60698 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Notices

1All investment companies that currently intend

to rely on the requested order are named as

applicants. Any other investment company that

relies on the order in the future will comply with

the terms and conditions of the application. A Fund

of Funds may rely on the requested order only to

invest in Underlying Funds and not in any other

registered investment company.

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24678; 812–10528]

PADCO Advisors, Inc., et al.; Notice of

Application

October 5, 2000.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of an application for an

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

Investment Company Act of 1940 (the

‘‘Act’’) for exemption from sections

12(d)(1)(A) and (B) and under sections

6(c) and 17(b) of the Act for an

exemption from section 17(a) of the Act.

SUMMARY OF THE APPLICATION: The order

would permit certain registered openend management investment companies

to acquire shares of other registered

open-end management investment

companies outside the same group of

investment companies.

APPLICANTS: PADCO Advisors, Inc.,

Rydex Series Funds and Rydex Dynamic

Funds.

FILING DATES: The application was filed

on February 17, 1997, and amended on

February 27, 1998, and on October 2,

2000.

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

Commission’s Secretary and serving

applicant with a copy of the request

personally or by mail. Hearing requests

should be received by the Commission

by 5:30 p.m. on October 30, 2000, 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

Commission’s Secretary.

ADDRESSES: Secretary, Commission, 450

Fifth Street, NW., Washington, DC

20549–0609. Applicants. 6116

Executive Boulevard, Ste. 400,

Rockville, MD 20852.

FOR FURTHER INFORMATION CONTACT:

Michael W. Mundt, Branch Chief, and

Nadya B. Roytblat, Assistant Director, 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

Commission’s Public Reference Branch,

450 Fifth Street, NW., Washington, DC

20549–0102 (tel. 202–942–8090).

Applicants’ Representations

1. The Rydex Series Funds and the

Rydex Dynamic Funds (together the

‘‘Trusts’’) are open-end management

investment companies registered under

the Act comprised of separate series,

each of which pursues a distinct set of

investment objectives and policies.

PADCO Advisers, Inc. is a Maryland

corporation registered as an investment

adviser under the Investment Advisers

Act of 1940 (‘‘Advisers Act’’) and serves

as investment adviser to the series of the

Trusts (each, a ‘‘Rydex Fund’’).

2. Applicants request relief to permit

registered open-end management

investment companies that are not part

of the same ‘‘group of investment

companies,’’ as that term is defined in

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

Trusts (each, a ‘‘Fund of Funds’’), to

acquire shares of Rydex Funds. Each

Fund of Funds will be advised by an

investment adviser that is registered

under the Advisers Act (‘‘Fund of Funds

Adviser’’). Applicants request that the

relief apply to: (a) Each open-end

management investment company that

currently or subsequently is part of the

same ‘‘group of investment companies,’’

within the meaning of section

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

(together with the Rydex Funds,

‘‘Underlying Funds’’); and (b) each

Fund of Funds that enters into a

participation agreement (‘‘Participation

Agreement’’) with an Underlying Fund

to purchase shares of the Underlying

Fund.1

3. Applicants state that the Rydex

Funds will offer Fund of Funds simple

and efficient vehicles to achieve their

asset allocation or diversification

objectives. Applicants also assert that

the Rydex Funds provide high quality

and low cost professional investment

program alternatives to Fund of Funds

that do not have sufficient assets to

operate a comparable fund.

Applicants’ Legal Analysis

A. Section 12(d)(1)

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

prohibits a registered investment

company from acquiring shares of an

investment company if the securities

represent more than 3% of the total

outstanding voting stock of the acquired

company, more than 5% of the total

assets of the acquiring company, or,

together with the securities of any other

investment companies, more than 10%

of the total assets of the acquiring

company. Section 12(d)(1)(B) of the Act

prohibits a registered open-end

investment company from selling its

shares 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

generally.

2. Section 12(d)(1)(J) of the Act

provides that the Commission may

exempt any person, security, or

transaction, or any classes of persons,

securities or transactions, from any

provision of section 12(d)(1) if the

exemption is consistent with the public

interest and the protection of investors.

Applicants seek an exemption under

section 12(d)(1)(J) to permit a Fund of

Funds to acquire shares of the Rydex

Funds and to permit the Rydex Funds

to sell shares to the Fund of Funds

beyond the limits set forth in sections

12(d)(1)(A) and (B).

3. Applicants state that the proposed

arrangement and conditions will

adequately address the policy concerns

underlying sections 12(d)(1)(A) and (B),

which include concerns about undue

influence by a fund of funds over

underlying funds, excessive layering of

fees, and overly complex fund

structures. Accordingly, applicants

believe that the requested exemption is

consistent with the public interest and

the protection of investors.

