SEC Division of Investment Management staff letter: Peninsular & Oriental Steam Navigation Company — SEC — US

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Peninsular & Oriental Steam Navigation Company

October 15, 2003

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

Our Ref. No. 20033211646

DIVISION OF INVESTMENT MANAGEMENT

File No. 033-22639

Your letter dated February 6, 2003 on behalf of Peninsular & Oriental Steam Navigation Company ("P&O") requests that we concur with your view that the Sharesave Plan, as described below, is not a "face-amount certificate of the installment type" under Section 2(a)(15) of the Investment Company Act of 1940 ("Act") and is not a "periodic payment plan certificate" under Section 2(a)(27) of the Act.

FACTS

You state that P&Ois a logistics and transport company organized in the United Kingdom and incorporated under a Royal Charter. P&Ooffers deferred stock ("Deferred Stock") that is listed on the International Stock Exchange of the United Kingdom and Ireland ("London Stock Exchange"), and which you claim is equivalent to a U.S. corporation's common stock. 1

You state that P&Ohas a Sharesave Plan that was created under the laws of the United Kingdom and is currently offered to its employees in the United Kingdom. P&Oand its subsidiaries within the United States ("P&OCompanies") will be offering this same plan to employees in the United States who have been employed by a P&OCompany for at least one year ("Employees"). The plan provides a share appreciation right ("SAR") to each Employee who executes a subscription agreement ("Subscription Agreement") agreeing to make monthly deposits ("Deposits") for 36 months equal to, in U.S. dollars, between five British Pounds and 250 British Pounds. 2 The employer of a subscribing Employee will then automatically deduct the Deposits from the Employee's pay and place them into one of three accounts.

You state that the Deposits will be placed, according to each Employee's instructions, into either: (1) a savings account chosen by a P&OCompany that is established with a bank or thrift institution chartered in the United States and insured by the Federal Deposit Insurance Corporation; (2) a P&OCompany's 401(k) Plan ("401(k) Plan"); or (3) a money market fund registered with the Commission under the Act (together with the savings account and the 401(k) Plan, referred to as "Accounts"). The Deposits will always be in the name of the Employee and will always remain the property of the Employee. Employees will be able to withdraw, at any time, all or some of the Deposits, minus customary commissions, fees, and taxes. 3 You represent that P&Oand the P&OCompanies will not, at any time receive, have the use of or benefit, directly or indirectly, from the Deposits, and at no point will any of the Deposits be transferred to P&Oor to a P&OCompany. 4

You state that in exchange for entering into the Subscription Agreement, P&Owill provide each subscribing Employee with a SAR on a set number of shares, which will be proportional to the anticipated amount of total Deposits that the Employee will make as set forth in the Subscription Agreement. 5 No money from any of the Deposits will be used to purchase the SAR and no money that is deposited by an Employee or deducted from an Employee's pay will be received by P&Oor a P&OCompany. 6 At the conclusion of the 36-month subscription period, each subscribing Employee may exercise the SAR, at which point stock certificates for the Deferred Stock due will be issued. In addition, the Employee will receive the total of all Deposits into the Accounts plus any returns on those Deposits, or subject to the terms of the 401(k) Plan, the amount deposited into the 401(k) Plan and any returns on those deposits. 7

You state that an Employee's SAR will be terminated if any Deposits are withdrawn by the Employee from the Employee's Account during the subscription period or if the Employee voluntarily resigns. Employees who take an unpaid leave of absence due to pregnancy or military reasons may continue to participate in the Sharesave Plan so long as the total Deposits made at the end of the 36-month period equal the aggregate subscription amount. Employees who are terminated by reason of redundancy, injury or disability during the subscription period and executors of Employees who die during the subscription period will have the right to exercise their SAR within six months of termination or death.

