Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices 63647

transactions between the Portfolio and

Fleet Securities and will not attempt to

influence or control in any way the

Adviser’s placement of orders with Fleet

Securities.

7. The exemption will be valid only

so long as the Adviser and Fleet

Securities operate as separate entities

and independent profit centers within

the holding company framework of

FleetBoston, with their own separate

officers and employees, separate

capitalizations, and separate books and

records.

8. The legal departments of Fleet

Securities and the Adviser will prepare

amended guidelines for personnel of

Fleet Securities and the Adviser to make

certain that transactions conducted

pursuant to the amended order comply

with the conditions set forth in the

application and that the parties

maintain arm’s length relationships. The

legal departments will periodically

monitor the activities of Fleet Securities

and the Adviser to make certain that

such guidelines and the conditions set

forth in the application are adhered to.

9. The board of trustees of the Trust,

including a majority of the trustees who

are not interested persons under section

2(a)(19) of the Act and have no direct or

indirect financial interest in the

transaction, will review, no less

frequently than quarterly, each

transaction conducted pursuant to the

amended order since the last review and

will determine that the terms of such

transaction were reasonable and fair to

the shareholders of the Portfolio and did

not involve overreaching of the Portfolio

or its shareholders on the part of any

person concerned. In considering

whether the price paid for the security

was reasonable and fair, the price of the

security will be analyzed with respect to

comparable transactions involving

similar securities being purchased or

sold during a comparable period of

time.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–27216 Filed 10–23–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Rel. No. IC 24691;

File No. 812–12218]

Mutual of America Investment

Corporation, et al.

October 17, 2000.

AGENCY: Securities and Exchange

Commission (the ‘‘Commission’’ or

‘‘SEC’’).

ACTION: Notice of application for an

order pursuant to Section 6(c) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’) granting exemptions from

the provisions of Sections 9(a), 13(a),

15(a) and 15(b) thereof and Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) thereunder.

APPLICANTS: Mutual of America

Investment Corporation (the

‘‘Investment Company’’) and Mutual of

America Capital Management

Corporation (‘‘Capital Management’’).

SUMMARY OF APPLICATION: Applicants

seek exemptive relief to the extent

necessary to permit shares of the

Investment Company and shares of any

other investment company or portfolio

that is designed to fund variable life

insurance policies and/or variable

annuity contracts (collectively,

‘‘Variable Contracts’’) and for which

Capital Management or its affiliates may

serve in the future as investment

adviser, manager, principal underwriter,

sponsor, or administrator (‘‘Future

Investment Companies’’) (collectively

with the Investment Company, the

‘‘Investment Companies’’) to be sold to

and held by (i) separate accounts

funding Variable Contracts issued by

both affiliated and unaffiliated life

insurance companies and (ii) qualified

pension and retirement plans

(‘‘Qualified Plans’’ or ‘‘Plans’’) outside

the separate account context.

FILING DATE: The application was filed

on August 11, 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 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 7, 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 interests, 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, SEC, 450 Fifth

Street, NW., Washington, DC 20549–

0609. Applicants, c/o Dolores J.

Morrissey, President and Chief

Executive Officer, Mutual of America

Investment Corporation, 320 Park

Avenue, New York, New York 10022;

copy to J. Sumner Jones, Esq., Jones &

Blouch L.L.P., 1025 Thomas Jefferson

St., NW., Suite 410 East, Washington,

DC 20007–0805.

FOR FURTHER INFORMATION CONTACT:

Keith Carpenter, Branch Chief, or

Rebecca A. Marquigny, Senior Counsel,

Office of Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

Application. The complete Application

is available for a fee from the SEC’s

Public Reference Branch, 450 Fifth St.,

NW., Washington, DC 20549 (tel. (202)

942–8090).

Applicants’ Representations

1. The Investment Company is a

Maryland corporation that is registered

under the 1940 Act as an open-end

management investment company. It

currently has nine investment portfolios

(each a ‘‘Fund’’): the Equity Index Fund,

All America Fund, Mid-Cap Equity

Index Fund, Aggressive Equity Fund,

Composite Fund, Bond Fund, Mid-Term

Bond Fund, Short-Term Bond Fund and

Money Market Fund. Currently, the

Investment Company sells shares of the

Funds to the respective separate

accounts of Mutual America Life

Insurance Company (‘‘Mutual of

America’’) and The American Life

Insurance Company of New York

(‘‘American Life’’), an indirect whollyowned subsidiary of Mutual of America,

as investment vehicles for Variable

Contracts issued by such companies.

The Investment Company may offer

additional investment portfolios in the

future (each a ‘‘Future Fund’’) (the

current Funds and the Future Funds are

collectively referred to as the ‘‘Funds’’).

2. Capital Management is registered as

an investment adviser under the

Investment Advisers Act of 1940 and

serves as the investment adviser to the

Investment Company. Capital

Management is an indirect whollyowned subsidiary of Mutual of America.