4. Applicants state that the proposed

arrangement will not result in undue

influence by a Fund of Funds or its

affiliates over the Rydex Funds. To limit

the control that a Fund of Funds may

have over a Rydex Fund, applicants

propose a condition prohibiting the

Fund of Funds Adviser and certain

affiliates (individually or in the

aggregate) from controlling a Rydex

Fund within the meaning of section

2(a)(9) of the Act. To limit further the

potential for undue influence over

Rydex Funds, applicants propose

conditions 2 through 7, stated below, to

preclude a Fund of Funds and its

affiliate entities from taking advantage

of a Rydex Fund with respect to

transactions between the entities and to

ensure the transactions will be on an

arm’s length basis.

5. As an additional assurance that a

Fund of Funds understands the

implications of an investment by a Fund

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Notices 60699

2A Rydex Fund may operate as a ‘‘feeder fund’’

that invests all of its assets in another investment

company (the ‘‘master fund’’) in reliance on section

12(d)(1)(E) of the Act. Applicants state that in such

situations, the master fund would be in the same

group of investment companies as the Rydex Fund

and no other feeder funds would invest in the

master fund.

of Funds under the requested order,

each Fund of Funds and the appropriate

Trust will execute a Participation

Agreement stating that the board of

directors of the Fund of Funds and the

Fund of Funds Adviser understand the

terms and conditions of the order and

agree to fulfill their responsibilities

under the order. Applicants note that a

Rydex Fund may choose to reject an

investment from a Fund of Funds.

6. Applicants do not believe that the

proposed arrangement will involve

excessive layering of fees. The board of

directors of each Fund of Funds,

including a majority of the disinterested

directors, will be required to determine

that the advisory fees charged to the

Fund of Funds are based on services

provided that will be in addition to,

rather than duplicative of, the services

provided under the advisory contract of

any Rydex Fund in which the Fund of

Funds may invest. In addition, a Fund

of Funds Adviser will waive fees

otherwise payable to it by a Fund of

Funds in an amount at least equal to any

compensation received by the Fund of

Funds Adviser or an affiliated person of

the Fund of Funds Adviser from the

Rydex Funds in connection with the

investment by the Fund of Funds in the

Rydex Funds. Applicants also state that

any sales charges and/or service fees

charged with respect to shares of a Fund

of Funds will not exceed the applicable

limits set forth in rule 2830 of the

Conduct Rules of the National

Association of Securities Dealers

(‘‘NASD Conduct Rules’’).

7. Applicants state that the proposed

arrangement will not create an overly

complex fund structure. Applicants note

that a Rydex Fund will be prohibited

from acquiring securities of any

investment company in excess of the

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

except to the extent permitted by

section 12(d)(1)(E) of the Act 2 or an

exemptive order allowing a Rydex Fund

to purchase shares of an affiliated

money market fund for short-term cash

management purposes. Applicants also

represent that the Participation

Agreement will require that a Fund of

Funds’ prospectus and sales literature

disclose, in ‘‘plain English,’’ the unique

characteristics of a Fund of Funds

investing in the Rydex Funds,

including, but not limited to, the

expense structure and any additional

expenses of investing in the Rydex

Funds.

B. Section 17(a)

1. Section 17(a) of the Act generally

prohibits sales or purchases of securities

between a registered investment

company and any affiliated person of

the company. Section 2(a)(3) of the Act

defines an ‘‘affiliated person’’ of another

person to include any person 5% or

more of whose outstanding voting

securities are directly or indirectly

owned, controlled, or held with power

to vote by the other person.

2. Applicants state that a Rydex Fund

could become an affiliated person of a

Fund of Funds if the Fund of Funds

acquires more than 5% of a Rydex

Fund’s outstanding voting securities. In

light of this possible affiliation, section

17(a) could prevent a Rydex Fund from

selling shares to and redeeming shares

from the Fund of Funds.

3. Section 17(b) of the Act authorizes

the Commission to grant an order

permitting a transaction otherwise

prohibited by section 17(a) if it finds

that (a) the terms of the proposed

transaction are fair and reasonable and

do not involve overreaching on the part

of any person concerned; (b) the

proposed transaction is consistent with

the policies of each registered

investment company involved; and (c)

the proposed transaction is consistent

with the general purposes of the Act.

Section 6(c) of the Act permits the

Commission to exempt any person or

transactions from any provision of the

Act if 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.