You state that P&Owill bear the costs of establishing the Sharesave Plan and any costs of establishing the savings account and the money market fund account. In addition, each P&OCompany will bear the costs of maintaining its 401(k) plan. An Employee participating in the Sharesave Plan will pay only the usual and customary commissions, fees and taxes on the proceeds of sale from the Deferred Stock, 8 and taxes on the interest earned in the savings account or distributions of the money market fund account.

Your letter requests our concurrence with your view that the Sharesave Plan is not a face-amount certificate of the installment type or a periodic payment plan certificate, as defined below. 9

ANALYSIS

Section 2(a)(15) of the Act generally defines a face-amount certificate of the installment type as any security that represents an obligation on the part of its issuer to pay a stated or determinable sum or sums on a fixed or determinable date or dates more than 24 months from issuance in consideration of the payment of periodic installments of a stated or determinable amount. 10 We believe that the Sharesave Plan does not entail the issuance of a face-amount certificate of the installment type because there is no payment being made by an Employee within the meaning of Section 2(a)(15) of the Act in connection with the Sharesave Plan. Our conclusion is based in particular upon your representations that: (i) no money that is deposited by an Employee or deducted from an Employee's pay will be received by P&Oor a P&OCompany; (ii) the Deposits will always be in the name of the Employee and will always remain the property of the Employee, and P&Oand the P&OCompanies will not, at any time receive, have the use of or benefit, directly or indirectly, from the Deposits; (iii) Employees will be able to withdraw, at any time, all or some of the Deposits, minus customary commissions, fees, and taxes; 11 and (iv) at the conclusion of the 36-month subscription period, each subscribing Employee may exercise the SAR, and the Employee will receive the total of all Deposits into the Accounts, or subject to the terms of the 401(k) Plan, the amount deposited in the 401(k) Plan and any returns on those deposits.

In addition, we previously have taken the position, in connection with a deferred compensation plan, that the amount payable to an employee under the plan is not determinable for purposes of Section 2(a)(15) of the Act, "[i]f the amount to be paid an employee by the Plan, or the schedule of when it is to be paid [to] the employee, depends upon or is affected by his employment or non-employment." 12 The Deferred Stock that is payable to an Employee at the end of the 36-month subscription period is the "sum" or amount payable under the Sharesave Plan. You represent that the amount payable under the Sharesave Plan to an Employee depends on, in part, the level of Deposits to the Accounts. 13 The level of Deposits depends, in turn, on an Employee's continued employment with P&Oor a P&OCompany. You also represent that if an Employee voluntarily resigns from P&Oor a P&OCompany, his or her participation in the Sharesave Plan would be terminated.

Further, you indicate that the dates on which an Employee can obtain Deferred Stock through the Sharesave Plan may vary depending on the Employee's employment with P&Oor a P&OCompany. For instance, an Employee's exercise of a SAR would be accelerated to a period not greater than six months after the Employee's termination date if the Employee were terminated from his or her employment with P&Oor a P&OCompany for redundancy. We believe, therefore, that any sum to be paid and the date of payment by P&Oor a P&OCompany to an Employee under the Sharesave Plan are not determinable for purposes of Section 2(a)(15) of the Act. As a result, we believe that the Sharesave Plan does not entail the issuance of a face-amount certificate of the installment type under Section 2(a)(15) of the Act.

Section 2(a)(27) of the Act generally defines a "periodic payment plan certificate" as any security:

providing for a series of periodic payments by the holder, and representing an undivided interest in certain specified securities or in a unit or fund of securities purchased wholly or partly with the proceeds of such payments.

We believe that the Sharesave Plan does not entail a "periodic payment" by the holder ( i.e. , an Employee) because the Employee makes no payment within the meaning of Section 2(a)(27) of the Act in connection with the Sharesave Plan. Our conclusion is based on the same representations that are listed above with respect to an Employee's payment within the meaning of Section 2(a)(15) of the Act. In addition, we believe that the Sharesave Plan does not provide Employees with "an undivided interest in certain specified securities." As a result, we believe that the Sharesave Plan does not entail the issuance of a periodic payment plan certificate under Section 2(a)(27) of the Act.