3. Mutual of America has entered into

an agreement to sell American Life to an

unaffiliated third party. As of the date

of such sale, American Life will no

longer be an affiliate of Mutual of

America and the Investment Company,

and the provisions of Rules 6e–2 and

63648 Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices

6e–3(T) under the 1940 Act will no

longer be available. As of such date, the

Investment Company will enter into

separate agreements (each a

‘‘Participation Agreement’’) with Mutual

of America and American Life covering

the sale of Fund shares to such

companies and their respective separate

accounts.

4. Mutual of America, American Life

and all other insurance companies

which in the future may purchase

shares of the Funds or of the portfolios

of the Future Investment Companies

through their respective separate

accounts to fund Variable Contracts are

together referred to as the ‘‘Participating

Insurance Companies’’ (and

individually as a ‘‘Participating

Insurance Company’’). Each of Mutual

of America and American Life as of the

date of the sale of American Life, and

each of the other Participating Insurance

Companies as of the date of its initial

purchase of shares of the funds or of

portfolios of Future Investment

Companies: (a) Will have one or more

separate accounts established in

accordance with applicable insurance

laws (‘‘Separate Accounts’’) in

connection with the issuance of

Variable Contracts and the obligation to

satisfy all applicable requirements

under both state and federal law; and

(b), on behalf of its Separate Accounts,

will have entered into a Participation

Agreement with each of the relevant

Investment Companies. Under the

Participation Agreements, the

Investment Companies will be

obligated, among other things, to offer

the shares of their portfolios to the

participating Separate Accounts and to

comply with any conditions that the

Commission may impose upon granting

the order requested herein.

5. Applicants also propose that the

Investment Companies may offer and

sell shares of their portfolios to

Qualified Plans that are not funded

through Separate Accounts. Such shares

sold to Qualified Plans would be held

by Plan trustees as required by Section

403(a) of the Employee Retirement

Income Security Act (‘‘ERISA’’). To the

extent permitted under applicable law,

Capital Management or one of its

affiliates may act as investment adviser

or trustee to Qualified Plans that

purchase shares of the Funds or of

portfolios of Future Investment

Companies.

Applicants’ Legal Analysis

1. In connection with the funding of

scheduled premium variable life

insurance contracts issued through a

separate account registered as a unit

investment trust (‘‘UIT’’) under the 1940

Act, Rule 6e–2(b)(15) provides partial

exemptions from sections 9(a), 13(a),

15(a), and 15(b) of the 1940 Act to the

extent those sections require ‘‘passthrough’’ voting with respect to an

underlying fund’s shares. These

exemptions are available only when all

the assets of the UIT are shares of

management investment companies

‘‘which offer their shares exclusively to

variable life insurance separate accounts

of the life insurer or of any affiliated life

insurance company.’’ Accordingly, the

relief granted by Rule 6e–2(b)(15) is not

available with respect to a scheduled

premium life insurance separate

account that owns shares of an

underlying fund that also offers its

shares to a variable annuity or flexible

premium variable life insurance

separate account of the same company.

The use of a common management

investment company as the underlying

investment medium for both variable

annuity and variable life insurance

separate accounts of the same life

insurance company and any affiliated

life insurance company is referred to as

‘‘mixed funding.’’

2. The relief granted by Rule 6e–

2(b)(15) also is not available with

respect to a scheduled premium variable

life insurance separate account that

owns shares of any underlying fund that

also offers its shares to separate

accounts funding Variable Contracts of

unaffiliated life insurance companies.

The use of a common management

investment company as the underlying

investment medium for variable annuity

and/or variable life insurance separate

accounts of unaffiliated life insurance

companies is referred to as ‘‘shared

funding.’’

3. Rule 6e–3(T)(b)(15) similarly

provides partial exemptions from

sections 9(a), 13(a), 15(a), and 15(b) of

the 1940 Act in connection with the

funding of flexible premium variable

life insurance contracts issued through

a separate account registered under the

1940 Act as a UIT. These exemptions

are available only where all the assets of

the separate account are shares of one or

more registered management investment

companies which offer to sell their

shares ‘‘exclusively to separate accounts

of the life insurer, or of any affiliated

life insurance company, offering either

scheduled contracts or flexible

contracts, or both; or which also offer

their shares to variable annuity separate

accounts of the life insurer or of an

affiliated life insurance company.’’

Accordingly, Rule 6e–3(T) permits

mixed funding but does not permit

shared funding.

4. Neither Rule 6e–2 nor Rule 6e–3(T)

contemplates that shares of an

underlying portfolio funding Variable

Contracts might also be sold to

Qualified Plans. The use of a common

management investment company as the

underlying investment medium for

Qualified Plans as well as for variable

annuity and variable life separate

accounts of affiliated and unaffiliated

insurance companies is referred to

herein as ‘‘extended mixed and shared

funding.’’

