Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices 54485

the Plan by: (a) The applicant’s

shareholders, or (b) an order of the

Commission, will be granted a

nonqualified stock option to purchase

5,000 shares of common stock, $.01 par

value (the ‘‘Common Stock’’), of

applicant that will vest 50%

immediately and 162⁄3% on the first,

second, and third anniversaries of the

date of the grant. Each new Nonemployee Director will be granted upon

his or her election a nonqualified stock

option for a similar number of shares. In

addition, beginning with the 1998

annual meeting of shareholders of

applicant, each Non-employee Director

elected will, on the first business day

following the annual meeting, be

granted a nonqualified stock option to

purchase 2,000 shares of Common

Stock. The exercise price of the options

will be the closing price of the Common

Stock on the American Stock Exchange

on the date the option is granted or, if

no market for the Common Stock exists,

the current net asset value of the shares

of the Common Stock. Each option will

be exercisable during the period

beginning six months after the date of

the grant and ending ten years after the

date of the grant.

6. In the event that a Non-employee

Director’s services are terminated

because of death, permanent disability,

or retirement, any invested options will

vest, and the Non-employee Director or,

if the Non-employee Director is not

living, the Non-employee Director’s

estate, may exercise his or her options

during the one-year period following the

date of death, permanent disability, or

retirement. The termination of a Nonemployee Director’s services will not

otherwise accelerate the termination

date of his or her options. Options may

not be assigned or transferred other than

by will or the laws of descent and

distribution.

Applicant’s Legal Analysis

1. Section 63(3) of the Act permits a

BDC to sell its common stock at a price

below current net asset value upon the

exercise of any option issued in

accordance with section 61(a)(3) of the

Act.

2. Section 61(a)(3)(B) of the Act

provides, in pertinent part, that a BDC

may issue to its Non-employee Directors

options to purchase its voting securities

pursuant to an executive compensation

plan, provided that: (a) The options

expire by their terms within ten years;

(b) the exercise price of the options is

not less than the current market value

of the underlying securities at the date

of the issuance of the options, or if no

market exists, the current net asset value

of the voting securities; (c) the proposal

to issue the options is authorized by the

BDC’s shareholders, and is approved by

order of the SEC upon application; (d)

the options are not transferable except

for disposition by gift, will or intestacy;

(e) no investment adviser of the BDC

receives any compensation described in

paragraph (1) of section 205 of the

Advisers Act, except to the extent

permitted by clause (A) or (B) of that

section; and (f) the BDC does not have

a profit-sharing plan as described in

section 57(n) of the Act.

3. In addition, section 61(a)(3)(B) of

the Act provides that the amount of the

BDC’s voting securities that would

result from the exercise of all

outstanding warrants, options, and

rights at the time of issuance may not

exceed 25% of the BDC’s outstanding

voting securities, except that if the

amount of voting securities that would

result from the exercise of all

outstanding warrants, options, and

rights issued to the BDC’s directors,

officers, and employees pursuant to an

executive compensation plan would

exceed 15% of the BDC’s outstanding

voting securities, then the total amount

of voting securities that would result

from the exercise of all outstanding

warrants, options, and rights at the time

of issuance will not exceed 20% of the

outstanding voting securities of the

BDC.

4. Applicant represents that the Plan

and the options that would be granted

automatically to current and future Nonemployee Directors would comply with

the requirements of section 61(a)(3)(B)

of the Act. In addition, in support of its

application, applicant states that its

directors devote substantial time and

attention to matters relating to

applicant’s portfolio companies, thus

functioning more like the board of an

operating company than the board of a

traditional investment company.

Applicant relies extensively on the

judgment and experience of its

directors, and believes that these factors

are critical to its success. Further,

applicant states that the Plan would

provide incentives to the Non-employee

Directors to remain on the Board and

devote their best efforts to the success

of applicant’s business.