Our positions in this letter are based on all of the facts and representations made in your letter. Any different facts or circumstances might require a different conclusion. 14

Kenneth C. Fang Attorney

Endnotes:

1 The American Depositary Receipts for the Deferred Stock are registered with the Commission under the Securities Act of 1933 on Form F-6 (File No. 033-22639).

2 You claim that the exchange ratio of British Pounds to U.S. Dollars will be determined in advance of the initial subscription date and disclosed to the employee prior to the completion of the Subscription Agreement.

3 The withdrawal of any Deposit held in a 401(k) Plan would also be subject to the specific requirements of the plan. Telephone conversation on October 10, 2003 between Kenneth C. Fang, of the staff, and Morris N. Simkin, of Winston & Strawn.

Id.

5 Each subscribing Employee will receive a SAR on a set number of shares equal to the anticipated total amount of all Deposits made by the Employee under the Subscription Agreement divided by 80% of the closing price of the Deferred Stock listed on the London Stock Exchange on the Sharesave Plan commencement date. When the SAR is exercised, each Employee would receive Deferred Stock equal to the appreciation in the market price of the Deferred Stock during the subscription period divided by the value of the Deferred Stock on the last day of the 36-month subscription period on the number of shares covered by the SAR.

6 Telephone conversation on October 15, 2003 between Kenneth C. Fang, of the staff, and Morris N. Simkin, of Winston & Strawn.

7 Telephone conversation on October 10, 2003 between Kenneth C. Fang, of the staff, and Morris N. Simkin, of Winston & Strawn.

Id.

9 We note that under the Act, an instrument can be a face-amount certificate of the installment type or a periodic payment plan certificate only if it is a security. Your letter does not analyze, however, and we take no position regarding, whether any security is issued by or in connection with the Sharesave Plan that could be deemed to be a face-amount certificate of the installment type or a periodic payment plan certificate. For purposes of the letter, however, we assume that a security has been issued by or in connection with the Sharesave Plan.

10 Section 3(a)(1)(B) of the Act provides that any issuer that engages or proposes to engage in the business of issuing face-amount certificates of the installment type is an investment company. Section 3(a)(1)(B) of the Act was enacted to protect investors from investing in face-amount certificates that, in essence, compel holders to remain invested in those certificates for several years before yielding any profits. See Hearings on H.R. 10065, Before the Subcomm. on Interstate and Foreign Commerce, 76th Cong., 3d Sess. 134 (1940). See also Report on Investment Trusts and Investment Companies: Companies Issuing Face Amount Installment Certificates (Mar. 13, 1940).

11 Employees who invest in the 401(k) Plan would also be subject to that plan's requirements.

See The Milwaukee Company (pub. avail. Apr. 5, 1982).

Cf. Amrep Corporation (pub. avail. June 19, 1975) (an issuer's payment is determinable when "the agreements specify the yardstick which will be used for measuring benefits that will be paid"). The amount payable under the Sharesave Plan appears also to depend on, in part, the market value of the Deferred Stock on the last day of the 36-month subscription period. If the amount payable were solely dependent on the market value of the Deferred Stock at the end of the period, the amount payable may be deemed to be determinable, for purposes of Section 2(a)(15) of the Act, because the market value of the Deferred Stock would be a "yardstick" used to measure the benefits that will be paid.

14 Your letter also requests that we concur with your view that the offering of the Sharesave Plan does not and will not cause P&O, its subsidiaries outside of the United States, and any P&OCompany to be investment companies under Sections 3(a)(1)(A) and (C) of the Act. Your letter does not, however, provide us with sufficient facts or analysis to determine whether any of P&O, its subsidiaries, and the P&OCompanies is an investment company as defined in those provisions. In particular, the analysis of whether an issuer meets the definition of investment company in Sections 3(a)(1)(A) or (C) of the Act depends, in large part, on the nature of the business and assets of the issuer. Your letter does not, for instance, describe the assets of any of the relevant entities.

