SEC Division of Investment Management staff letter: Brown & Wood

February 24, 2000
Our Ref. No. 99-833-CC
RESPONSE OF THE OFFICE OF CHIEF COUNSEL Brown & Wood DIVISION OF INVESTMENT MANAGEMENT File No. 132-3 Your letter dated February 23, 2000, requests our assurance that we would not recommend enforcement action to the Commission under Section 7 of the Investment Company Act of 1940 (rrInvestment Company Actr1) if a business trust with the characteristics described in your letter (rlTrusttt) does not register with the Commission under the Investment Company Act in reliance on Rule 3a-5 thereunder. FACTS You state that the Trust will be a business trust established by a trust declaration, trust agreement or similar instrument ("Trust Agreement") under the laws of either Delaware or another state. The sponsor of the Trust ("Parent") will be a "parent company" as defined* in section (b) (2) of Rule 3a-5 under the Investment Company Act. The Trust, however, will have only one class of securities ("Securities") which will not be owned initially, or possibly ever, by the Parent or a company controlled by the Parent; the Securities will be the only class of securities authorized by the Trust Agreement. Nevertheless, you state that the Trust will be controlled by the Parent in all material respects. You further state that the Parent will agree to pay, directly or indirectly, the expenses of the Trust. In addition, you represent that, under generally accepted accounting principles, the Trust will be accounted for as a subsidiary of the Parent. 1 Section (b) (2) of Rule 3a-5 under the Investment Company Act defines, in relevant part, a "parent companyu as "any corporation, partnership or joint venture:
(i) That is not considered an investment company under
section 3(a) or that is excepted or exempted by order from
the definition of investment company by section 3(b) or by the rules or regulations under section 3(a); (ii) That is organized or formed under the laws of the United States or of a state or that is a foreign private issuer, or that is a foreign bank or foreign insurance company as those terms are used in rule 3a-6 . . . ; and (iii) In the case of a partnership or joint venture, each partner or participant in the joint venture meets the requirements of paragraphs (b) (2) (i) and (ii) . "