5. Applicant submits that the terms of

the Plan are fair and reasonable and do

not involve overreaching of applicant or

its shareholders. Under the Plan, the

amount of stock options that would be

granted to the six current Non-employee

Directors would be 30,000 shares in

1997 and 12,000 shares each year

commencing in 1998, or approximately

1% of the 4,300,682 shares of Common

Stock outstanding. Applicant submits

that, given the relatively small number

of options that may be granted and

exercised by Non-employee Directors

under the Plan, the exercise of stock

options pursuant to the Plan will not

have a substantial dilutive effect on the

net asset value of applicant’s Common

Stock. In addition, the total amount of

voting securities that would result from

the exercise of all outstanding warrants,

options, and rights at the time of

issuance would not exceed 20% of the

outstanding voting securities of the

applicant. Further, because the options

may not be exercised until six months

after the date of grant and 50% of the

stock options granted to Non-employee

Directors vest on a ratable basis over the

three years following the date of grant,

the plan provides Non-employee

Directors with an incentive to remain

with the applicant.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27656 Filed 10–17–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22851; 812–10356]

Investors Bank & Trust Company, et

al.; Notice of Application

October 10, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for an

order under (i) section 12(d)(1)(J) of the

Investment Company Act of 1940 (the

‘‘Act’’) granting relief from section

12(d)(1) of the Act; (ii) sections 6(c) and

17(b) of the Act granting relief from

section 17(a) of the Act; and (iii) section

17(d) of the Act and rule 17d–1 to

permit certain joint transactions.

SUMMARY OF APPLICATION: Applicants

request an order to permit the lending

agent for certain investment companies

to invest cash collateral derived from

securities lending transactions in shares

of affiliated registered investment

companies organized as a master-feeder

fund.

APPLICANTS: Investors Bank & Trust

Company (the ‘‘Bank’’); Merrimac Funds

(the ‘‘Feeder Trust’’), on behalf of its

Merrimac Cash Fund and Merrimac

Treasury Fund, each a series of the

Feeder Trust, and each other series of

the Feeder Trust established in the

future in which cash collateral from

securities lending transactions may be

invested (collectively, the ‘‘Feeder
54486 Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices

1The Premium Class shares are subject to a $10

million minimum investment requirement.

2The Merrimac Cash Portfolio may invest in U.S.

Treasury bills, notes and bonds, and other

instruments issued or guaranteed by the U.S.

Government or its agencies or instrumentalities

(‘‘U.S. Government Obligations’’); securities of U.S.

and non-U.S. banks and thrift organizations;

corporate debt obligations; asset-backed securities;

variable rate obligations; and repurchase

agreements that the collateralized by the securities

listed above. The Merrimac Treasury Portfolio

invests at least 65% of its assets in U.S. Government

Obligations. All investments of each Portfolio will

qualify as ‘‘eligible securities’’ within the meaning

of rule 2a–7 under the Act. Moreover, each Feeder

Fund and Master Fund will seek to maintain a

stable net asset value by valuing the portfolio using

the amortized cost method and will comply with

the requirements of rule 2a–7 under the Act.

3The Bank will not be an affiliated person of any

Lending Fund or an affiliated person of an affiliated

person of any Lending Fund within the meaning of

section 2(a)(3) of the Act, except that, if any

Lending Fund directly or indirectly owns, controls,

or holds with the power to vote 5% or more of the

shares of a Master Fund, the Bank will be an

affiliated person of an affiliated person of the

Lending Fund. Moreover, no Lending Fund will be

an affiliated person of any Feeder Fund or an

affiliated person of an affiliated person of any

Feeder Fund, except that a Lending Fund may (i)

directly or indirectly own, control, or hold with

power to vote more than 5% of the voting securities

of a Feeder Fund or a Master Fund, or (ii) be an

affiliated person of another Lending Fund that

directly or indirectly owns, controls, or holds with

the power to vote more than 5% of the voting

securities of a Feeder Fund or Master Fund.

4Certain Lending Funds participating in the

Program may be management investment

companies that hold themselves out as ‘‘money

market funds’’ and comply with the requirements

of rule 2a–7 under the Act (‘‘Money Market Lending

Funds’’).

