Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69073

1 15 U.S.C. 78l(d).

2 17 CFR 240.12d2–2(d).

3 15 U.S.C. 78l(G) and 15 U.S.C. 78M. 4 17 CFR 200.30–3(a)(1).

to section 12(d) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

12d2–2(d) thereunder,2 to withdraw its

Common Stock, $.03 par value

(‘‘Security’’), from listing and

registration on the American Stock

Exchange (‘‘Amex’’).

As reported by the Company, the

Amex halted trading in the Security on

August 23, 2000, pending a review of

the facts underlying, and the litigation

arising from, a Share Purchase

Agreement dated July 5, 2000, between

the Company and Newtech Broadwidth

Ltd., et al. The Company believed it was

acquiring under this Share Purchase

Agreement a company that owned

valuable high technology which was

supported by established licensing

agreements. On the basis of this

acquisition, the Company applied for,

and received, a listing for its Security on

the Amex.

The Company subsequently

determined, however, that the

technology and licensing agreements

described above did not exist. As

mentioned above, the Company has

entered into litigation with various

parties for, among other things, their

failure to meet certain conditions of the

Share Purchase Agreement. A

description of these proceedings may be

found in the Company’s current Report

on Form 8–K filed with the Commission

on September 26, 2000. Pending the

outcome of such litigation, and in the

light of the Company’s diminished

eligibility for listing on the Amex as a

result of the Share Purchase

Agreement’s conditions not having been

met, the Company has determined to

withdraw its Security voluntarily from

listing and registration on the Amex and

to use best efforts to arrange for its

quotation in the unlisted over-thecounter market.

The Company has stated in its

application that it has complied with

the rules of the Amex governing the

withdrawal of its Security and that its

application relates solely to the

withdrawal of the Security from listing

and registration on the Amex and shall

have no effect upon the Company’s

continued obligation to file reports with

the Commission pursuant to sections

12(g) and 13 of the Act.3

Any interested person may, on or

before November 30, 2000, submit by

letter to the Secretary of the Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609, facts bearing upon whether the

application has been made in

accordance with the rules of the Amex

and what terms, if any, should be

imposed by the Commission for the

protection of investors. The

Commission, based on the information

submitted to it, will issue an order

granting the application after the date

mentioned above, unless the

Commission determines to order a

hearing on the matter.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Jonathan G. Katz,

Secretary.

[FR Doc. 00–29114 Filed 11–4–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–24733; File No. 812–12104]

New England Life Insurance Company,

et al.; Notice of Application

November 8, 2000.

AGENCY: The Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of application for an

order pursuant to section 26(b) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’) approving a substitution of

securities, and pursuant to Section 17(b)

of the 1940 Act exempting related

transactions from section 17(a) of the

1940 Act

Applicants: New England Life

Insurance Company (‘‘NELICO’’), New

England Variable Annuity Separate

Account (‘‘Separate Account 1’’), New

England Variable Life Separate Account

(‘‘Separate Account 2’’), Metropolitan

Life Insurance Company (‘‘MetLife’’),

The New England Variable Account

(‘‘Separate Account 3,’’ and collectively

with Separate Account 1 and Separate

Account 2, the ‘‘Separate Accounts’’),

the Metropolitan Series Fund, Inc. (the

‘‘Metropolitan Series’’), and the New

England Zenith Fund (the ‘‘Zenith

Fund’’). (NELICO, MetLife and the

Separate Accounts are collectively

referred to herein as the ‘‘Section 26

Applicants.’’ The Section 26 Applicants,

the Metropolitan Series, and the Zenith

Fund are collectively referred to herein

as the ‘‘Section 17(b) Applicants.’’)

SUMMARY OF APPLICATION: The Section

26 Applicants request an order pursuant

to section 26(b) of the 1940 Act to

permit certain registered unit

investment trusts to substitute shares of

the Putnam International Stock Portfolio

(the ‘‘Replacement Portfolio’’) of the

Metropolitan Series for shares of the

Morgan Stanley International Magnum

Equity Series (the ‘‘Substituted

Portfolio’’) of the Zenith Fund currently

held by those unit investment trusts.

The Section 17(b) Applicants request an

order pursuant to section 17(b) of the

1940 Act to permit certain in-kind

redemptions and purchases in

connection with the substitution.

Filing Date: The application was filed

on May 17, 2000, and amended and

restated on November 8, 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 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 may request notification of a

hearing by writing to the Secretary of

the Commission.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549–0609.

Applicants, c/o Thomas Lenz, Esq. and

Marie C. Swift, Esq., New England Life

Insurance Company, 501 Boylston

Street, Boston, Massachusetts 02116.

FOR FURTHER INFORMATION CONTACT:

Keith A. O’Connell, Senior Counsel, or

Lorna J. MacLeod, Branch Chief, 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

may be obtained for a fee from the

Public Reference Branch of the

Commission, 450 5th Street, NW.,

Washington, DC 20549 (tel. (202) 942–

8090).