5. Applicants state that changes in the

federal tax law have created the

opportunity for the Investment

Companies to substantially increase

their assets by selling shares to

Qualified Plans. Section 817(h) of the

Internal Revenue Code of 1986, as

amended (the ‘‘Code’’), imposes certain

diversification standards on the assets

underlying Variable Contracts, such as

those in the Funds or the portfolios of

Future Investment Companies. The

Code provides that Variable Contracts

will not be treated as annuity contracts

or life insurance contracts, as the case

may be, for any period (or any

subsequent period) for which the

underlying assets are not, in accordance

with regulations issued by the Treasury

Department (the ‘‘Regulations’’),

adequately diversified. On March 2,

1989, the Treasury Department issued

Regulations (Treas. Reg. 1.817–5) which

established specific diversification

requirements for investment portfolios

underlying Variable Contracts. The

Regulations generally provide that, in

order to meet these diversification

requirements, all of the beneficial

interests in such portfolios must be held

by the segregated asset accounts of one

or more life insurance companies. The

Regulations, however, contain an

exception to this requirement. This

exception permits trustees of Qualified

Plans to hold shares of an investment

company portfolio which are also held

by insurance company segregated asset

accounts without adversely affecting the

status of such portfolio as an adequately

diversified underlying investment for

Variable Contracts issued through such

segregated asset accounts (Treas. Reg.

1.817–5(f)(3)(iii)). Applicants maintain

that, as a result of this exception to the

general diversification requirement,

Qualified Plans may select the Funds or

the portfolios of Future Investment

Companies as investment options

without endangering the tax status of

the Variable Contracts issued through

Participating Insurance Companies.

6. Applicants note that the

Commission promulgated Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) prior to the

issuance of the Regulations which

permit shares of an investment company

portfolio to be held by the trustee of a

Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices 63649

Qualified Plan without adversely

affecting the holding of shares in the

same portfolio by separate accounts

supporting Variable Contracts. Thus, the

sale of shares of the same underlying

portfolio to both separate accounts and

Qualified Plans was not contemplated at

the time when Rules 6e–2(b)(15) and

6e–3(T)(b)(15) were adopted.

7. Section 9(a)(3) of the 1940 Act

provides that it is unlawful for any

company to serve as investment adviser

or principal underwriter of any

registered open-end investment

company if an affiliated person of that

investment adviser or principal

underwriter is subject to a

disqualification enumerated in sections

9(a)(1) or (2). Rules 6e–2(b)(15)(i) and

(ii) and Rules 6e–3(T)(b)(15)(i) and (ii)

under the 1940 Act provide exemption

from Section 9(a) under certain

circumstances, subject to the limitations

on mixed and shared funding. These

exemptions limit the application of the

eligibility restrictions to those affiliated

individuals or companies that directly

participate in the management of the

underlying management company.

8. Applicants state that the relief

provided by Rules 6e–2(b)(15)(ii) and

6e–3(T)(b)(15)(ii) permits the life

insurance company to serve as the

underlying fund’s investment adviser or

principal underwriter, provided that

none of the insurer’s personnel who are

ineligible pursuant to section 9(a)

participates in the management or

administration of the fund. This partial

relief from the requirements of section

9 serves to limit the amount of

monitoring necessary to ensure

compliance with section 9 to that which

is appropriate in light of the policy and

purposes of that section. Applicants

state that Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) recognize that the protection

of investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act do not require application

of section 9(a) to individuals in a large

insurance company complex, most of

whom will have no involvement in

matters pertaining to investment

companies within such a complex.

These rules further recognize that it is

unnecessary to apply section 9(a) to

individuals in unaffiliated insurance

companies (or their affiliated

companies) that may utilize an

investment company as the funding

medium for Variable Contracts. In

Applicants’ view, no regulatory purpose

is served by extending section 9(a)

monitoring requirements in the context

of extended mixed or shared funding.

The Participating Insurance Companies

and Qualified Plans are not expected to

play any role in the management of the

Investment Companies. The individuals

who manage the Investment Companies

will remain the same regardless of

which Separate Accounts or Qualified

Plans invest in the Investment

Companies. Applicants further submit

that the costs of such extended

monitoring may result in increased costs

for Participating Insurance Companies

and Qualified Plans and may thereby

adversely affect contract owners and

Plan participants.

9. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) provide exemptions from

the pass-through voting requirements

with respect to several significant

matters. Rules 6e–2(b)(15)(iii)(A) and

6e–3(T)(b)(15)(iii)(A) provide that an

insurance company may disregard

contract owners’ voting instructions

which would change the subclassification or investment objectives of

an underlying fund, or any contract

between such a fund and its investment

adviser, when required to do so by an

insurance regulatory authority (subject

to the provisions of paragraphs (b)(5)(i)

and (b)(7)(ii)(A) of Rules 6e–2 and 6e–

3(T)). Rules 6e–2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(A)(2) provide that an

insurance company may disregard

contract owners’ voting instructions

which would initiate any change in an

underlying fund’s investment policies,

principal underwriter, or investment

adviser, provided that disregarding such

voting instructions is reasonable and

subject to the other provisions of

paragraphs (b)(5)(ii), (b)(7)(ii)(B), and

(b)(7)(ii)(C) of Rules 6e–2 and 6e–3(T).

10. With respect to Qualified Plans,

which are not registered as investment

companies under the 1940 Act, there is

no requirement to pass-through voting

rights to Plan participants. Indeed,

applicable law expressly reserves voting

rights associated with Plan assets to

certain specified persons. Under section

402(a) of ERISA, mutual fund shares

sold to a Qualified Plan must be held by

the trustees of the Plan. Section 403(a)

also provides that Plan trustees) must

have exclusive authority and discretion

to manage and control the Plan, except:

(a) When the Plan expressly provides

that the trustee(s) are subject to the

direction of a named fiduciary who is

not a trustee, in which case the trustees

are subject to proper directions made in

accordance with the terms of the Plan

and not contrary to ERISA, and (b) when

the authority to manage, acquire, or

dispose of Plan assets is delegated to

one or more investment managers

pursuant to Section 402(c)(3) of ERISA.