4. Applicants submit that the

proposed arrangement satisfies the

standards for relief under sections 17(b)

and 6(c) of the Act. Applicants state that

the terms of the arrangement are fair and

reasonable and do not involve

overreaching. Applicants note that the

consideration paid for the sale and

redemption of shares of the Rydex

Funds will be based on the net asset

values of the Rydex Funds. Applicants

state that the proposed arrangement will

be consistent with the policies of each

Fund of Funds and Rydex Fund and

with the general purposes of the Act.

Applicants’ Conditions

Applicants agree that any order

granting the requested relief will be

subject to the following conditions:

1. (a) A Fund of Funds Adviser, (b)

any person controlling, controlled by, or

under common control with a Fund of

Funds Adviser, and (c) any investment

company and any issuer that would be

an investment company but for sections

3(c)(1) or 3(c)(7) of the Act who is

advised by a Fund of Funds Adviser or

any person controlling, controlled by, or

under common control with a Fund of

Funds Adviser (collectively, the

‘‘Group’’) will not control (individually

or in the aggregate) a Rydex Fund

within the meaning of section 2(a)(9) of

the Act. If, as a result of a decrease in

the outstanding voting securities of a

Rydex Fund, the Group, in the

aggregate, becomes a holder of more

than 25 percent of the outstanding

voting securities of a Rydex Fund, the

Group will vote its shares of the Rydex

Fund in the same proportion as the vote

of all other holders of the Rydex Fund’s

shares.

2. A Fund of Funds and its

investment adviser, promoter, and

principal underwriter, and any person

controlling, controlled by, or under

common control with any of those

entities (each a ‘‘Fund of Funds

Affiliate’’) will not cause any existing or

potential investment by the Fund of

Funds in shares of a Rydex Fund to

influence the terms of any services or

transactions between the Fund of Funds

or a Fund of Funds Affiliate and the

Rydex Fund or its investment adviser,

promoter, principal underwriter, and

any person controlling, controlled by, or

under common control with any of

those entities (each a ‘‘Rydex Fund

Affiliate’’).

3. The board of directors of a Fund of

Funds, including a majority of the

disinterested directors, will adopt

procedures reasonably designed to

assure that the Fund of Fund’s Adviser

is conducting the investment program of

the Fund of Funds without taking into

account any consideration received by

the Fund of Funds or a Fund of Funds

Affiliate from a Rydex Fund or a Rydex

Fund Affiliate in connection with any

services or transactions.

4. The board of trustees of each Trust

(‘‘Board of Trustees’’), including a

majority of the disinterested trustees,

will determine that any consideration

paid by a Rydex Fund to a Fund of

Funds or a Fund of Funds Affiliate in

connection with any services or

transactions: (a) Is fair and reasonable in

relation to the nature and quality of the

services and benefits received by the

Rydex Fund; (b) is within the range of

consideration that the Rydex Fund

would be required to pay to another

unaffiliated entity in connection with

the same services or transactions; and

(c) does not involve overreaching on the

part of any person concerned.

60700 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Notices

5. No Fund of Funds or Fund of

Funds Affiliate will cause a Rydex Fund

to purchase a security from any

underwriting or selling syndicate in

which a principal underwriter is an

officer, director, member of an advisory

board, investment adviser, or employee

of the Fund of Funds, or a person of

which any such officer, director,

member of an advisory board,

investment adviser, employee is an

affiliated person (each an ‘‘Underwriting

Affiliate’’). An offering of securities

during the existence of an underwriting

or selling syndicate of which principal

underwriter is an Underwriting Affiliate

is considered an ‘‘Affiliated

Underwriting.’’

6. The Board of Trustees, including a

majority of the disinterested trustees,

will adopt procedures reasonably

designed to monitor any purchases of

securities by a Rydex Fund in an

Affiliated Underwriting, including any

purchases made directly from an

Underwriting Affiliate. The Board of

Trustees will review these purchases

periodically, but no less frequently than

annually, to determine whether the

purchases were influenced by the

investment by the Fund of Funds in

shares of the Rydex Fund.

The Board of Trustees should

consider, among other things: (a)

Whether the purchases were consistent

with the investment objectives and

policies of the Rydex Fund; (b) how the

performance of securities purchased in

an Affiliated Underwriting compares to

the performance of comparable

securities purchased during a

comparable period of time in

underwritings other than Affiliated

Underwritings or to a benchmark such

as a comparable market index; and (c)

whether the amount of securities

purchased by the Rydex Fund in

Affiliated Underwritings and the

amount purchased directly from an

Underwriting Affiliate have

significantly from prior years. The

Board of Trustees will take any

appropriate actions based on its review,

including, if appropriate, the institution

of procedures designed to assure that

purchases of securities from Affiliated

Underwritings are in the best interests

of shareholders.

