Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices 53669

1Sierra Asset Management Trust, et al.,

Investment Company Act Release Nos. 22001 (June

3, 1996) (notice) and 22047 (June 28, 1996) (order).

2 ‘‘Successor in interest’’ is limited to entities that

result from a reorganization into another

jurisdiction or a change in the type of business

organization.

3The Trust was initially organized as the ‘‘Sierra

Asset Management Trust,’’ but changed its name on

July 19, 1996, prior to the Trust’s registration

statement becoming effective.

From— Through— Interest rate

(percent)

10/1/94 ........ 3/31/95 ............. 9

4/1/95 .......... 6/30/95 ............. 10

7/1/95 .......... 3/31/96 ............. 9

4/1/96 .......... 6/30/96 ............. 8

7/1/96 .......... 12/31/96 ........... 9

1/1/97 .......... 3/31/97 ............. 9

4/1/97 .......... 6/30/97 ............. 9

7/1/97 .......... 9/30/97 ............. 9

10/1/97 ........ 12/31/97 ........... 9

Underpayments and Overpayments of

Multiemployer Withdrawal Liability

Section 4219.32(b) of the PBGC’s

regulation on Notice, Collection, and

Redetermination of Withdrawal

Liability (29 CFR part 4219) specifies

the rate at which a multiemployer plan

is to charge or credit interest on

underpayments and overpayments of

withdrawal liability under section 4219

of ERISA unless an applicable plan

provision provides otherwise. For

interest accruing during any calendar

quarter, the specified rate is the average

quoted prime rate on short-term

commercial loans for the fifteenth day

(or the next business day if the fifteenth

day is not a business day) of the month

preceding the beginning of the quarter,

as reported by the Board of Governors

of the Federal Reserve System in

Statistical Release H.15 (‘‘Selected

Interest Rates’’). The rate for the fourth

quarter (October through December) of

1997 (i.e., the rate reported for

September 15, 1997) is 8.50 percent.

The following table lists the

withdrawal liability underpayment and

overpayment interest rates for the

specified time periods:

From— Through— Rate (percent)

10/1/91 ........ 12/31/91 ........... 8.00

1/1/92 .......... 3/31/92 ............. 7.50

4/1/92 .......... 9/30/92 ............. 6.50

10/1/92 ........ 6/30/94 ............. 6.00

7/1/94 .......... 9/30/94 ............. 7.25

10/1/94 ........ 12/31/94 ........... 7.75

1/1/95 .......... 3/31/95 ............. 8.50

4/1/95 .......... 9/30/95 ............. 9.00

10/1/95 ........ 3/31/96 ............. 8.75

4/1/96 .......... 12/31/96 ........... 8.25

1/1/97 .......... 3/31/97 ............. 8.25

4/1/97 .......... 6/30/97 ............. 8.25

7/1/97 .......... 9/30/97 ............. 8.50

10/1/97 ........ 12/31/97 ........... 8.50

Multiemployer Plan Valuations

Following Mass Withdrawal

The PBGC’s regulation on Duties of

Plan Sponsor Following Mass

Withdrawal (29 CFR part 4281)

prescribes the use of interest

assumptions under the PBGC’s

regulation on Allocation of Assets in

Single-employer Plans (29 CFR part

4044). The interest assumptions

applicable to valuation dates in

November 1997 under part 4044 are

contained in an amendment to part 4044

published elsewhere in today’s Federal

Register. Tables showing the

assumptions applicable to prior periods

are codified in appendix B to 29 CFR

part 4044.

Issued in Washington, DC, on this 9th day

of October 1997.

David M. Strauss,

Executive Director, Pension Benefit Guaranty

Corporation.

[FR Doc. 97–27272 Filed 10–14–97; 8:45 am]

BILLING CODE 7708–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22842; 812–10582]

Sierra Asset Management Portfolios, et

al.; Notice of Application

October 7, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

ACTION: Notice of application under

sections 6(c), 12(d)(1)(J), and 17(b) of the

Investment Company Act of 1940 (the

‘‘Act’’) for an exemption from sections

12(d)(1) (A) and (C) and 17(a) of the Act.