Your letter further requests our assurance that, if the Sharesave Plan is an investment company, we would not recommend enforcement action to the Commission under Section 7 of the Act if the Sharesave Plan does not register as an investment company. We note, however, your representation that the Sharesave Plan has already been publicly offered in the United States. Telephone conversation on October 10, 2003 between Kenneth C. Fang, of the staff, and Morris N. Simkin, of Winston & Strawn. As a matter of policy, we do not respond to requests for retroactive no-action relief. Accordingly, we are unwilling to respond to this portion of your request.

Incoming Letter:

WINSTON & STRAWN LLP 200 PARK AVE. NEW YORK, NY 10166-4193 212-294-6700

February 6, 2003

Investment Company Act Section 2(a)(15) Investment Company Act Section 2(a)(27) Investment Company Act Section 2(a)(34) Investment Company Act Section 3(a)(1) Investment Company Act Section 7

Securities and Exchange Commission Division of Investment Management Office of the Chief Counsel 450 Fifth Street, N. W. Washington, D. C. 20549

Re: Peninsular & Oriental Steam Navigation Company

Ladies and Gentlemen:

We are writing on behalf of Peninsular & Oriental Steam Navigation Company (" P&O "), which was organized in 1837 and became a corporation organized under a Royal Charter in the United Kingdom, to obtain your concurrence in our opinion that:

The Sharesave Plan, as explained more fully below, currently offered to the employees of P&O, its subsidiaries outside the United States and to be offered to employees of its subsidiaries within the United States ("P&OCompanies") is not a face-amount certificate within the meaning of Section 2(a)(15) of the Investment Company Act of 1940, as amended ("Investment Company Act");

The Sharesave Plan currently offered to employees of P&Oand its subsidiaries and to be offered to the employees of the P&OCompanies is not a periodic payment plan certificate within the meaning of Section 2(a)(27) of the Investment Company Act;

The offering of the Sharesave Plan by P&Oand its subsidiaries and the proposed offering by the P&OCompanies does not and will not cause P&O, its subsidiaries and the P&OCompanies to be investment companies within the meaning of Section 3(a)(1) of the Investment Company Act; and

Even if the Sharesave Plan is an investment company, it is not offering for sale or selling securities, and, therefore, no enforcement action can be taken against it under Section 7 of the Investment Company Act.

Background

P&Owas organized in the United Kingdom in 1837 and incorporated under a Royal Charter granted in 1840. It is one of the world's largest logistics and transport companies. Among other things, it develops container ports, operates terminals at ports, provides ferry services, provides cold logistics services and through a joint venture is the world's second largest container shipping line. The Deferred Stock of P&Ois the equivalent of a U. S. corporation's common stock. The Deferred Stock is listed on the International Stock Exchange of the United Kingdom and Ireland (" London Stock Exchange "). P&Ohas submitted to the Securities and Exchange Commission (" Commission ") the information called for under Securities Exchange Act Rule 12g3-2(b) (File No. 82 - 2083). American Depositary Receipts for Deferred Stock (" ADRs "), sponsored by P&O, have been registered with the Commission under the Securities Act of 1933, as amended (" Securities Act "), on Form F-6 (File Number 33-22639). The ADRs are quoted in the "pink sheets".

P&Ohas some 26,900 employees worldwide. Its subsidiaries, wholly owned and majority owned, in the United States employ approximately 1200 people. P&Ohas in place a Sharesave Plan for its employees in the United Kingdom. It intends to offer the Sharesave Plan, with modifications, where necessary to reflect the laws and practices of a specific country, to all of its employees worldwide.