Applicants’ Representations

1. NELICO is a life insurance

company that is domiciled in

Massachusetts. Its operations include

both life insurance and annuity

products as well as financial and

retirement services. As of December 31,

1999, NELICO had assets of

approximately $7.1 billion. NELICO is

authorized to operate as a life insurance

company in all states, the District of

Columbia, and Puerto Rico. NELICO

was originally organized as New

England Variable Life Insurance

69074 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

Company, a stock life insurance

company, in Delaware in 1980, and was

a wholly owned subsidiary of New

England Mutual Life Insurance

Company. On August 30, 1996, New

England Mutual Life Insurance

Company merged with and into MetLife.

MetLife became the parent of New

England Variable Life Insurance

Company, which changed its name to

‘‘New England Life Insurance

Company,’’ and changed its domicile

from the State of Delaware to the

Commonwealth of Massachusetts.

NELICO is the depositor and sponsor of

Separate Account 1 and Separate

Account 2.

2. Separate Account 1 is a separate

investment account of NELICO and is

registered under the 1940 Act as a unit

investment trust. Separate Account 1

serves as funding vehicle for certain

variable annuity contracts issued by

NELICO (collectively, ‘‘NELICO VA

Contracts’’). Separate Account 1 is a

separate account as that term is defined

in Section 2(a)(37) of the 1940 Act.

3. Separate Account 2 is a separate

investment account of NELICO and is

registered under the 1940 Act as a unit

investment trust. Separate Account 2

services as a funding vehicle for certain

variable life insurance contracts issued

by NELICO (collectively, ‘‘NELICO Life

Contracts’’). Separate Account 2 is a

separate account as that term is defined

in Section 2(a)(37) of the 1940 Act.

4. MetLife is a life insurance company

that is domiciled in New York, and is

a wholly owned subsidiary of MetLife,

Inc., a publicly traded company.

MetLife is the depositor and sponsor of

Separate Account 3.

5. Separate Account 3 is a separate

investment account of MetLife and is

registered under the 1940 Act as a unit

investment trust. Separate Account 3

serves as a funding vehicle for certain

variable annuity contracts originally

issued by New England Mutual Life

Insurance Company, and subsequent to

its merger with an into MetLife, by

MetLife (‘‘MetLife VA Contracts’’)

(collectively with the NELICO VA

Contracts and the NELICO Life

Contracts, the ‘‘Variable Contracts’’).

Separate Account 3 is a separate

account as that term is defined in

Section 2(a)(37) of the 1940 Act.

6. New England Securities

Corporation (‘‘NES’’) serves as principal

underwriter and distributor for the

Variable Contracts. NES is an indirect

wholly owned subsidiary of NELICO.

NES is registered as a broker-dealer

under the Securities Exchange Act of

1934 and is a member of the National

Association of Securities Dealers, Inc.

NES may enter into selling agreements

with other broker-dealers registered

under the Securities Exchange Act of

1934 whose representatives are

authorized by applicable law to sell the

Variable Contracts.

7. NELICO and MetLife propose to

substitute shares of the Replacement

Portfolio for shares of the Substituted

Portfolio in the Separate Accounts (the

‘‘Substitution’’). NELICO and MetLife

have expressly reserved the right to

substitute shares of one portfolio for

shares of another, including a portfolio

of a different investment company. The

prospectus for each contract discloses

this reservation.

8. The terms of the NELICO VA

Contracts, NELICO Life Contracts, and

MetLife VA Contracts funded by

Separate Account 1, 2 and 3,

respectively, permit owners of a

contract to transfer contract value under

the contracts among the subaccounts

during the accumulation period.

Separate Accounts 1 and 3 permit

owners of a contract to exchange

annuity units in any subaccount to any

other subaccount during the annuity

period. NELICO and MetLife have

reserved the right to limit transfers or to

impose a charge in connection with a

transfer during the accumulation period.

For Separate Account 1, NELICO has

not yet imposed any such limit or

charge. Exchanges of annuity units in

any subaccount to any other subaccount

after annuitization are limited to one per

contract year. For Separate Account 2,

on all but one of the NELICO Life

Contracts, NELICO does not currently

limit or impose a charge on transfers.

On one NELICO Life Contract, NELICO

currently imposes a charge on transfers

in excess of 12 in a policy year. For

Separate Account 3, MetLife currently

allows 12 free transfers per year during

the accumulation period. Additional

transfers are subject to a $10 charge per

transfer. Exchanges of annuity units in

any subaccount to any other subaccount

after annuitization are limited to one per

contract year.

9. The Zenith Fund is registered as an

open-end management investment

company under the 1940 Act (File No.

811–3728) and currently offers sixteen

separate investment portfolios, one of

which is the Substituted Portfolio. The

Zenith Fund issues a separate series of

shares of beneficial interest in

connection with each portfolio, and has

registered such shares under the

Securities Act of 1933 (‘‘1933 Act’’) on

Form N–1A (File No. 2–83538). New

England Investment Management, Inc.