SUMMARY OF APPLICATION: Applicants

request an order that would amend a

prior order 1 (the ‘‘Prior Order’’) to

permit a ‘‘fund of funds’’ that is an

open-end investment company to invest

in shares of an affiliated closed-end

investment company.

APPLICANTS: Sierra Asset Management

Portfolios (the ‘‘Trust’’), Sierra Prime

Income Fund (‘‘SPIF’’), Sierra

Investment Advisors Corporation

(‘‘Sierra Advisors’’), and Sierra

Investment Services Corporation

(‘‘Sierra Services’’), including each

applicant’s successor in interest.2

FILING DATES: The application was filed

on March 19, 1997 and amended on July

21, 1997. Applicants have agreed to file

an amendment, the substance of which

is incorporated in this notice, during the

notice period.

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

October 29, 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 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 5th

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

Applicants, 9301 Corbin Avenue, Suite

333, Northridge, California 91324.

FOR FURTHER INFORMATION CONTACT:

Elaine M. Boggs, Senior Counsel, at

(202) 942–0572, or Christine Y.

Greenlees, Branch Chief, at (202) 942–

0564 (Office of Investment Company

Regulation, Division of Investment

Management).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee at the SEC’s

Public Reference Branch, 450 5th Street,

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

(telephone (202) 942–8090).

Applicants’ Representations

1. The Trust is registered under the

Act as an open-end management

investment company and consists of

five portfolios (the ‘‘SAM Portfolios’’).3

Each SAM Portfolio operates as a ‘‘fund

of funds’’ under the Prior Order and

invests substantially all of its assets in

shares of various portfolios of Sierra

Trust Funds. Sierra Trust Funds is a

registered open-end management

investment company comprised of

sixteen portfolios (the ‘‘Underlying

Funds’’) that is part of the ‘‘same group

of investment companies’’ (as defined in

section 12(d)(1)(G)(ii) of the Act) as the

SAM Portfolios. Each SAM Portfolio

also invests in other securities. Each

SAM Portfolio seeks to provide

diversification among major asset

categories and stock and bond subcategories. Certain of the SAM Portfolios

are designed to provide exposure in

varying degrees to the growth potential

of the stock market and/or the income

potential of the bond market.

2. Applicants seek to amend the Prior

Order to permit the SAM Portfolios to

acquire up to 100% of SPIF’s shares.

Applicants request that relief be

extended to any registered open-end

management investment company, or
53670 Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices

4All investment companies that presently intend

to rely on the requested order are named as

applicants.

5Shares of SPIF would be sold to the SAM

Portfolios without imposition of a sales charge.

6Sierra Prime Income Fund, et al. Investment

Company Act Release Nos. 22512 (Feb. 14, 1997)

(notice) and 22556 (March 12, 1997) (order).

series thereof, for which Sierra Services

or any entity controlling, controlled by,

or under common control with Sierra

Services, now or in the future acts as

investment adviser or principal

underwriter (the ‘‘Funds’’).4

3. SPIF is registered under the Act as

a non-diversified closed-end fund. SPIF

seeks to provide a high level of current

income, consistent with preservation of

capital, through investments primarily

in senior collateralized loans made by

banks or other financial institutions to

U.S. corporations, partnerships, and

other entities. The loans generally are

expected to pay interest at rates that

float or reset at a margin above a

generally recognized base lending rate

and, in addition, have a dollar-weighted

average maturity of ninety days or less.

As a result, the net asset value (‘‘NAV’’)

of SPIF’s shares has remained, and is

expected to remain, relatively stable.

Sierra Services has determined that

SPIF’s investment objective and policies

make it an appropriate investment for

four of the five SAM Portfolios. (It is not

presently intended that the other

portfolio will invest in shares of SPIF.)