Employees in the United States who have been employed by a P&OCompany one year or more will be offered the opportunity to subscribe to the Sharesave Plan. The participating employee shall execute a Subscription Agreement to deposit monthly for 36 months an amount selected by the employee equal to the U. S. Dollar equivalent of between Five British Pounds and Two Hundred and Fifty British Pounds, at an exchange ratio of British Pounds to U.S. Dollars determined in advance of the initial subscription date and disclosed to the employee before completion of the Subscription Agreement. The deposit will be made into a savings account established in the name of that employee with a bank or thrift institution chartered in the United States the deposits of which are insured by the Federal Deposit Insurance Corporation selected by the P&OCompanies. In place of using a savings account, an employee of a P&OCompany may direct that the money be placed in the employee's account with the P&OCompany 401(k) Plan or in an account in the name of the employee with a money market management company registered with the Commission under the Investment Company Act of 1940. (Hereafter, deposits, whether into a savings account, the employees' accounts with their employer's 401(k) Plan or into a mutual fund, are referred to as " Deposits " and such various accounts are referred to as " Accounts ".) None of the investments offered under the 401(k) Plan consist of P&ODeferred Stock. The employer of the subscribing employee will deduct this amount from the employee's pay.

P&Owill calculate the anticipated total deposit by a participating employee under the Subscription Agreement. P&Owill determine the closing price of its Deferred Stock on the London Stock Exchange on the Sharesave Plan commencement date. That is currently anticipated to be March 2, 2003 for the first periodic Sharesave Plan. P&Owill deduct twenty percent off that closing price and divide the resulting number into the total amount scheduled to be deposited by the participating employee. P&Owill award the subscribing employee a Share Appreciation Right ("SAR") for that number of shares, ignoring any fractional shares resulting from the computation.

After completion of the 36-month subscription period, the subscribing employee may exercise the SAR. The employee will receive a number of shares of P&ODeferred Stock equal to the appreciation in market price from the Sharesave Plan commencement date on the number of shares covered in the SAR divided by the closing price of P&ODeferred Stock at the close of trading on the London Stock Exchange on the last business day of the thirty-sixth month from the Sharesave Plan commencement date.

By way of example: Assume the employee's total Deposits (in United States Dollars) aggregate $3,600; and the closing price of P&ODeferred Stock on the commencement date is $7.50. The employee would be awarded an SAR for 600 shares ($7.50 minus 20% equals $6.00; $3,600 divided by 6 equals 600). Assume that on the completion of the subscription period, the closing price of P&ODeferred Stock is $10.00, the employee exercising the SAR would receive 240 shares of P&ODeferred Stock ($10.00 minus the base of $6.00 equals $4.00; this is multiplied by the 600 shares in the SAR ($2,400) and is divided by the closing price ($10.00) for a total of 240 shares). In addition, the employee would receive the total Deposits into the Accounts or would retain the amount credited to his/her 401(k) Plan account or money market mutual fund account.

P&Owill bear the costs of establishing and operating the Sharesave Plan, and the costs of establishing the savings accounts and the mutual fund accounts. The P&OCompanies bear the cost of maintaining their respective 401(k) Plans for their U.S. employees. In addition, P&Owill arrange, at its expense, for a depositary in the United Kingdom to hold the shares of P&ODeferred Stock issued upon exercise of the SAR for and in the name of the employee. The depositary will follow the directions of the employee either to sell the shares on the London Stock Exchange, hold the shares or cause a certificate to be issued to the employee for the covered shares with appropriate legends reflecting its status as restricted stock under the Securities Act. In the case of a sale by an employee, the employee would pay the usual and customary commissions, fees and taxes. Because the certificates issued for the Deferred Stock received under the Sharesave Plan will be restricted they may not be exchanged for ADRs for the Deferred Stock and could not be easily resold in the Untied States.