Funds’’); Merrimac Master Portfolio (the

‘‘Master Trust’’), on behalf of its

Merrimac Cash Portfolio and Merrimac

Treasury Portfolio, each a series of the

Master Trust, and each other series of

the Master Trust established in the

future in which a Feeder Fund invests

(collectively, the ‘‘Master Funds’’); and

all registered management investment

companies and series that may

participate from time to time as lenders

(collectively, the ‘‘Lending Funds’’) in

the securities lending program

administered by the Bank (the

‘‘Program’’).

FILING DATES: The application was filed

on November 15, 1996, and

amendments to the application were

filed on June 10, 1997, and September

29, 1997.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application 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

November 5, 1997, and should be

accompanied by proof of service on the

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, D.C. 20549.

Investors Bank & Trust Company, 200

Clarendon Street, Boston, MA 02116;

Merrimac Funds, 200 Clarendon Street,

Boston, MA 02116; and Merrimac

Master Portfolio, P.O. Box 501, Cardinal

Avenue, George Town, Grand Cayman,

Cayman Islands, BWI.

FOR FURTHER INFORMATION CONTACT:

Brian T. Hourihan, Senior Counsel, at

(202) 942–0526, or Mary Kay Frech,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch, 450 Fifth

Street, N.W., Washington, D.C. 20549

(tel. (202) 942–8090).

Applicants’ Representations

1. The Feeder Trust is a Delaware

business trust organized under a Master

Trust Agreement and registered as an

investment company under the Act. The

Feeder Trust has established two series,

the Merrimac Cash Fund and the

Merrimac Treasury Fund, each of which

has three classes (the ‘‘Premium Class,’’

the ‘‘Institutional Class,’’ and the

‘‘Placement Class’’) of shares. Lending

Funds will acquire only Premium Class

shares.1 Shares of the Feeder Trust are

sold without a distributor exclusively to

‘‘accredited investors’’ in accordance

with the requirements of Regulation D

under the Securities Act of 1933. Each

Feeder Fund will be a ‘‘feeder’’ in a

‘‘master-feeder’’ structure with the

Master Trust and invest all of its

investable assets in a Master Fund

having the same investment objective

and policies as the Feeder Fund.

2. The Master Trust is a New York

common law trust established under a

Declaration of Trust and registered as an

investment company under the Act. The

Master Trust has established two series,

the Merrimac Cash Portfolio and the

Merrimac Treasury Portfolio.2 Interests

in each Master Fund are offered

exclusively to one or more Feeder

Funds and to other ‘‘accredited

investors.’’ Shares of the Master Trust

are sold without a distributor and are

not subject to a sales load, redemption

fee, asset-based sales charge (as defined

in rule 2830(b)(8)(A) of the Conduct

Rules of the National Association of

Securities Dealers), or shareholder

servicing fee.

3. The Bank, a wholly-owned

subsidiary of Investors Financial

Services Corp., is a Massachusetts

chartered trust company. The Bank

provides domestic and global custody,

multi-currency accounting, institutional

transfer agency, performance

measurement, foreign exchange,

securities lending and mutual fund

administration services to a variety of

financial asset managers, including

mutual fund complexes, investment

advisers, banks and insurance

companies. The Bank acts as agent for

its clients for both international and

domestic securities lending services.

4. The Bank and one or more of its

affiliates will serve as custodian,

transfer agent, and administrator to each

Feeder Fund and Master Fund. The

Bank also will serve as the investment

adviser to each Master Fund. Applicants

anticipate that one or more entities will

serve as a sub-adviser to each Master

Fund. The Bank will be responsible for

the payment of all fees for the services

of any sub-adviser. The Bank will

charge each Feeder Fund and Master

Fund, as applicable, fees for services it

provides as custodian, transfer agent,

administrator and investment adviser.