4. Sierra Services is an investment

adviser registered under the Investment

Advisers Act of 1940 (the ‘‘Advisers

Act’’) and a broker-dealer registered

under the Securities Exchange Act of

1934. Sierra Services serves as the

principal underwriter/distributor of the

SAM Portfolios and SPIF. Sierra

Services also serves as the SAM

Portfolios’ investment adviser, for

which it receives payment equal to

0.15% of each SAM Portfolio’s average

net assets. Sierra Advisors is an

investment adviser registered under the

Advisers Act and provides overall

investment management services to

SPIF, for which it receives payment

equal to .95% of SPIF’s assets. Sierra

Advisors and Sierra Services are

wholly-owned subsidiaries of Sierra

Capital Management Corporation, which

in turn is a wholly-owned subsidiary of

Washington Mutual, Inc. Van Kampen

American Capital Management, Inc.

(‘‘VKM’’) is an investment adviser

registered under the Advisers Act and

manages SPIF’s investment portfolio on

a day-to-day basis.

5. The SAM Portfolios currently offer

two classes of shares, class A shares and

class B shares. Class A shares are subject

to a maximum front-end sales charge

that ranges from 4.50% to 5.75%.

Purchases of $1 million or more and

certain other purchases are not subject

to a front-end sales charge but may be

subject to a contingent deferred sales

charge (‘‘CDSC’’) of up to 1.00%. Class

A shares also are subject to a 0.25%

asset-based sales charge. Class B shares

are subject to a maximum CDSC of 5%,

a 0.75% asset-based sales charge, and a

0.25% shareholder servicing fee.

6. SPIF currently offers a single class

of shares that carry a maximum 4.5%

front-end sales charge.5 SPIF has

received an order of the Commission

permitting it to offer additional classes

of shares subject to differing sales

charge structures (the ‘‘Multi-Class

Order’’).6 The sales charges would

include front-end sales charges, early

withdrawal charges that are analogous

to CDSCs and that comply in substance

with the terms of rule 6c–10 under the

Act, and asset-based distribution fees

that comply with the terms of rule 12b–

1 under the Act. In addition, under the

Multi-Class Order, SPIF has agreed to

comply with the terms of rule 18f–3

under the Act. SPIF also has agreed to

treat all sales-related compensation as

sales charges subject to the terms of rule

2830 of the Conduct Rules of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’).

7. SPIF’s shares are offered to the

public on a continuous basis pursuant

to rule 415 under the Securities Act of

1933. Unlike most closed-end funds,

SPIF’s shares are not listed on an

exchange or traded over-the-counter. No

secondary market exists for SPIF’s

shares, and none is expected to develop

in the future. SPIF has made, and

intends to continue to make, pursuant to

section 23(c)(2) of the Act, quarterly

tender offers to repurchase a specified

percentage of its outstanding shares for

cash at NAV, subject to approval by

SPIF’s board of trustees (the ‘‘Tender

Privilege’’).

8. Under the Tender Privilege, absent

an early withdrawal charge, SPIF

shareholders receive cash in an amount

equal to the NAV of their shares as

determined by State Street Bank & Trust

Company at the close of business on the

date that the Tender Privilege

terminates. SPIF shareholders who do

not wish to receive cash under the

Tender Privilege may instead elect to

exchange their shares (the ‘‘Exchange

Privilege’’) for shares of the Sierra Trust

Funds or the SAM Portfolios. SPIF has

informed investors in its promotional

materials that there can be no assurance

that the Tender and Exchange Privileges

will be offered every quarter, or if

completed, that they will provide

sufficient liquidity for all shareholders

who wish to dispose of their SPIF

shares.

