Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71337

1The Trust filed a notification of registration on

Form N–8A, and filed its initial registration

statement on Form N–1A under the 1940 Act and

the Securities Act of 1933, as amended (‘‘1933

Act’’), on September 5, 2000 (File Nos. 333–45194;

811–10115). Pursuant to Rule 0–4(a) under the 1940

Act, Applicants hereby incorporate by reference the

Trust’s registration statement to the extent

necessary to supplement the representations

contained herein.

2The Separate Accounts are, or will be, either

registered as investment companies under the 1940

Continued

application dated September 26, 2000,

and supplements dated September 27,

November 9, and November 14, 2000,

available for public inspection at the

Commission’s Public Document Room,

located at One White Flint North, 11555

Rockville Pike (first floor), Rockville,

Maryland, and accessible electronically

through the ADAMS Public Electronic

Reading Room link at the NRC Web site

http://www.nrc.gov.

Dated at Rockville, Maryland this 22nd day

of November 2000.

For the Nuclear Regulatory Commission.

John L. Minns,

Project Manager, Decommissioning Section,

Project Directorate IV & Decommissioning

Division of Licensing Project Management,

Office of Nuclear Reactor Regulation.

[FR Doc. 00–30466 Filed 11–30–00; 8:45 am]

BILLING CODE 7590–01–P

OVERSEAS PRIVATE INVESTMENT

CORPORATION

Sunshine Act Meeting

December 12, 2000 Board of Directors

Meeting

TIME AND DATE: Tuesday, December 12,

2000, 1:00 pm (Open Portion), 1:30 pm

(Closed Portion).

PLACE: Offices of the Corporation,

Twelfth Floor Board Room, 1100 New

York Avenue, NW., Washington, DC.

STATUS: Meeting Open to the Public

from 1:00 pm to 1:30 pm Closed portion

will commence at 1:30 pm (approx.)

MATTERS TO BE CONSIDERED: 

1. President’s Report

2. Amendment of the OPIC Bylaws

3. Approval of September 19, 2000

Minutes (Open Portion)

FURTHER MATTERS TO BE CONSIDERED:

Closed to the Public 1:30 pm)

1. Finance Project in OPIC Eligible

Countries

2. Finance Project in Brazil

3. Finance Project in Argentina

4. Approval of September 19, 2000

Minutes (Closed Portion)

5. Pending Major Projects

6. Reports

CONTACT PERSON FOR INFORMATION:

Information on the meeting may be

obtained from Connie M. Downs at (202)

336–8438.

Dated: November 28, 2000.

Connie M. Downs,

OPIC Corporate Secretary.

[FR Doc. 00–30649 Filed 11–28–00; 12:30

pm]

BILLING CODE 3210–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release Docket No. IC–24747; File No. 812–

12260]

The Ayco Company, et al.

November 22, 2000.

AGENCY: The Securities and Exchange

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

ACTION: Notice of Application for an

Order of Exemption under Section 6(c)

of the Investment Company Act of 1940,

as amended (‘‘1940 Act’’) from Sections

9(a), 13(a), 15(a), and 15(b) of the 1940

Act and Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) thereunder.

Applicants: Ayco Series Trust

(‘‘Trust’’) and The Ayco Company, L.P.

(‘‘Ayco’’) (collectively, ‘‘Applicants’’).

Summary of Application: Applicants

seek an order to permit shares for the

Trust and shares of any other existing or

future investment company that is

designed to fund insurance products

and for which Ayco, or any of its

affiliates, may serve as investment

manager, investment adviser,

subadviser, administrator, manager,

principal underwriter or sponsor (the

Trust and such other investment

companies being hereinafter referred to,

collectively, as ‘‘Insurance Trusts’’), or

permit shares of any current or future

series of any Insurance Trust

(‘‘Insurance Fund’’), to be sold to and

held by: (1) Separate accounts funding

variable annuity and variable life

insurance contracts issued by both

affiliated and unaffiliated life insurance

companies; (2) qualified pension and

retirement plans outside of the separate

account context (‘‘Qualified Plans’’ or

‘‘Plans’’); and (3) any investment

manager to an Insurance Trust

(‘‘Manager’’) and the affiliates thereof.