Unless one of these two exceptions

applies, Plan trustees have the exclusive

authority and responsibility for voting

proxies.

11. When a named fiduciary to a

Qualified Plan appoints an investment

manager, the investment manager has

the responsibility to vote the shares held

by the Plan unless the right to vote such

shares is reserved to the trustees or the

named fiduciary. Qualified Plans may

have their trustee(s) or other fiduciaries

exercise voting rights attributable to

investment securities held by the

Qualified Plans in their discretion.

Some Qualified Plans, however, may

provide for the trustee(s), an investment

adviser (or advisers), or another named

fiduciary to exercise voting rights in

accordance with instructions from Plan

participants.

12. Applicants state even if a

Qualified Plan were to hold a

controlling interest in an open-end

management investment company,

Applicants do not believe that such

control would disadvantage other

investors in such company to any

greater extent than is the case when any

institutional shareholder holds a

majority of the voting securities in an

underlying fund. In this regard,

Applicants submit the investment in an

underlying fund by a Plan will not

create any of the voting complications

occasioned by mixed funding or shared

funding. Unlike mixed funding or

shared funding, Plan investor voting

rights cannot be frustrated by veto rights

of insurers or state regulators.

13. Applicants state that shared

funding by unaffiliated insurance

companies does not present any issues

that do not already exist where a single

insurance company is licensed to do

business in several or all states. A

particular state insurance regulatory

body could require action that is

inconsistent with the requirements of

other states in which the insurance

company offers its policies. The fact that

different insurers may be domiciled in

different states does not create a

significantly different or enlarged

problem.

14. Applicants further state that

shared funding by unaffiliated insurers,

in this respect, is no different that the

use of the same investment company as

the funding vehicle for affiliated

insurers, which Rules 6e–2(b)(15) and

6e–3(T)(b)(15) permit. Affiliated

insurers may be domiciled in different

states and subject to differing state law

requirements. In Applicants’ view,

affiliation does not reduce the potential,

if any exists, for differences in state

regulatory requirements. Applicants

submit that the conditions set forth in

the Application and included in this

notice are designed to safeguard against,

and provide procedures for resolving,

any adverse effects that differences

63650 Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices

among state regulatory requirements

may produce. If a particular state

insurance regulatory’s decision conflicts

with the position of a majority of other

state regulators, then the affected

insurer will be required to withdraw its

Separate Account’s investment in the

Investment Companies. This

requirement will be provided for in the

Participation Agreements.

15. Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) give the insurance company

the right to disregard the contract

owners’ voting instructions in certain

specific circumstances. This right does

not raise any issues different from those

raised by the authority of state

insurance administrators over separate

accounts. Applicants submit that

affiliation does not eliminate the

potential, if any exists, for divergent

judgments as to the advisability or

legality of a change in investment

policies, principal underwriter or

investment adviser initiated by contract

owners. The potential for disagreement

is limited by the requirements in Rules

6e–2 and 6e–3(T) that the insurance

company’s disregard of voting

instructions be reasonable and based on

specific good-faith determinations.

16. Applicants state that a particular

insurer’s disregard of voting instructions

could, nevertheless, conflict with the

majority of contract owners’ voting

instructions and with the

determinations of all or some other

insurers (including affiliated insurers)

that contract owners’ voting instructions

should prevail. It could either preclude

a majority vote approving a change or

represent a minority view. If the

insurer’s judgment represented a

minority position or precluded a

majority vote, then the insurer might be

required, at the relevant Investment

Company’s election, to withdraw its

Separate Account’s investment from the

affected portfolio. No charge or penalty

would be imposed as a result of such

withdrawal. This requirement will be

provided for in the Participation

Agreements.

17. Applicants submit that there is no

reason why the investment policies of

an underlying fund would or should be

materially different depending on

whether such underlying fund funds

only variable annuity contracts or only

variable life insurance policies, whether

flexible premium or scheduled premium

policies. Each type of insurance product

is designed as a long-term investment

program. Applicants represent that each

of the Funds and the portfolios of

Future Investment Companies will be

managed to attempt to achieve its

investment objective or objectives, and

not to favor or disfavor any particular

Participating Insurance Company or

type of insurance product.

18. Applicants state that no one

investment strategy can be identified as

appropriate to a particular insurance

product. Each pool of variable annuity

and variable life insurance contract

owners is composed of individuals of

diverse financial status, age, and

insurance and investment goals. An

underlying fund supporting even one

type of insurance product must

accommodate these diverse factors in

order to attract and retain purchasers.

Permitting mixed and shared funding

will broaden the base of contract owners

which will facilitate the establishment

of additional funds serving diverse

goals.