7. The Trusts shall maintain and

preserve permanently in an easily

accessible place a written copy of the

procedures described in the preceding

condition, and any modifications, and

will maintain and preserve for a period

not less than six years from the end of

the fiscal year in which any purchase

from an Affiliated Underwriting

occurred, the first two years in an easily

accessible place, a written record of

each purchase, setting forth from whom

the securities were acquired, the

identity of the underwriting syndicate’s

members, the terms of the purchase, and

the information or materials upon

which the Board of Trustee’s

determinations were made.

8. Prior to an investment in shares of

a Rydex Fund in excess of the limit in

section 12(d)(1)(A)(i), each Fund of

Funds and the appropriate Trust will

execute an agreement stating, without

limitation, that the board of directors of

the Fund of Funds and the Fund of

Funds Adviser have read the notice of

the application requesting the order,

understand the terms and conditions of

the order and agree to fulfill their

responsibilities under the order. At the

time of its investment in shares of a

Rydex Fund in excess of the limit in

section 12(d)(1)(A)(i), a Fund of Funds

will notify the Rydex Fund of the

investment. At such time, the Fund of

Funds also will transmit to the Rydex

Fund a list of the names of each Fund

of Funds Affiliate and Underwriting

Affiliate.

The Fund of Funds will notify the

Rydex Fund of any changes to the list

as soon as reasonably practicable after a

change occurs. The Rydex Fund and the

Fund of Funds will maintain and

preserve a copy of the order, the

agreement, and the list with any

updated information for a period of not

less than six years from the end of the

fiscal year in which any investment

occurred, the first two years in an easily

accessible place.

9. Prior to approving any advisory

contract under section 15 of the Act, the

board of directors of each Fund of

Funds, including a majority of the

disinterested directors, will find that the

advisory fees charged under the contract

are based on services provided that will

be in addition to, rather than

duplicative of, the services provided

under the advisory contract of any

Rydex Fund in which the Fund of

Funds may invest. These findings and

their basis will be recorded fully in the

minute books of the appropriate Fund of

Funds.

10. A Fund of Funds Adviser will

waive fees otherwise payable to it by a

Fund of Funds in an amount at least

equal to any compensation (including

fees received pursuant to a plan adopted

by a Rydex Fund under rule 12b–1

under the Act) received by the Fund of

Funds Adviser or an affiliated person of

the Funds of Funds Adviser from the

Rydex Funds in connection with the

investment by the Funds of Funds in the

Rydex Funds.

11. Any sales charges and/or service

fees with respect to shares of the Fund

of Funds will not exceed the applicable

limits set forth in rule 2830 of the NASD

Conduct Rules.

12. No Rydex Fund will acquire

securities of any other investment

company in excess of the limits

contained in section 12(d)(1)(A) of the

Act, except to the extent permitted by

section 12(d)(1)(E) of the Act or an

exemptive order that allows the Rydex

Fund to purchase shares of an affiliated

money market fund for short-term cash

management purposes.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–26183 Filed 10–11–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. IC–24677; File No. 812–12030]

First Allmerica Financial Life Insurance

Company, et al.

October 5, 2000.

AGENCY: Securities and Exchange

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

ACTION: Notice of application for an

order under section 6(c) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’) granting exemptions from

the provisions of sections 2(a)(32), 22(c),

and 27(i)(2)(A) of the 1940 Act and Rule

22c–1 thereunder to permit the

deduction of a monthly charge upon

termination of an Optional Insurance

Rider.

APPLICANTS: First Allmerica Financial

Life Insurance Company (‘‘First

Allmerica’’) and Allmerica Financial

Life Insurance and Annuity Company

(‘‘Allmerica Financial’’) (hereinafter

referred to as the ‘‘Companies’’) together

with Separate Account VA–K of First

Allmerica, Allmerica Select Separate

Account of First Allmerica, Separate

Account VA–P of First Allmerica,

Separate Account KG of First Allmerica,

Separate Account KGC of First

Allmerica, Separate Account VA–K of

Allmerica Financial, Allmerica Select

Separate Account of Allmerica

Financial, Separate Account VA–P of

Allmerica Financial, Separate Account

KG of Allmerica Financial, Separate

Account KGC of Allmerica Financial

(together, the ‘‘Separate Accounts’’), and

Allmerica Investments, Inc. (collectively

‘‘Applicants’’).

SUMMARY OF APPLICATION: Applicants

seek an order under section 6(c) of the

1940 Act, to the extent necessary to