9. Sierra Services acknowledges that

SPIF shares will be deemed illiquid

securities unless determined otherwise

by the Trust’s board of trustees, and that

any purchase of SPIF shares by a SAM

Portfolio will comply with the SEC

rules, regulations, and staff positions

concerning the liquidity of an open-end

fund’s portfolio. The Trust

acknowledges that the periodic tender

offers do not by themselves provide a

basis for determining that the SPIF

shares are liquid.

Applicants’ Legal Analysis

1. Section 12(d)(1)(A) provides that no

registered investment company may

acquire securities of another investment

company if the securities represent

more than 3% of the acquired

company’s outstanding voting stock,

more than 5% of the acquiring

company’s total assets, or if the

securities, together with the securities of

any other acquired investment

companies, represent more than 10% of

the acquiring company’s total assets.

The purpose of section 12(d)(1)(A) was

to address the perceived adverse

consequences of ‘‘pyramiding’’ of

investment companies in a fund of

funds arrangement, including

duplicative costs, the exercise of undue

influence or control over the underlying

fund, and the potential adverse impact

of large-scale redemptions.

2. Section 12(d)(1)(C) provides that no

registered investment company may

acquire securities of a registered closedend company if the acquiring company,

together with any other investment

companies advised by the investment

adviser, own more than 10% of the

closed-end fund’s outstanding voting

securities. Applicants state that there

were no additional concerns underlying

section 12(d)(1)(C); rather, section

12(d)(1)(C) was intended to relax the

section 12(d)(1)(A) prohibitions to

accommodate fund industry difficulties

associated with monitoring the

acquisition of closed-end fund shares.

3. Applicants request relief from the

limitations of sections 12(d)(1) (A) and

(C) to the extent necessary to permit

each individual SAM Portfolio to invest

more than 5% of its assets in SPIF and

acquire more than 3% of SPIF’s shares.

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

SEC may exempt persons or transactions

from any provision of section 12(d)(1) if

and to the extent the exemption is

consistent with the public interest and

the protection of investors. For the

reasons below, applicants assert that the
Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices 53671

proposal meets the requirements of

section 12(d)(1)(J).

5. Section 12(d)(1)(G) of the Act

provides that section 12(d)(1) will not

apply to the securities of an acquired

company purchased by an acquiring

company if: (a) The acquiring company

and the acquired company are part of

the same group of investment

companies; (b) the acquiring company

holds only securities of acquired

companies that are part of the same

group of investment companies,

government securities, and short-term

paper; (c) the aggregate sales loads and

distribution-related fees of the acquiring

company and the acquired company are

limited; and (d) the acquired company

has a policy that prohibits it from

acquiring securities of registered openend investment companies or registered

unit investment trusts in reliance on

section 12(d)(1) (F) or (G).

6. Applicants may not rely on section

12(d)(1)(G) because the SAM Portfolios

will, in addition to investing directly in

portfolio securities as permitted by the

Prior Order, be investing in shares of

SPIF, a closed-end fund. However,

applicants believe that exemptive relief

to permit investments by the SAM

Portfolios in shares of SPIF is

appropriate because SPIF will operate in

a manner substantially similar to an

open-end fund. Applicants state that

operational similarities between SPIF

and an open-end fund include the

following: (a) Share offerings on a

continuous basis at a price equal to their

NAV, plus any applicable sales charges;

(b) daily pricing of shares that

substantially complies with rule 22c–1

under the Act; and (c) procedures that

permit investors to tender their shares

for cash in an amount equal to their

NAV.

7. Applicants assert that permitting

the SAM Portfolios to invest in SPIF

would not raise the concerns underlying

sections 12(d)(1)(A) and (C). Applicants

believe that the proposal will not raise

the concern that investors will be

subject to two layers of advisory fees.

Applicants state that, before approving

any advisory contract under section 15

of the Act, the trustees of the Trust,

including a majority of the trustees who

are not ‘‘interested persons,’’ as defined

in section 2(a)(19) of the Act, will find

that any advisory fees charged under the

contract are based on services provided

that are in addition to, rather than

duplicative of, services provided under

any advisory contract with an

Underlying Fund or SPIF. Applicants

also note that the advisory fees charged

to the Trust are, in essence, for asset

allocation, while the Underlying Funds’

and SPIF’s advisory fees relate to the

selection and disposition of specific

securities.