19. As noted above, section 817(h) of

the Code imposes certain diversification

standards on the underlying assets of

Variable Contracts held in an

underlying mutual fund. The Code

provides that a Variable Contract shall

not be treated as an annuity contract or

life insurance, as applicable, for any

period (and any subsequent period) for

which the investments are not, in

accordance with Regulations,

adequately diversified.

20. Regulations issued under section

817(h) provide that, in order to meet the

statutory diversification requirements,

all of the beneficial interests in the

investment company must be held by

the segregated asset accounts of one or

more insurance companies. The

Regulations, however, contain certain

exceptions to this requirement, one of

which allows shares in an underlying

mutual fund to be held by the trustees

of a Qualified Plan without adversely

affecting the ability of such shares also

to be held by separate accounts of

insurance companies in connection

with their Variable Contracts (Treas.

Reg. 1.817–5(f)(3)(iii)). The Regulations

thus specifically permit ‘‘qualified

pension or retirement plans’’ and

separate accounts to invest in the same

underlying fund. For this reason,

Applicants have concluded that the

Code, Regulations and Revenue Rulings

thereunder do not present any inherent

conflicts of interest.

21. Applicants note that while there

are differences in the manner in which

distributions from Variable Contracts

and Qualified Plans are taxed, these

differences will have no impact on the

Investment Companies. If, at the time

distributions are to be made, a Separate

Account or Qualified Plan is unable to

net purchase payments against

distributions, each will redeem shares of

the relevant underlying funds at their

respective net asset values in conformity

with Rule 22c–1 under the 1940 Act

(without the imposition of any sales

charge) to provide proceeds for

distribution needs. A Participating

Insurance Company will then make

distributions in accordance with the

terms of its Variable Contract, and a

Qualified Plan will then make

distributions in accordance with the

terms of the Plan.

22. Applicants considered whether,

and determined that it is possible, to

provide an equitable means of giving

voting rights to contract owners in

Separate Accounts and, if necessary or

desirable, to Qualified Plans. In

connection with any meeting of

shareholders, the Investment Companies

will inform each separate Account and

Qualified Plan of its respective shares of

ownership in the Funds or the portfolios

of Future Investment Companies. Each

Participating Insurance Company will

then solicit voting instructions in

accordance with Rules 6e–2 and 6e–

3(T), as applicable, and its obligations

under Participation Agreements with

the Investment Companies. Qualified

Plans and Separate Accounts will each

have the opportunity to exercise voting

rights with respect to their shares in the

Funds or the portfolios of Future

Investment Companies, although only

the Separate Accounts are required to

pass-through their votes to contract

owners. The voting rights provided to a

Qualified Plan with respect to shares of

the Funds or portfolios of Future

Investment Companies would be no

different from the voting rights that are

provided to Qualified Plans with respect

to shares of mutual funds sold to the

general public. Furthermore, if a

material irreconcilable conflict arose

because a Qualified Plan decided to

disregard Plan participants’ voting

instructions, if applicable, and that

decision represented a minority position

or precluded a majority vote, a Plan

which had entered into a Participation

Agreement could be required, at the

election of the relevant Investment

Company, to withdraw its investment in

the particular Fund or portfolio of a

Future Investment Company, with no

charge or penalty imposed as a result of

such withdrawal.

23. Applicants also considered

whether a ‘‘senior security,’’ as such

term is defined under section 18(g) of

the 1940 Act, may be created with

respect to any Variable Contract owner

as opposed to a participant under a

Qualified Plan. Applicants concluded

that the ability of the Investment

Companies to sell shares of each Fund

or portfolio of a Future Investment

Company directly to Qualified Plans

does not create a ‘‘senior security’’

which is defined under Section 18(g) to

Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices 63651

include ‘‘any stock of a class having

priority over any other class as to

distribution of assets or payment of

dividends.’’ Regardless of the rights and

benefits of participants under Plans or

contract owners under Variable

Contracts, the Plans and the Separate

Accounts only have rights with respect

to their respective shares of the Funds

and the portfolios of Future Investment

Companies. They only can redeem such

shares at net asset value. No shareholder

of a Fund or of a portfolio of a Future

Investment Company has any preference

over any other shareholder with respect

to distribution of assets or payment of

dividends.

24. Applicants also considered

whether there are any conflicts between

contract owners of the Separate

Accounts and participants under the

Plans with respect to state insurance

commissioners’ veto powers over

investment objectives. Applicants note

that a basic premise of corporate

democracy and shareholder voting is

that not all shareholders may agree with

a particular proposal. That the interests

and opinions of shareholders may differ

does not mean that inherent conflicts of

interest exist between or among

shareholders. State insurance

commissioners have been given the veto

power in recognition of the fact that

insurance companies usually cannot

simply redeem their separate accounts

out of one fund and invest in another.

Generally, time-consuming, complex

transactions must be undertaken to

accomplish such redemptions and

transfers. Conversely, the trustees of

Qualified Plans, or participants in

participant-directed Qualified Plans,

can make such decisions quickly and

redeem their interests in a fund and

reinvest in another funding vehicle

without the regulatory impediments

faced by the Separate Accounts or, as is

the case with most Qualified Plans, even

hold cash pending suitable investment.