5. From time to time, the Bank will be

appointed to serve as lending agent for

various Lending Funds.3 The Bank will

enter into a securities lending

authorization agreement (a ‘‘Lending

Agreement’’) with each Lending Fund.4

The Lending Agreement will authorize

the Bank, as agent for the Lending Fund,

to lend portfolio securities of the

Lending Fund to each person designated

by the Lending Fund as an eligible

borrower (each, a ‘‘Borrower’’), and to

enter into a master borrowing agreement

with each Borrower (each, a ‘‘Borrowing

Agreement’’). The pool of eligible

Borrowers may be modified from time to

time by each Lending Fund, acting

through its authorized officers.

6. The Lending Agreement and the

Borrowing Agreement will establish, for

each transaction, the initial and ongoing

collateralization requirements, the types

of collateral that may be accepted, and

the manner in which the Borrower’s

return on the collateral (the ‘‘Borrower’s

Rebate’’) will be established. The

Lending Agreement will (i) fix the

percentage difference between the

Borrower’s Rebate and the actual return

on the investment of the collateral (the

‘‘Net Income’’) to be retained by the

Lending Fund and the percentage to be
Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices 54487

5The Borrowing Agreement will provide that

within three trading days (or such other time period

as is the customary settlement period for the loaned

securities) of the Lending Fund giving notice of the

termination of any loan, the Borrower is required

to transfer the loaned securities (or certificates for

identical securities) to the Bank, as agent for the

Lending Fund, or to the Lending Fund’s custodian,

and pay to the Bank or to the Lending Fund’s

custodian the amount of all dividends and

distributions that would have been payable to the

Lending Fund on or with respect to such securities

if they had not been loaned, to the extent not

previously paid.

6Cash collateral from transactions in which the

lender is a Money Market Lending Fund will not

be used to acquire shares of any Feeder Fund that

does not comply with the requirements of rule 2a–

7.

paid by the Lending Fund to the Bank,

and (ii) authorize the Bank, as agent for

the Lending Fund, to negotiate the

Borrower’s Rebate for each transaction

and to commit the Lending Fund to pay

the Borrower’s Rebate. The Lending

Fund will be responsible for paying the

Borrower’s Rebate and returning the

principal amount of the collateral to the

Borrower. Each loan will be terminable,

at any time, by the Borrower or the

Lending Fund.

7. During the term of each loan, the

Lending Fund will retain the economic

rights of an owner of the securities that

are the subject of a loan, including the

right to receive from the Borrower all

dividends and distributions made with

respect to those securities. The Bank

will monitor corporate actions with

respect to securities loaned by each

Lending Fund and will reallocate or

terminate loans at the direction of the

Lending Fund, as necessary, to enable

the Lending Funds to vote those

securities.5

8. Applicants anticipate that the

collateral delivered in connection with

most loans will consist of cash. In order

to maximize investment return on the

securities lending activities, each

Lending Agreement will authorize the

Bank, as agent for the Lending Fund, to

invest the cash in shares of one or more

Feeder Funds, in accordance with the

terms of the Lending Agreement and

instructions received from authorized

officers of the Lending Fund.6 The

Bank, as agent for a Lending Fund, will

not purchase shares of any Feeder Fund

with cash collateral unless participation

in the Program has been approved by a

majority of the directors or trustees of

the Lending Fund who are not

‘‘interested persons’’ of the Lending

Fund within the meaning of section

2(a)(19) of the Act. Such directors or

trustees will also evaluate the Program

no less frequently than annually, and

determine that investing cash collateral

in the Feeder Fund is in the best

interests of the shareholders of the

Lending Fund. Each Lending Fund will

reserve the right to rescind

authorization to invest in a Feeder

Fund. Moreover, each Lending Fund

that authorizes the Bank to invest cash

collateral in a Feeder Fund will be

provided a copy of the confidential

offering circular for such Feeder Fund,

and with such other disclosure

documents that the Bank determines

may be appropriate to ensure that each

Lending Fund is fully informed with

respect to the investment considerations

and risks associated with investing cash

collateral in the Feeder Funds.