8. Applicants assert that the proposal

will not involve layering of sales

charges. Applicants state that, as a

condition to the requested relief, any

sales charges or distribution or service

fees relating to the shares of a SAM

Portfolio will not exceed the limits set

forth in rule 2830 of the Conduct Rules

of the NASD when aggregated with any

sales charges or distribution or service

fees that the SAM Portfolio may pay

relating to the acquisition, holding, or

disposition of shares of the Underlying

Funds or SPIF.

9. Applicants state that administrative

and similar fees may be charged at the

Trust and Underlying Fund and SPIF

levels. However, applicants believe that

overall administrative and other

expenses may be reduced at each

individual level under the proposed

arrangement.

10. Applicants contend that the threat

of large scale redemptions is minimized

in the proposed structure. Applicants

assert that the SAM Portfolios are

designed for long-term investors, which

reduces the possibility that the SAM

Portfolios will be used as short-term

trading vehicles and further protects the

SAM Portfolios, the Underlying Funds,

and SPIF from unexpected large

redemptions.

11. Applicants state that an additional

concern underlying section 12(d)(1) is

the creation of overly complex

investment vehicles. Applicants state

that these concerns are addresses by the

fact that no Underlying Fund or SPIF

will acquire securities of any other

investment company in excess of the

limits contained in section 12(d)(1)(A)

of the Act.

12. Section 17(a) generally prohibits

an affiliated person of a registered

investment company from selling

securities to, or purchasing securities

from, the company. The Trust and SPIF

may be considered affiliated persons by

virtue of being under common control of

Sierra Capital Management Corporation.

They also many be deemed to be

affiliated persons to the extent that a

SAM Portfolio may own 5% or more of

SPIF’s shares. Accordingly, applicants

request relief to permit SPIF to sell its

shares to and repurchase its shares from

the SAM Portfolios.

13. Section 6(c) of the Act provides

that the SEC may exempt persons or

transactions from any provision of the

Act if the exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the Act.

14. Section 17(b) provides that the

SEC will exempt a proposed transaction

from section 17(a) if evidence

establishes that (a) the terms of the

proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching; (b) the proposed

transaction is consistent with the

policies of the registered investment

company involved; and (c) the proposed

transaction is consistent with the

general purposes of the Act. Applicants

request an exemption under sections 6

(c) and 17 (b) and state that relief is

appropriate for the reasons discussed

below.

15. Applicants believe that the terms

of the proposed arrangement are

reasonable and fair and do not involve

overreaching because the consideration

paid for the sale and repurchase of

shares of SPIF will be based on the NAV

of SPIF. Applicants represent that VKM,

an entity that is not an affiliated person

of Sierra Services, will provide pricing

recommendations to Sierra Advisors

concerning SPIF’s portfolio securities.

Sierra Advisors will then provide

pricing information, based on the

recommendations received from VKM,

to State Street Bank & Trust Company to

determine the NAV of SPIF’s shares,

subject to procedures that SPIF’s board

of trustees have established and monitor

on a periodic basis. Sales and

repurchases from all investors will be

based on the NAV so determined.

16. Applicants state that the proposed

arrangement will be consistent with the

policies of each Fund and SPIF. The

investment of assets of the Funds in

shares of SPIF and the issuance of

shares of SPIF to the Funds will be

effected in accordance with the

investment restrictions of each Fund

and SPIF and will be consistent with the

policies as set forth in the registration

statement of each Fund and SPIF.

Applicants also believe that the

proposed arrangement is consistent with

the general purposes of the Act.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions,

which supersede the conditions to the

Prior Order:

1. A Fund may purchase shares of

SPIF so long as shares of SPIF are

continuously offered to the Funds at

NAV, and SPIF continues to offer the

Tender Privilege.