(‘‘NEIM’’) serves as the investment

manager to each portfolio except the

Capital Growth Series, which is

managed by Capital Growth

Management. NEIM is an indirect

wholly owned subsidiary of NELICO.

NEIM receives an investment advisory

fee from each portfolio it manages.

NEIM has contracted with subadvisers

to make the day-to-day investment

decision for all portfolios it manages.

Subadvisers are compensated by NEIM,

and not by the Zenith Fund. NEIM

derives the amounts that it pays the

subadvisers from its own investment

advisory fees. Morgan Stanley Asset

Management (‘‘MSAM’’) is the

subadviser to the Substituted Portfolio.

10. The Metropolitan Series is

registered as an open-end management

investment company under the 1940

Act (File No. 811–3618) and currently

offers 18 separate investment portfolios,

one of which is the Replacement

Portfolio. The Metropolitan Series

issues a separate series of shares of

beneficial interest in connection with

each portfolio, and has registered such

shares under the 1933 Act on Form N–

1A (File No. 2–80751). The Replacement

Portfolio became available for

investment under the Contracts on May

1, 2000. MetLife serves as the

investment manager to each portfolio,

for which it receives investment

advisory fees. MetLife has contracted

with subadvisers to make the date-today investment decisions for certain

portfolios it manages, including the

Replacement Portfolio. Subadvisers are

compensated by MetLife, and not by the

Metropolitan Series. MetLife derives the

amounts that it pays the subadvisers

from its one investment advisory fees.

11. Putnam Investment Management,

Inc. (‘‘Putnam’’) currently serves as the

subadviser for the Replacement

Portfolio. All of the outstanding voting

and nonvoting securities of Putnam are

held of record by Putnam Investments,

Inc., which is, in turn, except for a

minority interest owned by employees,

owned by Marsh & McLennan

Companies, Inc., a New York Stock

Exchange listed public company whose

business is insurance brokerage,

investment management, and

consulting. From November 9, 1998

until January 24, 2000, Santander Global

Advisors, Inc. (‘‘Santander’’) was the

subadviser for the Replacement

Portfolio (then known as the Santander

International Stock Portfolio). On

November 29, 1999, Santander notified

the Replacement Portfolio that is was

resigning as subadviser as of January 28,

2000, and was being closed by its

ultimate majority shareholder. On

January 11, 2000, the Board of Directors

of the Metropolitan Series (the ‘‘Met

Series Board’’) voted to terminate the

sub-investment management agreement

with Santander relating to the

Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69075

Replacement Portfolios effective January

24, 2000. The Met Series Board also

voted to retain Putnam as the new

subadviser for the Replacement

Portfolio effective the same date. The

shareholders of the Replacement

Portfolio approved Putnam as the new

subadviser at a special meeting of

shareholders on March 31, 2000.

12. The following chart sets out the

investment objectives and certain

policies of the Substituted Portfolio and

the Replacement Portfolios, as stated in

their respective prospectuses and

statements of additional information.

Substituted portfolio Replacement portfolios

Morgan Stanley International Magnum Equity Series of Zenith Fund Putnam International Stock Portfolio of Metropolitan Series

Investment Objective: Investment Objective:

Long-term capital appreciation through investment primarily in

international equity securities.

Long-term growth of capital.

Investment Policies: Investment Policies:

MSAM invests the Series’ assets in a diversified portfolio of equity

securities of foreign issuers domiciled in EAFE countries. MSAM

may also invest up to 5% of the Series’ total assets in nonEAFE countries, including emerging markets. MSAM seeks to

achieve superior long-term returns by creating a diversified portfolio of stock that MSAM believes are undervalued. To achieve

this goal, MSAM implements a combination of strategic geographic assets allocation and fundamental, value-oriented stock

selection implemented by regional experts around the globe.

The Portfolio normally invests mostly in the common stocks of companies outside the United States. Putnam selects countries and industries it believes are attractive. Putnam then seeks stocks offering opportunity for gain. These may include both growth and value stocks.

The Portfolio invests mainly in mid-sized and large companies, although the Portfolio can invest in companies of any size. The Portfolio will usually be invested in issuers located in at least three countries, not including the U.S. Under normal conditions, the Portfolio

will not invest more than 15% of its net assets in the equity securities of companies domiciled in ‘‘emerging countries,’’ as defined by

Morgan Stanley Capital International.

13. The following chart compares the

fees payable for advisory and

subadvisory services, expressed as an

annual percentage of average daily net

assets, by the Substituted Portfolio and

the Replacement Portfolio.

Substituted portfolio Replacement portfolio

Morgan Stanley International Magnum Equity Series Putnam International Stock Portfolio

Annual advisory fees Annual subadvisory fees Annual advisory fees Annual subadvisory fees

0.90% ............................................. 0.75% of the first $30 million ........

0.60% of the next $40 million .......

0.45% of the next $30 million .......

0.40% over $100 million ...............

0.90% of the first $500 million ......

0.85% of the next $500 million .....