Applicants believe that issues where the

interests of contract owners and

Qualified Plans are in conflict can be

almost immediately resolved since the

trustees of (or participants in) the Plans

can, on their own, redeem the shares out

of underlying funds.

25. Applicants also considered

whether there is a potential for future

conflicts of interest between

Participating Insurance Companies and

Qualified Plans as a result of future

changes in the tax laws. Applicants do

not see any greater potential for material

irreconcilable conflicts between the

interests of participants in Qualified

Plans and contract owners of the

Separate Accounts resulting from future

changes in the federal tax laws than that

which already exists between variable

annuity contract owners and variable

life insurance contract owners.

26. Applicants state that the foregoing

list, while not all inclusive, is

representative of issues which

Applicants believe are relevant to this

Application. Applicants believe that the

discussion contained in the Application

demonstrates that the sale of shares of

the Funds and of portfolios of Future

Investment Companies to Qualified

Plans does not increase the risk of

material irreconcilable conflicts of

interest. Further, Applicants submit that

the use of the Funds and portfolios of

Future Investment Companies with

respect to Qualified Plans is not

substantially dissimilar from their

anticipated use with respect to Variable

Contracts in that both are generally

long-term retirement vehicles.

27. Applicants note that various

factors have kept more insurance

companies from offering Variable

Contracts than currently offer them.

These factors include the costs of

organizing and operating a funding

medium, the lack of expertise with

respect to investment management

(principally with respect to stock and

money market investments), and the

lack of public name recognition of

certain insurers as investment experts

with which the public feels comfortable

entrusting their investment dollars. For

example, some smaller life insurance

companies may not find it economically

feasible, or within their investment or

administrative expertise, to enter the

Variable Contracts business on their

own. Use of investment company

portfolios such as the Funds or

portfolios of Future Investment

Companies as common investment

media for Variable Contracts would

reduce or eliminate these concerns.

Applicants submit that mixed and

shared funding also should provide

several benefits to Variable Contract

owners by eliminating a significant

portion of the costs of establishing and

administering separate funds.

Applicants maintain that Participating

Insurance Companies will benefit not

only from the investment and

administrative expertise of the

Investment Companies, but also from

the cost efficiencies and investment

flexibility afforded by a large pool of

funds. Mixed and shared funding also

would make greater amounts of assets

available for investment by the Funds

and the portfolios of Future Investment

Companies, thereby promoting

economies of scale, permitting increased

safety through greater diversification,

and making more feasible the addition

of new Funds and portfolios. Therefore,

making the Investment Companies

available for mixed and shared funding

will encourage more insurance

companies to offer Variable Contracts,

and this should result in increased

competition in both Variable Contract

design and pricing and hence in more

product variation and lower charges.

Applicants assert that the sale of shares

of the Funds and of portfolios of Future

Investment Companies to Qualified

Plans, in addition to Separate Accounts,

should enhance these results.

28. Applicants submit that, regardless

of the type of shareholder in the Funds

or portfolios of Future Investment

Companies, the Investment Companies

are or will be contractually and

otherwise obligated to manage those

Funds or portfolios solely and

exclusively in accordance with their

respective investment objectives,

policies and restrictions as well as any

guidelines established by the Board of

Directors of the applicable Investment

Company (the ‘‘Board’’). The Investment

Companies will work with pools of

money and will not take into account

the identities of shareholders. Thus,

each of the Funds and the portfolios of

Future Investment Companies will be

managed in the same manner as any

other mutual fund.

Applicants’ Conditions

Applicants have consented to the

following conditions:

1. A majority of the Board of each of

the Investment Companies will consist

of persons who are not ‘‘interested

persons’’ of such investment company,

as defined by section 2(a)(19) of the

1940 Act and the rules thereunder, and

as modified by any applicable orders of

the Commission, except that if this

condition is not met by reason of the

death, disqualification, or bona-fide

resignation of any director or directors,

then the operation of this condition will

be suspended: (a) For a period of 45

days if the vacancy or vacancies may be

filled by the Board; (b) for a period of

60 days if a vote of shareholders is

required to fill the vacancy or vacancies;

or (c) for such longer period as the

Commission may prescribe by order

upon application.

2. The Board of each of the

Investment Companies will monitor

such investment company for the

existence of any material irreconcilable

conflict among the interests of the

contract owners of all Separate

Accounts and the participants under

Qualified Plans investing in such

investment company and will determine

what action, if any, should be taken in

response to such conflicts. A material

irreconcilable conflict may arise for a

63652 Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices

variety of reasons, including: (a) An

action by any state insurance regulatory

authority; (b) a change in applicable

federal or state insurance, tax or

securities laws or regulations, or a

public ruling, private letter ruling, noaction or interpretative letter, or any

similar action by insurance, tax, or

securities regulatory authorities; (c) an

administrative or judicial decision in

any relevant proceeding; (d) the manner

in which the investments of such

investment company are being

managed; (e) a difference in voting

instructions given by variable annuity

contract owners, variable life insurance

contract owners, and trustees of

Qualified Plans; (f) a decision by a

Participating Insurance Company to

disregard the voting instructions of

contract owners; or (g) if applicable, a

decision by a Qualified Plan to

disregard voting instructions of Plan

participants.