9. Applicants request an order to

permit (i) the Bank, as agent of the

Lending Funds, to invest cash collateral

derived from loaned securities in shares

of the Feeder Trust; and the Lending

Funds to purchase from the Feeder

Trust, and (ii) the Feeder Trust to sell

to the Lending Funds, shares issued by

the Feeder Trust. Applicants also

request an order to permit the Lending

Funds, the Feeder Trust, the Master

Trust, and the Bank to effect certain

joint transactions incident to the

Program.

Applicants’ Legal Analysis

A. Section 12(d)(1)

1. Section 12(d)(1)(A) of the Act

provides that no registered investment

company may acquire securities of

another investment company

representing more than 3% of the

acquired company’s outstanding voting

stock, more than 5% of the acquiring

company’s total assets, or, together with

the securities of other investment

companies, more than 10% of the

acquiring company’s total assets.

Section 12(d)(1)(B) provides that no

registered open-end investment

company may sell its securities to

another investment company if the sale

will cause the acquiring company to

own more than 3% of the acquired

company’s voting stock, or if the sale

will cause more than 10% of the

acquired company’s voting stock to be

owned by investment companies.

2. Section 12(d)(1)(J) provides that the

SEC may exempt any person or

transaction from any provision of

section 12(d)(1) if and to the extent that

such exemption is consistent with the

public interest and the protection of

investors. Applicants request an

exemption under section 12(d)(1)(J) to

permit the Bank, as agent of the Lending

Funds, to invest cash collateral derived

from loaned securities in the Feeder

Funds in excess of the limits imposed

by section 12(d)(1) of the Act.

3. Applicants believe that the

investment of cash collateral by Lending

Funds in the Feeder Funds will provide

Lending Funds with the opportunity to

maximize returns with less investment

risk than if the cash collateral received

by each Lending Fund were segregated

in a separate account from which

purchases and sales of securities would

be made. In addition, applicants believe

that participation in the Program will

permit the Lending Funds to minimize

credit risk and interest rate risk through

diversification. Applicants also believe

that the administrative burdens, such as

the daily monitoring of total assets and

other investments of the Lending Funds

associated with compliance with section

12(d)(1) may impair the ability of the

Bank to provide securities lending

services to Lending Funds in an

economical and administratively

efficient manner, and, therefore, may

create competitive disadvantages for the

Lending Funds relative to other

institutional investors that seek to

engage in securities lending activities.

4. Applicants submit that the

investment of cash collateral received in

connection with securities loans by

Lending Funds in the Feeder Funds

does not give rise to the policy concerns

of section 12(d)(1), which include

unnecessary duplication of costs (such

as sales loads, advisory fees, and

administrative costs), and undue

influence by the fund holding company

over its underlying funds arising from

the threat of large scale redemptions of

the securities of the underlying

investment companies. Applicants state

that there will be no layering of sales or

distribution charges because shares of

the Feeder Funds acquired by the

Lending Funds will be sold without a

sales charge or redemption fee and the

assets allocated to the Lending Funds

will not be subject to any asset-based

sales charge. Applicants also state that

each Master Fund will be structured to

accommodate the increased needs of

liquidity associated with securities

lending transactions by maintaining an

appropriate average weighted maturity

or effective duration and, therefore, will

not be susceptible to control through the

threat of large scale redemptions.

Accordingly, applicants believe that the

requested exemption from section

12(d)(1) is consistent with the public

interest and the protection of investors.

B. Section 17(a)

1. Sections 17(a) (1) and (2) of the Act

make it unlawful for any affiliated

person of a registered investment

company, or any affiliated person of an

affiliated person, acting as a principal,

to sell any security to, or purchase any

security from, such registered

investment company. From time to
54488 Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices

7See Keystone Custodian Funds, Inc., 21 S.E.C.

295 (1945).

8See e.g. Sife Trust Fund (pub. avail. Feb. 17,

1982).

time, it is possible that a Lending Fund

may directly or indirectly own, control,

or hold with power to vote 5% or more

of the shares of a Feeder Fund, which

will result in the Lending Fund being an

‘‘affiliated person’’ of the Feeder Fund.

In these circumstances, the purchase or

redemption of shares of a Feeder Fund

for the same Lending Fund or an

affiliated person of such Lending Fund

could violate section 17(a) of the Act.