0.80% over $1 billion ....................

0.65% of the first $150 million

0.55% of the next $150 million

0.45% over $300 million.

14. The following chart compares the

total operating expenses (before and

after any waivers and reimbursements)

for the year ended December 31, 1999,

expressed as an annual percentage of

average daily net assets, of the

Substituted Portfolio and the

Replacement Portfolio. Neither Portfolio

has adopted any plan pursuant to Rule

12b–1 under the 1940 Act.

Substituted portfolio Replacement portfolio

Morgan Stanley

International Magnum

Equity Series

(in percent)

Putnam International

Stock Portfolio

(in percent)

Management Fees ................................................................................................................... 0.90 0.90

Other Expenses ....................................................................................................................... 0.40 0.22

Total Operating Expenses ................................................................................................ 1.30 1.12

Less Expense Waivers and Reimbursements ........................................................................ (1) (1)

Net Operating Expenses .................................................................................................. 1.30 1.12

1 N/A.

Total operating expenses for the

Replacement Portfolio have been

adjusted to reflect a higher management

fee that shareholders of the Replacement

Portfolio approved on March 31, 2000.

NEIM has voluntarily agreed to reduce

its fees or to bear the operating expenses

(other than brokerage costs, interest,

taxes, or extraordinary expenses) of the

Substituted Portfolio in excess of an

annual expense limit of 1.30% of the

Series’ average daily net assets. This

reduction is subject to the obligation of

the Series to repay NEIM such expenses

in future years, if any, when the Series’

total operating expenses fall below this

stated expense limit. Such deferred

expenses may be charged to the Series

in a subsequent year to the extent the

charge does not cause the Series’ total

operating expenses in such subsequent

year to exceed the 1.30% expense limit.

The Series, however, is not obligated to

repay any expense paid by NEIM more

69076 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

1Subaccount expenses refer to those asset-based

expenses that are deducted on a daily basis from

subaccount assets, and either reflected in the

calculation of the subaccount unit values (for

‘‘unitized’’ Variable Contracts) or deducted as a

percentage of a Variable Contract’s share of

subaccount assets (for ‘‘non-unitized’’ Variable

Contracts). Examples of subaccount expenses may

include the morality and expense risk charge or

administrative charge.

than two years after the end of the fiscal

year in which such expense was

incurred. NEIM may discontinue this

expense limitation arrangement at any

time.

15. The following table compares the

respective asset levels of the two

portfolios as of December 31, 1999, and

compares performance data as of June

30, 2000.

Portfolio Fund Subadviser Asset levels (as of

12/31/99) Performance (as of June 30, 2000)

Morgan Stanley International Magnum

Equity Series (substituted portfolio).

Morgan Stanley Asset Management ..... $99,851,167 1 YEAR: 15.5%

3 YEAR: 6.2%

5 YEAR: 7.8%

(Nov. 1, 1994)

Putman International Stock Portfolio (replacement portfolio).Putnam Investment Management, Inc. $317,831,000 1 YEAR: 11.4%

3 YEAR: 7.1%

5 YEAR: 7.3%

(May 1, 1991)

16. Following the Substitution, the

Separate Accounts will each have two

subaccounts holding shares of the

Replacement Portfolio. The Separate

Accounts will each combine the two

subaccounts holding shares of the

Replacement Portfolio by transferring

shares on the same date from one of the

subaccounts holding shares of the

Replacement Portfolio to the other

subaccount holding shares of the

Replacement Portfolio. The net effect

will be to eliminate one of the

subaccounts in each Separate Account.

The Replacement Portfolio would

receive monies or inkind securities from

the Substituted Portfolio as a result of

the Substitution.

17. NELICO and MetLife will effect

the Substitution on or about December

1, 2000 following the issuance of the

requested order as follows. As of the

effective date of the Substitution

(‘‘Effective Date’’), shares of the

Substituted Portfolio will be redeemed

in cash or in-kind by NELCO and

MetLife. The proceeds of such

redemptions will than be used to

purchase shares of the Replacement

Portfolio either by cash purchases or inkind purchases, with each subaccount

of the Separate Accounts investing the

proceeds of its redemption from the

Substituted Portfolio in the

Replacement Portfolio.

18. Applicants represent that the inkind redemptions and purchases will be

transacted in a manner consistent with

the policies of both the Substituted

Portfolio and the Replacement Portfolio,

as recited in their registration

statements. Putnam will review the

securities holdings of the Substituted

Portfolio and determine which portfolio

holdings of the Substituted Portfolio

would be suitable investments for the

Replacement Portfolio in the overall

context of such Portfolio’s investment

objectives and policies and consistent

with the management of the

Replacement Portfolio.