An employee may at any time withdraw all or some of the Deposits in any of the Accounts or, in the case of the account with the 401(k) Plan subject to the Plan documents. Such a withdrawal constitutes a voluntary termination of the SAR by the employee. An employee who resigns from employment with a P&OCompany ceases to participate in the Sharesave Plan and may withdraw the total of all Deposits in the Accounts, but will have no right to receive any shares of Deferred Stock. The resigning employee's rights to his/her account in the 401(k) Plan are determined under the 401(k) Plan's documents. An employee who takes an unpaid leave of absence due to pregnancy or military leave may continue to participate in the Sharesave Plan so long as by the end of the 36 month period the employee has made Deposits into the Accounts equal to the aggregate subscription amount.

Employees who are terminated by reason of redundancy, injury or disability will have the right, within six months of termination of employment, to exercise their SAR. The executors of employees who die during the subscription period will have the right, for six months after the date of death, to exercise the SAR. In each case, the amount of Deferred Stock available to them will be calculated as follows: The number of Deferred Stock in the SAR will be multiplied by a fraction, the numerator of which is the number of months the employee participated in the Sharesave Plan and the denominator of which is 36. This new number will be multiplied by the appreciation in the price of the P&ODeferred Stock from the date the Sharesave Plan commenced to the date of death or termination. That product will be divided by the closing price of P&ODeferred Stock in the date of death or termination. Otherwise, either of these employees -- deceased or terminated -- may withdraw the total of the Deposits in the Accounts and in the case of the account with the 401(k) Plan pursuant to the Plan's documents.

The decision of the employee to participate in the Sharesave Plan, the amount the employee will deposit pursuant to the Subscription Agreement within the minimum and maximum limits of the Sharesave Plan, and whether to deposit such amounts into a savings account, the employee's account in the 401(k) Plan or with a money market mutual fund are voluntary decisions of the employee. Once an employee has subscribed the employee may terminate that subscription at any time up to and through expiration of the subscription period and receive the total of all Deposits in the Accounts or, subject to the terms of the 401(k) Plan, the amount deposited in the 401(k) Plan. If an employee exercises his/her SAR rights, stock certificates for the P&ODeferred Stock due will be issued, and the employee will receive back the total of all Deposits into the Accounts and in the case of the 401(k) Plan Deposits into their account the amount attributable to the Subscription Agreement will not be affected by the exercise of the SAR. An employee participating in a Sharesave Plan only pays the usual and customary commissions, fees, and taxes on the proceeds of sale and taxes on the interest earned on funds in the savings account, or distributions of the money market mutual fund.

Discussion

The Sharesave Plan fails to comply with the provisions of Investment Company Act Section 3(c)(11) for exclusion from the definition of an investment company. Therefore, the issue is whether it or interests in it would cause the Sharesave Plan to be established by the P&OCompanies to be an investment company.

Whether the staff agrees or disagrees with our analysis, the requested "no action" relief should be issued because the Sharesave Plan does not come within the ambit of companies intended to be covered under the Investment Company Act. As described by Tamar Frankel and Ann Taylor Schwing in The Regulation of Money Managers, 2d ed., page 5-7:

Investment companies are institutional intermediaries. They issue their own obligations to investors and use the proceeds they receive for their obligation to invest in the obligations of others. Investment companies are distinguished from other institutional intermediaries in that they issue securities and invest in securities, whereas other institutional intermediaries may issue, and invest in, other types of obligations.

As described herein, the Sharesave Plan does not meet this test.

Section 2(a)(27)

One of the elements of being a periodic payment plan certificate under Section 2(a)(27) is that the securities being or to be purchased are paid for with the amounts deposited during the accumulation period. In the case of the Sharesave Plan the Deposits into the Accounts will be retained by the employee making the deposit. P&Oand its subsidiaries do not, and the P&OCompanies will not, at any time receive, have the use of or benefit, directly or indirectly, from the Deposits. The Deposits are the property of the depositing employee, and may be reclaimed by that employee at any time, which will effect a withdrawal from the Sharesave Plan or reclaimed at the time the employee exercises the SAR.

Therefore, we are of the opinion that the Sharesave Plan of P&Ois not a periodic payment plan certificate.