2. Section 17(b) of the Act authorizes

the SEC to exempt a transaction from

section 17(a) if the terms of the

proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching on the part of any person

concerned, the proposed transaction is

consistent with the policy of each

registered investment company

concerned, and with the general

purposes of the Act. Because section

17(b) could be interpreted to exempt

only a single transaction, applicants are

also seeking relief pursuant to section

6(c) of the Act to permit the investment

of cash collateral in shares of the Feeder

Funds as proposed in the application.7

3. Section 6(c) provides that the SEC

may exempt any person or transaction

from any provision of the Act or any

rule or regulation thereunder ‘‘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. Applicants

believe that relief is appropriate under

section 6(c) of the Act for the same

reasons that it is appropriate under

section 17(b), as discussed below.

4. Applicants believe that the

proposed transactions will be

reasonable and fair, and consistent with

the general purposes of the Act as well

as the policies of each Lending Fund.

The Lending Funds will not be able to

purchase or redeem shares of the Feeder

Funds at a price lower or higher than

the per share net asset value of the

Feeder Funds, and no sales load,

redemption fee, or asset-based sales

charge will be charged with respect to

shares of the Feeder Funds sold to

Lending Funds. Moreover, applicants

note that the low fees charged by the

Bank for services provided to the Feeder

Trust and Master Trust will be subject

to intense scrutiny and, therefore, will

remain fair and reasonable to the Feeder

Trust and the Master Trust, the Feeder

Trust’s shareholders and the Lending

Funds. Finally, the Bank will not

purchase shares of any Feeder Fund, as

agent for a Lending Fund, unless the

Lending Fund, or an authorized officer

of the Lending Fund, has represented to

the Bank that (i) its policies generally

permit the Lending Fund to engage in

securities lending transactions, (ii) such

transactions will be conducted in

accordance with the securities lending

guidelines established in a series of noaction letters issued by the SEC’s

Division of Investment Management,8

(iii) its policies permit the Lending

Fund to purchase shares of the Feeder

Funds with cash collateral, and (iv) its

securities lending activities will be

conducted in accordance with all

representations and conditions in the

application applicable to such Lending

Fund.

C. Section 17(d) and Rule 17d–1

1. Section 17(d) of the Act and rule

17d–1 thereunder prohibit any affiliated

person of a registered investment

company, acting as principal, from

effecting any transaction in connection

with any joint enterprise or joint

arrangement in which such registered

investment company participates. The

ownership by a Lending Fund or its

affiliates, from time to time, of 5% or

more of the shares of a Feeder Fund or

Master Fund, could cause such Lending

Fund to be an affiliated person of the

Feeder Trust or the Master Trust, or an

affiliated person of an affiliated person

of the Feeder Trust or the Master Trust.

In addition, the Bank, as investment

adviser for each Master Fund, will be an

affiliated person of the Master Trust. As

an affiliated person of the Master Trust,

the Bank may, from time to time, be an

affiliated person of an affiliated person

of one or more Lending Funds by virtue

of such Lending Fund’s interests in the

Master Trust. Consequently, the

proposed purchase of shares of a Feeder

Fund with cash collateral, the

redemption of such shares, the sharing

of Net Income among the Bank and the

Lending Funds, and the payment of fees

by the Feeder Trust and the Master

Trust to the Bank may constitute a joint

transaction for which an exemptive

order is required.

2. Rule 17d–1 permits the SEC to

issue an order with respect to a joint

transaction. In passing on applications

for orders under rule 17d–1, the SEC is

to consider whether the proposed

transaction is consistent with the

provisions, policies, and purposes of the

Act, and the extent to which such

participation is on a basis different from

or less advantageous than that of other

participants. Applicants believe that it

is appropriate to grant an exemption

under rule 17d–1 from the restrictions

of section 17(d) of the Act.