19. Applicants represent that all

redemptions of shares of the Substituted

Portfolio and purchases of shares of the

Replacement Portfolio will be effected

in accordance with Rule 22c–1 of the

1940 Act. The Substitution will take

place at relative net asset value with no

change in the amount of any Variable

Contract owner’s contract value or death

benefit or in the dollar value of his or

her investments in any of the

subaccounts. Applicants represent that

Variable Contract owners will not incur

any additional fees or charges as a result

of the Substitution, nor will their rights

or NELICO’s and MetLife’s obligations

under the Variable Contracts be altered

in any way. All expenses incurred in

connection with the Substitution,

including legal, accounting,

transactional, and other fees and

expenses, including brokerage

commissions, will be paid by NELICO

and MetLife. In addition, Applicants

represent that the Substitution will not

impose any tax liability on Variable

Contract owners. The Substitution will

not cause the Variable Contract fees and

charges currently paid by existing

Variable Contract owners to be greater

after the Substitution than before the

Substitution. Neither NELICO nor

MetLife will exercise any right it may

have under the Variable Contracts to

impose restrictions on transfers under

the Variable Contracts for a period of at

least thirty days following the

Substitution.

20. The Section 26 Applicants

represent that the procedures to be

implemented are sufficient to assure

that each Variable Contract owner’s cash

values immediately after the

Substitution shall be equal to the cash

value immediately before the

Substitution, and that the Substitution

will not affect the value of the interests

of those owners of other NELICO and

MetLife variable contracts (other than

the Variable Contracts) who currently

have contract value allocated to any of

the portfolios of the Zenith Fund or

Metropolitan Series.

21. For each period (not to exceed a

fiscal quarter) during the 24 months

following the date of the Substitution,

NELICO and MetLife will reimburse (on

the last business day of any such period)

any subaccount available through a

Variable Contract and investing in the

Replacement Portfolio such that the sum

of the Replacement Portfolio operating

expenses (taking into account expense

waivers and reimbursements) together

with subaccount expenses for such

period on an annualized basis will not

exceed the following limits (which

equal, for each Variable Contract, the

Substituted Portfolio operating

expenses, 1.30%, together with any

subaccount expenses for the fiscal year

prior to the Substitution) for those

Variable Contract owners who were

Variable Contract owners on the date of

the Substitution. 1

Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69077

Variable contract Expense cap

(in percent)

NELICO American Growth Series—Version I ..................................................................................................................................... 2.65

NELICO American Growth Series—Version II .................................................................................................................................... 2.70

NELICO American Forerunner Series ................................................................................................................................................. 2.30

NELICO Zenith Life One ..................................................................................................................................................................... 1.75

NELICO Zenith Flexible Life ................................................................................................................................................................ 1.90

NELICO Zenith Variable Whole Life .................................................................................................................................................... 1.90

NELICO Zenith Survivorship Life ........................................................................................................................................................ 2.05

NELICO Zenith Survivorship Life Plus ................................................................................................................................................ 1.30

NELICO Zenith Gateway Series .......................................................................................................................................................... 1.30

NELICO Zenith Life ............................................................................................................................................................................. 1.65

NELICO Zenith Life Plus ..................................................................................................................................................................... 1.90

NELICO Zenith Life Executive 65 ....................................................................................................................................................... 1.90

NELICO Zenith Executive Advantage Plus ......................................................................................................................................... 1.30

NELICO Zenith Executive Advantage 2000 ........................................................................................................................................ 1.30

NELICO Zenith Life Plus II .................................................................................................................................................................. 1.90

MetLife Zenith Accumulator ................................................................................................................................................................. 2.65

In addition, for those Variable

Contract owners who owned a Variable

Contract for which morality and

expense risk charges are not subaccount

expenses (i.e., NELICO Zenith

Survivorship Life Plus, NELICO

American Gateway Series, NELICO

Zenith Executive Advantage Plus, or

NELICO Zenith Executive Advantage

2000) on the date of the Substitution,

NELICO will not increase current

mortality and expense risk charges for a

period of 24 months following the date

of Substitution.

22. Applicants represent that from the

date the application is filed with the

Commission to the date 30 days after the

Effective Date, Variable Contract owners

will have the right to make one transfer

of contract value from the subaccounts

invested in the Substituted Portfolio

(before the Substitution) or the

Replacement Portfolio (after the

Substitution) to any other subaccount

without charge and without that transfer

counting toward the number permitted

under the Variable Contract (regardless

of whether during the accumulation

period or the annuity period). Each

Variable Contract owner has received a

prospectus supplement and will, prior

to the Effective Date, have received a

prospectus for the Replacement

Portfolio and a Pre-Substitution Notice

(in the form of an additional prospectus

supplement) regarding the Substitution. 23. Variable Contract owners were

notified of the initial application by

means of a supplement to the

prospectus for each of the Variable

Contracts dated March 17, 2000 that

disclosed that the Section 26 Applicants

intended to file the application and seek

approval for the Substitution. 24. Following the date on which this

notice for the order requested by the

Section 26 Applicants is published, but

before the Effective Date, a notice (‘‘PreSubstitution Notice’’), in the form of an

