of Shearson' s
retail brokerage and asset management businesses are being
transferred to Smith Barney for consideration valued at
approximately $1 billion for valid business reasons, we do
not believe that a question can be raised that the
Transaction was occasioned by a desire on the part of Smith
Barney to acquire use of the Exemptive Orders.
The Staff previously has taken "no-action" positions in
similar situations involving various parties who sought to
continue to rely on exemptive orders despite changes in
circumstances similar to those involved here. 3 In
3 See The PNC Fund (April 2, 1993) (pending receipt of amended
order, investment company can rely on order granted to former
distributor); Cigna Funds Group (July 13, 1992) (investment companies
with a new sponsor can rely on exemptive order relating to deferred
compensation for non-interested trustees even though the order was
granted to their previous sponsor for investment companies sponsored

by such sponsor); Merrill Lynch Federal Securities Trust (Sept. 26,

1991) (investment company can rely on exemptive order permitting dual
distribution system without seeking to amend order even though order
did not originally apply to investment company); First Boston
Corporation (July 3, 1991) (newly created funding corporation can
rely on order exempting a substantially equivalent, but separate,
funding corporation from registration without seeking separate
order); Fiduciary Capital Partners, L.P. (Jan. 24, 1990)
(partnerships can rely on existing order without declaring
independent general partners not to be "interested persons" without

Jeremy N. Rubenstein, Esq.
Securities and Exchange

Commission
June 7, 1993
Page 7

addition, most of these "no-action" positions were not
limited to covering an interim period pending the receipt
of a comparable order.

Conclusion
For the reasons stated above, and, subject to the condition
that the Funds and Smith Barney will comply with the terms
and conditions of the Exemptive Orders pending receipt of
the Renewal Orders, we respectfully request that the Staff
advise that it will not recommend that the Commission take
enforcement action if the Funds and Smith Barney rely on
the Exemptive Orders pending receipt by the Funds of the

Renewal Orders.

We would greatly appreciate your assistance in expediting
this request. Should you have any questions regarding this
request, please contact the undersigned or Avi Katz of this
office at (212) 935-8000.
Very truly yours,

r

~~--~

Burton M. Leibert

cc: Elizabeth G. Osterman, Esq.
John V. O'Hanlon, Esq.

seeking amended or new order despite subsequent replacement of
general partner; and Federated Investors, Inc. (Sept. 22, 1989)
(reorganized entities can rely on order that only applied to

predecessors) .

---

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