2. Neither the Underlying Funds nor

SPIF (collectively, the ‘‘New Underlying

Funds’’) will acquire securities of any

other investment company in excess of
53672 Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4. 3 15 U.S.C. § 78f(b).

the limits contained in section

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

3. Before approving any advisory

contract under section 15 of the Act, the

board of trustees of a Fund, including a

majority of the trustees who are not

‘‘interested persons’’ of the Fund as

defined in section 2(a)(19) of the Act,

will find that the advisory fees charged

under the contract are based on services

provided that are in addition to, rather

than duplicative of, services provided

under any New Underlying Fund

advisory contract. This finding, and the

basis upon which the finding was made,

will be recorded fully in the minute

books of the Fund.

4. Any sales charges or distribution or

service-related fees charged with respect

to shares of a Fund, when aggregated

with any sales charges or distribution or

service-related fees paid by the Fund

with respect to the shares of any New

Underlying Fund, will not exceed the

limits set forth in rule 2830 of the NASD

Conduct Rules.

5. Each Fund and each New

Underlying Fund will be part of the

same ‘‘group of investment companies,’’

as defined in section 12(d)(1)(G)(ii) of

the Act.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27171 Filed 10–14–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

FEDERAL REGISTER CITATION OF PREVIOUS

ANNOUNCEMENT: [To be Published].

STATUS: Closed Meeting.

PLACE: 450 Fifth Street, NW.,

Washington, DC.

DATE PREVIOUSLY ANNOUNCED: To be

Published.

CHANGE IN THE MEETING: Time Change.

The time for the closed meeting

scheduled for Tuesday, October 14,

1997, at 10:30 a.m., has been changed to

11:00 a.m.

At times, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact:

The Office of the Secretary (202) 942–

7070.

Dated: October 9, 1997.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–27436 Filed 10–10–97; 12:17

pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39219; File No. SR–CBOE–

97–51]

October 8, 1997.

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to Gratuities

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule

19b–4 thereunder,2 notice is hereby

given that on September 25, 1997, the

Chicago Board Options Exchange, Inc.

(‘‘CBOE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

Exchange Rule 4.4 (‘‘Rule’’) governing

gratuities. The text of the proposed rule

change is available at the Office of the

Secretary, CBOE and at the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item IV below.

The self-regulatory organization has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed change

to Rule 4.4 is to increase the dollar

value, from $50.00 to $100.00, of

gratuities or compensation that may be

given in any one year by an Exchange

member to an Exchange employee

without the prior consent of the

Exchange. Gratuities are gifts of any

kind, including, but not limited to, cash.

Gratuities or compensation in an

amount less than those specified in the

Rule do not require any prior consent.

Currently, pursuant to Rule 4.4, the

amount permitted under the Rule to be

given by a CBOE member to an

employee of any other member or of any

non-member broker, dealer, bank or

institution, without the prior consent of

the employer and of the Exchange is

$100, and the amount permitted to be

given by a CBOE member to an

Exchange employee without prior

Exchange permission is $50. The CBOE

proposes to increase the amount

permitted to be given by a CBOE

member to an Exchange employee from

$50 to $100. The purpose of this change

is to account for inflation that has

occurred since the $50 amount was

established in 1980.

Also, the rule language is being

revised to clarify that Exchange consent

is required if a member wants to give a

gratuity of over $100 to an Exchange

employee. The Exchange proposes to

change the current construction of the

Rule in order to clarify that the final

phrase requiring consent refers to both

Exchange employees, as well as

employees of any other member or of

any non-member broker, dealer, bank or

institution.

2. Statutory Basis

The Exchange represents that the

proposed rule change is consistent with

Section 6(b)(5) of the Act 3 in that it

promotes just and equitable principles

of trade, fosters cooperation among

persons engaged in facilitating securities

transactions, and protects investors and

the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.