Section 2(a)(15) and Section 3(a)(1)(B)

It is our opinion that the Sharesave Plan is not a face-amount certificate of the installment type within the contemplation of the Investment Company Act, and the Sharesave Plan, P&O, its subsidiaries and the P&OCompanies will not be investment companies within the meaning of Section 3(a)(1)(B) of the Investment Company Act.

The Commission's supplement to its Investment Trusts and Investment Companies Report relating to companies issuing face-amount installment certificates, dated March 13, 1940 ("Supplement"), described a face-amount installment certificate as:

[T]hese certificates are, in essence, simply unsecured obligations of the companies, which issue them to pay a specified sum (called the face-amount maturity value or amount) to the holders on a specified future date� (Supplement PP 1-2)

In testifying on S. 3580, which led to the Investment Company Act, Commissioner Healy defined a face-amount certificate company as follows:

In essence, the certificates sold by those companies are contracts between the corporation which issues them and the purchaser, whereby in consideration of the payment of certain specified installments the corporation agrees to pay to the purchaser at maturity a definite sum, the "face-amount" of the certificate or to pay prior to maturity a specified surrender value of the certificates. (Hearings on S. 3850 Before the Senate Committee on Banking and Currency, 76th Cong., 3rd Session at 440 (1940)(" Hearings ")

Later in the Hearings, Commissioner Matthews testified that:

Another type of the installment plan company is one that issues a fixed amount of certificates, promising to pay back at the end of X years a fixed number of dollars in return for the payment to the institution of so many dollars a month over that period. (Hearings, at 134)

The Senate Report which accompanied S. 4108, which was the Investment Company Act originally enacted, stated:

The so-called face-amount certificates are in essence contracts between the corporation which issues them and the purchaser, whereby in consideration of the payment of certain specified installments the corporation agrees to pay to the purchaser at maturity a definite sum, the face amount of the certificate� (Senate Report No. 1775 (76th Cong., 3rd Sess., June 6, 1940) p.3)

The House Report on this legislation stated at page 6:

Face-amount certificate companies� sell to the public face-amount certificates whereby in considerations of the payment of certain specified installments the corporation agrees to pay the purchaser at maturity a definite sum, the face amount of the certificates� (House Report No. 2639 (76th Cong., 3rd Sess., June 18, 1940))

Further, regarding this analysis is the Commission's description of face-amount certificate companies in "Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth." House Report No. 2337, 89th Cong., 2d sess., 1966 (" PPI Report "). In the PPI Report the Commission described face-amount certificate companies that issue face-amount certificates as follows:

These certificates are contracts under which the company is bound to pay a fixed sum at maturity (the face-amount of the certificate) to a purchaser who has made a single payment or a series of specified payments�. Face-amount certificates are fixed-dollar obligations offering an almost entirely predetermined rate of return. They are debt, not equity securities�. (PPI Report, pp. 37-38)

Implicit in all of these comments is that there is a contract between the issuer and purchaser whereby in exchange for the purchaser's payment of specified sums in periodic installments the seller will pay a stated amount at the maturity of the contract or a discounted amount at an earlier date. That is not the case with the Sharesave Plan. No money paid by or withheld from the salary of an employee of P&Oor its subsidiaries or that will be withheld from the salaries of employees of P&OCompanies goes or will go to the employer or to P&O. The Deposits are returned to the employee upon the employee's withdrawal from the Sharesave Plan, at maturity of the Sharesave Plan, or upon the employee's exercise of the SAR award.

The savings accounts, whether established by a P&OCompany or by an employee of a P&OCompany, with U.S. chartered banks or thrifts the deposits of which are insured by the Federal Deposit Insurance Corporation are not securities and are subject to an extensive bank regulatory scheme. 401(k) plans that do not include securities of the employer or an affiliate of the employer have not been held to be a security, and are subject to extensive regulation by the Department of Labor. The money deposited by the employees participating in a Sharesave Plan are not being used to buy a security. Deposits in the Account of an employee in a Commission registered mutual fund selected by the employee is subject to the Investment Company Act.