additional supplement to the

prospectuses for the Variable Contracts,

will be mailed to Variable Contract

owners setting forth the scheduled

Effective Date and advising Variable

Contract owners that contract values

attributable to investments in the

Substituted Portfolio will be transferred

to the Replacement Portfolio, without

charge and, when relevant, without

counting toward the number of transfers

permitted without charge, on the

Effective Date. The Pre-Substitution

Notice will state that, from the date the

application was filed with the

Commission through the date 30 days

after the substitution, Variable Contract

owners may make one transfer of

contract value from the subaccount

corresponding to the Substituted

Portfolio (before the Substitution) or the

Replacement Portfolio (after the

Substitution) to any other subaccount

without charge and without that transfer

counting toward the number permitted

without charge under the Variable

Contract. In addition, within five days

after the Substitution, any Variable

Contract owners who were affected by

the Substitution will sent a written

notice informing them that the

Substitution was carried out and

advising them of their transfer rights

(‘‘Post-Substitution Notice’’).

Applicant’s Legal Analysis

1. Section 26(b) of the 1940 Act

prohibits any depositor or trustee of a

unit investment trust that invests

exclusively in the securities of a single

issuer from substituting the securities of

another issuer without the approval of

the Commission. Section 26(b) provides

that such approval shall be granted by

order of the Commission, if the evidence

establishes that the substitution is

consistent with the protection of

investors and the purposes of the 1940

Act.

2. Section 26(b) was intended to

provide for Commission scrutiny of

proposed substitutions which could, in

effect, force shareholders dissatisfied

with the substitute security to redeem

their shares, thereby possibly incurring

a loss of the sales load deducted from

initial purchase payments, an additional

sales load upon reinvestment of the

proceeds of redemption, or both. The

section was designed to forestall the

ability of a depositor to present holders

of interest in a unit investment trust

with situations in which a holder’s only

choice would be to continue an

investment in an unsuitable underlying

security, or to elect a costly and, in

effect, forced redemption. The Section

26 Applicants assert that the

Substitution meets the standards set

forth in section 26(b) and that, if

implemented, the Substitution would

not raise any of the aforementioned

concerns that Congress intended to

address when the 1940 Act was

amended to include this provision. 3. Applicants assert that the

replacement of the Substituted Portfolio

with the Replacement Portfolio is

consistent with the protection of

Variable Contract owners and the

purposes fairly intended by the policy

and provisions of the 1940 Act and,

thus, meets the standards necessary to

support an order pursuant to section

26(b) of the 1940 Act. Applicants also

assert that the investment objectives and

policies of the Replacement Portfolio are

sufficiently similar to those of the

Substituted Portfolio so that Variable

Contract owners will have reasonable

continuity in investment and risk

expectations. In addition, Applicants

assert that the types of investment

advisory and administrative services

provided to the Replacement Portfolio

are comparable to the types of

investment advisory and administrative

services provided to the Substituted

Portfolio.

4. Applicants state that the

Substitution is part of efforts by NELICO

69078 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

and MetLife to make their Variable

Contracts more efficient to administer

and oversee and, thus, more costefficient and attractive to customers.

The Applicants assert that replacing the

Substituted Portfolio with the

Replacement Portfolio (in essence,

combining Variable Contract owner

assets attributable to an international

investment option into one mutual

fund) is appropriate and in the best

interests of Variable Contract owners.

Applicants assert that the proposed

Substitution will provide Variable

Contract owners with (i) an underlying

portfolio having lower expense ratios

with the expectation that, after the

Substitution, the ratios will remain

lower, (ii) a portfolio subadvised by

Putnam, which has achieved

competitive historical portfolio

performance in other international

funds and is experienced in managing

international funds, and (iii) a portfolio

with good prospects for growth.

5. Section 17(a)(1) and (a)(2) of the

1940 Act generally prohibit any

affiliated person of a registered

investment company, or any affiliated

person of an affiliated person, from

selling any security or other property to

such registered investment company

and from purchasing any security or

other property from such registered

investment company. NELICO and

MetLife anticipate that, to the extent

Putnam determines at that time that

portfolio holdings of the Substituted

Portfolio would be suitable investments

for the Replacement Portfolio in the

overall context of such portfolios’s

investment objectives and policies and

consistent with its management of the

Replacement Portfolio, the Substitution

will be done by redeeming shares of the

Substituted Portfolio in-kind rather than

in cash and then using those assets to

purchase shares of the Replacement

Portfolio. Redemptions and purchases

in-kind involve the purchase of property

from a registered investment company

and the sale of property to a registered

investment company and the sale of

property to a registered investment

company by NELICO and MetLife, each

an affiliated person of those investment

companies. The Substitution, therefore,

may be deemed to involve one or more

purchases or sales of securities or

property between affiliates. The Section

17(b) Applicants request that the

Commission issue an order pursuant to

section 17(b) of the 1940 Act exempting

the Substitution from the provisions of

section 17(a) to the extent necessary to

permit the Substitution effected, in part,

by means of in-kind redemptions and

purchases of shares, and also by means

of in-kind transactions.