3. The Participating Insurance

Companies, any Qualified Plan that

executes a Participation Agreement

upon becoming an owner of 10 percent

or more of the assets of any of the Funds

or the portfolios of Future Investment

Companies (a ‘‘Participating Qualified

Plan’’), and Capital Management or any

other investment adviser to the

Investment Companies (collectively, the

‘‘Participants’’) will report any potential

or existing conflicts to the relevant

Board. Participants will be responsible

for assisting the relevant board in

carrying out its responsibilities under

these conditions by providing the Board

with all information reasonably

necessary for it to consider any issues

raised. This responsibility includes, but

is not limited to, an obligation by each

Participating Insurance Company to

inform the relevant Board whenever

contract owners’ voting instructions are

disregarded, and, if pass-through voting

is applicable, an obligation by each

Participating Qualified Plan to inform

the relevant Board whenever such Plan

has determined to disregard Plan

participants’ voting instructions. The

responsibility to report such

information and contracts, and to assist

the Board, will be a contractual

obligation of all Participating Insurance

Companies and Participating Qualified

Plans under their Participation

Agreements with the Investment

Companies, and this responsibility will

be carried out with a view only to the

interests of the conflict owners or Plan

participants, as applicable.

4. If it is determined by a majority of

a Board, or a majority of its disinterested

members, that a material irreconcilable

conflict exists, then the relevant

Participant will, at its expense and to

the extent reasonably practicable (as

determined by a majority of the

disinterested directors), take whatever

steps are necessary to remedy or

eliminate the material irreconcilable

conflict, up to and including: (a)

Withdrawing the assets allocable to

some or all of the Separate Accounts or

Participating Qualified Plans from the

relevant Fund or portfolio of a Future

Investment Company and reinvesting

such assets in a different investment

medium, including another such Fund

or portfolio, or in the case of

Participating Insurance Companies

submitting the question as to whether

such segregation should be

implemented to a vote of all affected

contract owners and, as appropriate,

segregating the assets of any appropriate

group (i.e., annuity contract owners or

life insurance contract owners of one or

more Participating Insurance

Companies) that votes in favor of such

segregation, or offering to the affected

contract owners the option of making

such a change; and (b) establishing a

new registered management investment

company or managed separate account.

If a material irreconcilable conflict

arises because of a decision by a

Participating Insurance Company to

disregard contract owners’ voting

instructions, and that decision

represents a minority position or would

preclude a majority vote, then such

insurer may be required, at the election

of the relevant Investment Company, to

withdraw such insurer’s Separate

Account’s investment in such

Investment Company, with no charge or

penalty imposed as a result of such

withdrawal. If a material irreconcilable

conflict arises because of a Participating

Qualified Plan’s decision to disregard

Plan participants’ voting instructions, if

applicable, and that decision represents

a minority position or would preclude

a majority vote, such Plan may be

required, at the election of the relevant

Investment Company, to withdraw its

investment in the relevant Investment

Company, with no charge or penalty

imposed as a result of such withdrawal.

The responsibilities to take remedial

action in the event of a Board

determination of a material

irreconcilable conflict and to bear the

cost of such remedial action will be

contractual obligations of all

Participating Insurance Companies and

Participating Qualified Plans under the

Participation Agreements, and these

responsibilities will be carried out with

a view only to the interests of contract

owners or Plan participants, as

applicable.

For purposes of this Condition 4, a

majority of the disinterested members of

a Board will determine whether or not

any proposed action would adequately

remedy any material irreconcilable

conflict, but in no event will any of the

Investment Companies or their

investment advisers be required to

establish a new funding medium for any

Variable Contract. No Participating

Insurance Company will be required by

this Condition 4 to establish a new

funding medium for any Variable

Contract if any offer to do so has been

declined by vote of a majority of the

contract owners materially and

adversely affected by the material

irreconcilable conflict. Further, no

Participating Qualified Plan will be

required by this Condition 4 to establish

a new funding medium for such Plan if

(a) a majority of the Plan participants

materially and adversely affected by the

material irreconcilable conflict vote to

decline such offer, or (b) pursuant to

documents governing the Plan, the Plan

makes such decision without a vote of

Plan participants.

5. A Board’s determination of the

existence of a material irreconcilable

conflict and its implications will be

made known in writing promptly to all

Participants.

6. Participating Insurance Companies

will provide pass-through voting

privileges to all contract owners so long

as the Commission continues to

interpret the 1940 Act to require such

pass-through voting. Accordingly, such

Participants, where applicable, will vote

shares of the applicable Fund or

portfolio of a Future Investment

Company held in their Separate

Accounts in a manner consistent with

voting instructions timely received from

contract owners. Participating Insurance

Companies will be responsible for

assuring that each of their Separate

Accounts investing in a Fund or

portfolio of a Future Investment

Company calculates voting privileges in

a manner consistent with other

Participating Insurance Companies. All

Participating Insurance Companies will

contractually agree to calculate voting

privileges as providing in this

Application, pursuant to their

Participation Agreements with the

Investment Companies. Each

Participating Insurance Company will

vote shares for which it has not received

timely voting instructions as well as

shares it owns that are not attributable

to Variable Contracts in the same

proportion as it votes those shares for

which it has received voting

instructions. Each Participating

Qualified Plan will vote as required by

Federal Register / Vol. 65, No. 206 / Tuesday, October 24, 2000 / Notices 63653

applicable law and governing Plan

documents.