3. Each Lending Fund will invest in

a class of shares of the Feeder Trust on

the same basis as every other

shareholder of the Feeder Trust

investing in the same class of shares,

and all shares within a class will be

priced in the same manner and will be

redeemable under the same terms. In

addition, no class of shares of a Feeder

Fund in which a Lending Fund invests

will be subject to any sales load,

redemption fee, or asset-based sales

charge. The arrangements regarding the

sharing of Net Income between the Bank

and each Lending Fund are the product

of arm’s length negotiations between the

Lending Fund and the Bank. Finally,

applicants state that the proposed

investment of cash collateral by Lending

Funds in shares of the Feeder Funds is

consistent with the provisions and

purposes of the Act.

Applicants’ Conditions

Applicants agree that any order of the

SEC granting the requested relief will be

subject to the following conditions:

1. No Lending Fund will purchase

shares of any Feeder Fund unless

participation in the Program has been

approved by a majority of the directors

or trustees of the Lending Fund that are

not ‘‘interested persons’’ of the Lending

Fund within the meaning of section

2(a)(19) of the Act. Such directors or

trustees will also evaluate the Program

no less frequently than annually, and

determine that investing cash collateral

in the Feeder Fund is in the best

interests of the shareholders of the

Lending Fund.

2. The Bank will lend portfolio

securities of each of the Lending Funds

only in accordance with the guidelines

specified by such Lending Fund.

3. Cash collateral from loans by

Lending Funds will be invested in

shares of each Feeder Fund subject to

such limitations and guidelines as are

specified by the Lending Funds.

4. Cash collateral from loans by

Money Market Lending Funds will not

be used to acquire shares of any Feeder

Fund that does not comply with the

requirements of rule 2a–7 under the Act.

5. The shares of a Feeder Fund sold

to Lending Funds will not be subject to

a sales load or redemption fee and assets

of the Feeder Fund and the Master Fund

allocable to Feeder Funds will not be

subject to any asset-based sales charge

(as defined in rule 2830(b)(8)(A) of the

Rules of Conduct of the National

Association of Securities Dealers).

6. The Bank will not acquire shares of

any Feeder Fund on behalf of any
Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices 54489

1A Policy may terminate when a Policy loan plus

accrued interest exceeds the Policy’s cash value,

less the applicable Surrender Charge, on the next

loan interest due date (or, if greater, on the date the

calculation is made). NELICO notifies the Policy

owner of such pending termination, and the Policy

will terminate 31 days thereafter unless NELICO

has received sufficient repayment to eliminate the

excess Policy loan.

Lending Fund if, at the time of such

acquisition, (i) the Bank is an affiliated

person of the Lending Fund or an

affiliated person of an affiliated person

of the Lending Fund, or (ii) the Lending

Fund is an affiliated person of the

Feeder Fund or an affiliated person of

an affiliated person of the Feeder Fund,

in either case, by means other than by

directly or indirectly owning,

controlling, or holding with the power

of vote 5% or more of the shares of a

Feeder Fund or a Master Fund by the

Lending Fund or an affiliated person of

the Lending Fund.

7. In connection with all matters

requiring a vote of shareholders of a

Feeder Fund, the Bank will pass

through voting rights to those Lending

Funds that have a beneficial interest in

such Lending Fund.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27657 Filed 10–17–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. 22852; File No. 812–10534]

New England Life Insurance Co et al.;

Notice of Application

October 10, 1997.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of application for an

order under section 6(c) of the

Investment Company Act of 1940 (the

‘‘Act’’) granting relief from rule 6e–

2(c)(1) and from certain provisions of

the Act and rules thereunder specified

in paragraph (b) of rule 6e–2; and from

sections 2(a)(32) and 27(i)(2)(A) of the

Act and rules 6e–2(b)(12) and 22c–1

thereunder.

SUMMARY OF APPLICATION: Applicants

seek exemptive relief to the extent

necessary: (1) To permit them to offer

and sell certain ‘‘hybrid’’ variable life

insurance policies with modified

scheduled premiums (‘‘Policies’’); and

(2) to permit certain other persons

which may become the principal

underwriter for such Policies (‘‘Future

Underwriters’’) to offer and sell such

Policies.