Therefore, we are of the opinion that the Sharesave Plan of P&Oand P&O, its subsidiaries and the P&OCompanies are not and will not be face amount certificate companies and will not be investment companies within the meaning of Section 3(a)(1)(B) of the Investment Company Act.

Sections 3(a)(1)(A) and 3(a)(1)(C); Section 2(a)(13)

The Sharesave Plan does not come within either of Section 3(a)(1)(A) or 3(a)(1)(C) of the Investment Company Act. Section 3(a)(1)(A) defines as an investment company an entity that is or proposes to be in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) defines as an investment company a company that has or proposes to acquire investment securities with a value in excess of 40% of the company's total assets. There are no securities in the Sharesave Plan. If and when securities, P&ODeferred Stock, are issued they are issued to and in the name of the employee exercising an SAR. There is no money in the Sharesave Plan. All monies taken from employee payrolls are deposited in Accounts in the name of the employee.

Therefore, it is our opinion that the Sharesave Plan of P&Oand its subsidiaries and that will be offered to the employees of P&OCompanies and that P&O, its subsidiaries and the P&OCompanies are not and will not be investment companies within the meaning of Sections 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act.

An argument could be raised that the Sharesave Plan is an employees' securities company within the meaning of Section 2(a)(13) of the Investment Company Act. The definition of employees' securities company in Section 2(a)(13) requires that (i) the Sharesave Plan be an investment company or similar issuer, and (ii) all of the securities issued by the Sharesave Plan are held by employees of affiliated companies. As discussed above, the Sharesave Plan is not an investment company, nor does the Sharesave Plan show any of the characteristic of a pooled investment vehicle, which we gather is what is meant by the term "similar issuer" in Section 2(a)(13). If the Sharesave Plan was an employees' securities companies, it would have to file an application for exemption under Investment Company Act Section 6(b) from those provisions of the Investment Company Act where exemption would be consistent with the protection of investors.

The Sharesave Plan has no assets, holds no funds and holds no securities. There is no discretion in its administration. The only decision making in the Sharesave Plan structure is that of the employees-- whether to participate and the amount of their salary to contribute, and whether the contribution should be deposited in a savings account in the employee's name at a depository selected by the P&OCompanies or selected by the employee, the employee's account with its 401(k) Plan or with a Commission registered mutual fund and, if there has been an appreciation in the price of P&O's Deferred Stock, to exercise the SAR. There is no good reason to define the Sharesave Plan as an employees' securities companies and require it to file the application for exemption under Section 6(b).

Section 7

The Sharesave Plan is created under the laws of the United Kingdom and does not have a board of directors. If it were an "investment company", Section 7(d) would prohibit it from offering for sale, selling or delivering after sale any security of which it is the issuer. First, the security to be delivered after sale is not a security of the Sharesave Plan but shares of P&ODeferred Stock. Second, and more significantly, there is no sale being made by the Sharesave Plan. No money ever flows from an employee to P&Oor the Sharesave Plan.

Section 2(a)(34) defines "sale", "sell", "offer to sell" and "offer for sale" in language almost identical to the definitions in Securities Act Section 2(a)(3). Enclosed is a copy of a letter we have submitted to the General Counsel of the Division of Corporation Finance that the P&O Sharesave Plan does not involve an offer to sell, a sale or attempt to dispose of a security. The same reasons set forth in that letter apply to Section 2(a)(34). Therefore, it is our opinion that the provisions of Section 7(d) do not apply to the P&OSharesave Plan.

If you have any questions or wish additional information please feel free to contact the undersigned. If you determine that you are unable either to concur in our views on these matters or grant the requested "no action" relief, we specifically ask that you contact the undersigned prior to transmittal of your response.

Very truly yours,

Morris N. Simkin

MNS:nr Enclosure

http://www.sec.gov/divisions/investment/noaction/peninsular101503.htm

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Modified: 10/20/2002