7. Each of the Investment Companies

will comply with all provisions of the

1940 Act requiring voting by

shareholders (which for these purposes

shall be the persons having a voting

interest in the shares of the respective

Funds or portfolio of Future Investment

Companies) and, in particular, will

either provide for annual meetings

(except insofar as the Commission

interprets or may interpret section 16 of

the 1940 Act not to require such

meetings) or comply with section 16(c)

of the 1940 Act (although the

Investment Companies are not trusts of

the type described in section 16(c)), as

well as with section 16(a) of the 1940

Act and, if and when applicable, section

16(b) of the 1940 Act. In addition each

of the Investment Companies will act in

accordance with the Commission’s

interpretation of the requirements of

section 16(a) with respect to periodic

elections of directors and with such

rules as the Commission may

promulgate with respect thereto.

8. Each of the Investment Companies

will notify all Participants that it may be

appropriate to include in Separate

Account or Plan prospectuses or other

disclosure documents disclosure

regarding potential risks of mixed and

shared funding. Each of the Investment

Companies will disclose in its

prospectus that: (a) Shares of such

investment company may be offered to

insurance company separate accounts of

both variable annuity and variable life

insurance contracts and, if applicable, to

Qualified Plans; (b) due to differences in

tax treatment and other considerations,

the interests of various contract owners

participating in such investment

company and the interests of Qualified

Plans investing in such investment

company, if applicable, may conflict;

and (c) its Board will monitor events in

order to identify the existence of any

material irreconcilable conflicts and to

determine what action, if any, should be

taken in response to any conflict.

9. If and to the extent that Rules 6e–

2 and 6e–3(T) under the 1940 Act are

amended, or proposed Rule 6e–3 under

the 1940 Act is adopted, to provide

exemptive relief from any provision of

the 1940 Act or the rules promulgated

thereunder with respect to mixed or

shared funding, on terms and

conditions, materially different from

any exemptions granted in the order

requested in this Application, then the

Investment Companies and/or

Participating Insurance Companies and

Participating Qualified Plans, as

appropriate, shall take such steps as

may be necessary to comply with Rules

6e–2 and 6e–3(T), or Rule 6e–3, as such

rules are applicable.

10. The Participants, at least annually,

will submit to each relevant Board such

reports, materials, or data as such Board

reasonably may request so that the

directors may fully carry out the

obligations imposed upon the Board by

the conditions set forth in the

Application, and said reports, materials,

and data will be submitted more

frequently if deemed appropriate by

such Board. The obligations of

Participating Insurance Companies and

Participating Qualified Plans to provide

these reports, materials, and data to a

Board, when it so reasonably requests,

will be a contractual obligation under

the Participation Agreements.

11. All reports of potential or existing

conflicts received by a Board, and all

Board action with regard to determining

the existence of a conflict, notifying

Participants of a conflict, and

determining whether any proposed

action adequately remedies a conflict,

will be properly recorded in the minutes

of the Board or other appropriate

records, and such minutes or other

records shall be made available to the

Commission upon request.

12. None of the Investment

Companies will accept a purchase order

from a Qualified Plan if such purchase

would make such Plan an owner of 10

percent or more of the assets of one of

the Funds or the portfolios of Future

Investment Companies unless such Plan

executes a Participation Agreement with

the relevant Investment Company that

includes the conditions set forth in the

Application to the extent applicable. A

Plan will execute an application

containing an acknowledgment of this

condition at the time of its initial

purchase of shares of any such Fund or

portfolio.

Conclusion

For the reasons summarized above,

Applicants believe that the requested

exemptions, in accordance with the

standards of section 6(c), are

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–27217 Filed 10–23–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–24695; 812–11746]

Provident Institutional Funds, et al.;

Notice of Application

October 18, 2000.

AGENCY: Securities and Exchange

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

ACTION: Notice of application under

sections 6(c) and 17(b) of the Investment

Company Act of 1940 (the ‘‘Act’’) for an

exemption from section 17(a) of the Act.

SUMMARY OF APPLICATION: Applicants

seek an order that would permit a

registered open-end management

investment company to enter into

repurchase agreements with an affiliated

person.

Applicants: Provident Institutional

Funds (the ‘‘Fund’’), the PNC Financial

Services Group, Inc. (‘‘PNC’’), and

blackRock Advisors, Inc. (‘‘BlackRock’’).

FILING DATES: The application was filed

on August 12, 1999, and amended on

October 18, 2000.

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 8, 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 SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549–

0609. Applicants, c/o BlackRock

Financial Management, 345 Park

Avenue, New York, New York 10154.

FOR FURTHER INFORMATION CONTACT:

Elaine M. Boggs, Special Counsel, at

(202) 942–0572, or Christine Y.

Greenlees, 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 at the SEC’s

Public Reference Branch, 450 5th Street,

NW., Washington, DC 20549–0102 (tel.

(202) 942–8090).