6. Section 17(b) of the Act authorizes

the Commission may, upon application,

exempt a proposed transaction from the

prohibitions of Section 17(a) if the

evidence establishes that:

(i) The terms of the proposed

transaction, including the consideration

to be paid or received, are reasonable

and fair and do not involve

overreaching on the part of any person

concerned;

(ii) The proposed transaction is

consistent with the policy of each

registered investment company

concerned, as recited in its registration

statement and records filed under the

1940 Act; and

(iii) The proposed transaction is

consistent with the general purposes of

the 1940 Act.

7. NELICO and MetLife assert that the

terms under which the in-kind

redemptions and purchases will be

affected are reasonable and fair and do

not involve overreaching on the part of

any person. Applicants state that the use

of in-kind redemptions of such

subaccounts is intended to reduce costs

and thereby benefit Variable Contract

owners. The transactions will not cause

Variable Contract owner interests to be

diluted. The proposed transactions will

take place at relative net asset value in

conformity with the requirements of

Section 22(c) of the 1940 Act and Rule

22c–1 thereunder with no change in the

amount of any Variable Contract

owner’s contract value or death benefit

or in the dollar value of his or her

investment in any of the Separate

Accounts.

8. Applicants represent that the inkind redemptions and purchases will be

transacted in a manner consistent with

the policies of both the Substituted

Portfolio and the Replacement Portfolio,

as recited in their registration

statements. Putnam will review the

securities holdings of the Substituted

Portfolio and determine which portfolio

holdings of the Substituted Portfolio

would be suitable investments for the

Replacement Portfolio in the overall

context of such Portfolio’s investment

objectives and policies and consistent

with the management of the

Replacement Portfolio.

9. Applicants assert that the

Substitution, as described herein, is

consistent with the general purposes of

the 1940 Act. The proposed transactions

do not present any of the conditions or

abuses that the 1940 Act was designed

to prevent. Securities to be paid out as

redemption proceeds and subsequently

contributed to the Replacement

Portfolio to effect the contemplated inkind purchases of shares will be valued

based on the normal valuation

procedures of the redeeming Substituted

Portfolio and purchasing Replacement

Portfolio.

Applicants’ Conditions

For purposes of the approval sought

pursuant to Section 26(b) of the 1940

Act, the Substitution described in this

amendment and restated application

will not be completed, unless all of the

following conditions are met.

1. The Commission shall have issued

an order (i) approving the Substitution

under Section 26(b) of the 1940 Act, and

(ii) exempting any in-kind redemptions

and purchases from the provisions of

section 17(a) of the 1940 Act as

necessary to carry out the transactions

described in this amended and restated

application.

2. Each Variable Contract owner will

have been sent (i) a copy of the effective

prospectus relating to the Replacement

Portfolio and any necessary

amendments to the prospectuses

relating to the Variable Contracts, (ii) as

soon as reasonably possible after the

notice for the order has been published

and prior to the Effective Date, a PreSubstitution Notice describing the terms

of the Substitution and the rights of the

Variable Contract owners in connection

with the Substitution, and (iii) if

affected by the Substitution, a PostSubstitution Notice within five days

after the Substitution informing them

that the Substitution was carried out

and advising them of their transfer

rights.

3. NELICO and MetLife shall have

satisfied themselves that (i) the Variable

Contracts allow the substitution of

portfolios in the manner contemplated

by the Substitution and related

transactions described in the

application, (ii) the transactions can be

consummated as described in the

amended and restated application under

applicable insurance laws, and (iii) that

any applicable regulatory requirements

in each jurisdiction where the Variable

Contracts are qualified for sale, have

been complied with to the extent

necessary to complete the transaction.

Conclusion

Applicants assert that, for the reasons

stated above, the requested order

approving the Substitution and

exempting in-kind redemptions should

be granted.

Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69079

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 42931

(June 13, 2000), 65 FR 38615 (June 21, 2000).

4See letter from Scott Van Hatten, Legal Counsel,

Derivative Securities, Amex, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

Commission dated October 31, 2000 (‘‘Amendment

No. 1’’). In Amendment No. 1, the Amex proposes

to codify its rules regarding the AUTO–EX

parameters for option contracts under Amex Rule

933, Commentary .02.

5See letter from Scott Van Hatten, Legal Counsel,

Derivative Securities, Amex to Nancy Sanow,

Assistant Director, Division of Market Regulation

Commission dated November 2, 2000

(‘‘Amendment No. 2’’). In Amendment No. 2, the

Amex corrects the language in Amex Rule 933,

Commentary .02 to state that the eligible orders for

options on the Institutional, Japan and S&P MidCap

400 Indices must be for ‘‘fewer than 100 contracts’’

for series subject to AUTO–EX.

6See Securities Exchange Act Release No. 42094

(November 3, 1999), 64 FR 61675 (November 12,

1999). Although the maximum permissible number

of cotracts in an option order executable through

AUTO–EX is generally fifty contracts, there are

three exceptions that allow ninety-nine contract

orders; the Institutional, Japan and S&P MidCap 400

Indexes.