APPLICANTS: New England Life

Insurance Company (‘‘NELICO’’), New

England Variable Life Separate Account

(‘‘Variable Account’’), and New England

Securities Corporation (‘‘New England

Securities’’).

FILING DATE: The application was filed

on February 28, 1997 and amended and

restated on October 3, 1997.

HEARING OR NOTIFICATION OF HEARING: An

order granting the Application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing by writing to the Secretary of

the Commission and serving Applicants

with a copy of the request, personally or

by mail. Hearing requests should be

received by the Commission by 5:30

p.m. on November 4, 1997, 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 requester’s interest, the reason for

the request, and the issues contested.

Persons may request notification of a

hearing by writing to the Secretary of

the Commission.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549;

Applicants, c/o Marie C. Swift, Esq.,

New England Life Insurance Company,

501 Boylston Street, Boston,

Massachusetts 02116.

FOR FURTHER INFORMATION CONTACT:

Lorna MacLeod, Attorney, or Kevin

Kirchoff, Branch Chief, at (202) 942–

0670, Office of Insurance Products,

Division of Investment Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application; the

complete application may be obtained

for a fee from the SEC’s Public

Reference Branch, 450 Fifth Street,

N.W., Washington D.C. 20549 (tel. (202)

942–8090).

Applicants’ Representations

1. NELICO is a Massachusetts stock

life insurance company and is a wholly

owned subsidiary of Metropolitan Life

Insurance Company (‘‘MetLife’’).

2. The Variable Account was

established as a separate investment

account of NELICO on January 31, 1983,

under Delaware law, and became

subject to Massachusetts law when

NELICO changed its domicile to

Massachusetts on August 30, 1996. The

Variable Account is registered under the

Act as a unit investment trust. The

Variable Account currently consists of

eighteen investment sub-accounts, each

of which invests its assets in a different

portfolio of the New England Zenith

Fund (the ‘‘Zenith Fund’’), the Variable

Insurance Products Fund (the ‘‘VIP

Fund’’), and the Variable Insurance

Products Fund II (the ‘‘VIP Fund II’’).

3. New England Securities, which will

act as the principal underwriter for the

Polices, is registered with the

Commission as a broker-dealer under

the Securities Exchange Act of 1934 and

is a member of the National Association

of Securities Dealers, Inc (‘‘NASD’’).

4. Scheduled premiums for the Policy

are payable until the insured reaches

age 100. The scheduled premium

amount depends on the face amount of

the Policy, the insured’s age, sex (if the

Policy is sex-based), and underwriting

class, the frequency of premium

payments and any rider benefit

premiums. Scheduled premiums for

substandard and automatic issue classes

reflect additional premiums that are

charged for Policies in those categories.

If all scheduled premiums are paid

when due, the Policy will not lapse and

will retain its minimum death benefit

guarantee, even if unfavorable

investment experience has reduced the

cash value to zero.1

5. The Policy also provides

considerable flexibility with respect to

the timing and amount of premium

payments. An owner of a Policy may

make unscheduled payments at any

time that the Policy is in force on a

premium-paying basis (except any

period during which scheduled

premiums are being waived pursuant to

a waiver-of-premium rider), provided

that the unscheduled payment is at least

$25 (or at least $10 for certain Policies)

and, if required by NELICO, the insured

has submitted evidence of insurability

satisfactory to NELICO. In addition,

NELICO’s consent is required if, in

order to satisfy tax law requirements,

the payment would increase the Policy’s

death benefit by more than it would

increase the cash value. NELICO

reserves the right to prohibit or limit the

amount of unscheduled payments under

a Policy covering a substandard risk

insured or under an automatic issue

Policy.

6. An owner of a Policy may plan to

make a certain amount of unscheduled

payments, subject to NELICO’s

administrative procedures. Each net

unscheduled payment will be allocated

to the same sub-accounts as net

scheduled premiums. At the owner’s

request, NELICO will include the

amount of any unscheduled payments,

planned to be made on the Policy

anniversary, in the premium notice sent

to the owner. However, the owner is

required to pay only the scheduled