7See Securities Exchange Act Release No. 42128

(November 10, 1999), 64 FR 63836 (November 22,

1999).

8The Exchange is codifying its rules, under Amex

Rule 933, Commentary .02, regarding the maximum

option order size eligibility for its AUTO–EX

system. See Amendment No. 1, supra note 4. Order

size maximum levels for the Institutional, Japan,

and S&P MidCap 400 Indexes would remain at

ninety-nine contracts under this proposal. See

Amendment No. 2, supra note 5.

9The Commission has considered the proposed

rule’s impact of efficiency, competition and capital

formation. 15 U.S.C. 78c(f).

10 15 U.S.C. 78f(b)(5).

11The Commission notes that it is concurrently

approving similar proposals filed by the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’), the Pacific

Stock Exchange, Inc. (‘‘PCX’’) and the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’). See Securities

Exchange Act Release No. 43517 (November 3,

2000) (SR–CBOE–99–51); Securities Exchange Act

Release No. 43518 (November 3, 2000) (SR–PCX–

00–32); and Securities Exchange Act Release No.

41515 (November 3, 2000) (SR–Phlx–99–32).

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29178 Filed 11–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43516; File No. SR–Amex–

95–45]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendment Nos. 1 and 2 to the

Proposed Rule Change by the

American Stock Exchange LLC

Relating to the Maximum Size of

Option Orders That May Be Executed

Automatically

November 3, 2000.

I. Introduction

On October 25, 1999, the American

Stock Exchange LLC (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) pursuant to section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b-4

thereunder,2 a proposed rule change

amending its rules regarding the

automatic execution of options orders to

increase the maximum number of

contracts that may be designated for

automatic execution from fifty contracts

to seventy-five contracts. Notice of the

proposal was published in the Federal

Register on June 21, 2000.3 The

Commission received no comments on

the proposal. On November 1, 2000, the

Exchange submitted Amendment No. 1

to the proposal.4 On November 3, 2000,

the Exchange submitted Amendment

No. 2 to the proposal.5 This order

approves the proposal and grants

accelerated approval of Amendment

Nos. 1 and 2.

II. Description of the Proposal

The Exchange’s AUTO–EX system

automatically executes public customer

market and marketable limit orders in

options at the best bid or offer displayed

at the time the order is entered into the

order is entered into the Amex Order

File (‘‘AOF’’). Generally, public

customer market and marketable limit

orders for up to fifty options contracts

may be automatically executed through

the Exchange’s AUTO–EX system.6

Recently, AOF, which handles limit

orders routed to the specialist’s book as

well as those orders routed to AUTO–

EX, was increased to allow for the entry

of orders of up to 250 option contracts.7

Because AUTO–EX is only allowed to

execute equity option orders and index

orders of up to fifty contracts, any

market and marketable limit orders for

between fifty and 250 option contracts

are generally routed by the AOF to the

specialist’s book.

The Exchange proposes to increase

the maximum AUTO–EX order size

eligibility for equity and index option

contracts orders from fifty contracts to

seventy-five contracts.8 The proposed

increase in permissible order size will

be implemented on a case-by-case basis

for an individual option class or for all

option classes when two floor governors

or senior floor officials deem such an

increase appropriate.

The Exchange represents that it has

sufficient systems capacity to

accommodate implementation of the

proposed increase in permissible order

size and that AUTO–EX has been

extremely successful in enhancing

execution and operational efficiencies

during emergency situations and during

other non-emergency situations for

certain options classes. The Exchange

believes that automatic executions of

orders for up to seventy-five contracts

will enhance its overall operational

efficiency and give the Exchange better

means of competing with other options

exchanges for order flow.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange and, in particular,

the requirements of section 6 of the

Act.9 Among other provisions, section

6(b)(5) of the Act requires that the rules

of an exchange be designed to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating securities

transactions; remove impediments to

and perfect the mechanism of a free and

open market and a national securities

system; and protect investors and the

public interest.10

While increasing the maximum order

size limit from fifty contracts to seventyfive contracts for AUTO–EX eligibility

by itself does not raise concerns under

the Act,11 the Commission believes that

this increase raises collateral issues that

the Amex will need to monitor and

address. Increasing the maximum order

size for particular option classes will

make a larger number of option orders

eligible for the Exchange’s automatic

execution system. These orders may

benefit from greater speed of execution,

but at the same time create greater risks

for market maker participants. Market

makers signed onto the AUTO–EX

system will be exposed to the financial

risks associated with larger-sized orders

being routed through the system for

automatic execution at the displayed

price. When the market for the

underlying security changes rapidly, it

may take a few moments for the related

option’s price to reflect that change. In

the interim, customers may submit

orders that try to capture the price

differential between the underlying

security and the option. The larger the

orders accepted through AUTO–EX, the

greater the risk market makers must be

willing to accept. The Commission does

not believe that, because Amex