Filing Date: The application was filed

on September 15, 2000. Applicants

represent that they will file an

amendment to the application during

the notice period to conform to the

representations set forth herein.

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 on the application by writing

to the Secretary of the SEC and serving

Applicants with a copy of the request,

personally or by mail. Hearing requests

must be received by the SEC by 5:30

p.m. on December 15, 2000 and should

be accompanied by proof of service on

the Applicants, in the form of an

affidavit or, for lawyers, a certificate of

service. Hearing requests should state

the nature of writer’s interest, the reason

for the request, and the issues contested.

Persons may request notification of the

date of the hearing by writing to the

SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, DC 20549–

0690. Applicants, c/o Margaret M.

Keyes, Esq., Deputy General Counsel,

The Ayco Company, L.P., One Wall

Street, Albany, New York 12205–3894.

FOR FURTHER INFORMATION CONTACT: Ann

L. Vlcek, 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 is

available for a fee from the SEC’s Public

Reference Branch, 450 Fifth Street,

N.W., Washington, DC 20549–0102

(202–942–8090).

Applicant’s Representations

1. The Trust is a Delaware business

trust organized on August 30, 2000. It is

registered under the 1940 Act of the

series type as an open-end management

investment company.1 The initial series

of the Trust is the Ayco Large Cap

Growth Fund I (‘‘Fund’’). The Trust is

authorized to establish additional series

and classes of shares.

2. Mercer Allied Company, L.P.

(‘‘Mercer Allied’’), a broker-dealer

registered with the Commission and a

member of the National Association of

Securities Dealers, Inc., serves as the

Trust’s distributor. The General Partner

of Mercer Allied is Breham, Inc., a

corporation wholly-owned by John

Breyo, the Trust’s Chief Executive

Officer and a Trustee of the Trust.

3. Ayco Asset Management, a division

of Ayco, serves as the Trust’s

investment manager. Ayco is registered

as an investment adviser with the SEC

under the Investment Advisers Act of

1940, as amended. The general partner

of Ayco is Hambre, Inc., a corporation

also wholly-owned by John Breyo.

4. The Insurance Trusts intend to offer

shares of the Insurance Funds to

registered and unregistered separate

accounts of affiliated and unaffiliated

insurance companies (collectively,

‘‘Separate Accounts’’ 2 in order to fund

71338 Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices

Act or exempt from registration thereunder

pursuant to Section 3(c)(1) of the Act.

3Qualified Plans described in Code Section

403(b)(7) (‘‘Section 403(b)(7) Plans’’) and in Section

408(a) (‘‘Section 408(a) Plans’’) may invest in

mutual funds through custodial arrangements. Such

custodial arrangements typically provide that

shares held of record by the custodian are held for

the benefit of the participant that beneficially owns

such shares. Shares of the Insurance Trusts may be

offered and sold to Section 403(b)(7) Plans and

Section 408(a) Plans encompassing participants in

custodial arrangements, to the extent shares owned

of record by a custodian are deemed to be held in

trust. The obligations of custodians of Section

403(b)(7) Plans and Section 408(a) Plans to

participants in such plans are typically much more

limited than the obligations of trustees of other

Qualified Plans to participants in such Plans. For

example, the decision whether to purchase or sell

shares of any particular investment option, and the

decision of how to vote on any particular matter

presented to shareholders, typically is vested in

participants in Section 403(b)(7) Plans and Section

408(a) Plans, rather than custodians. Because of the

limited role of custodians of Section 403(b)(7) Plans

and Section 408(a) Plans, Applicants intend to treat

each participant in a Section 403(b)(7) Plan and a

Section 408(a) Plan as a separate Qualified Plan for

purposes of this Application.

various types of insurance products.

These products may include, but are not

limited to, variable annuity contracts,

scheduled premium variable life

insurance contracts, single premium

variable life insurance contracts, and

flexible premium variable life insurance

contracts (collectively referred to herein

as ‘‘variable contracts’’ or ‘‘contracts’’).

Insurance companies whose Separate

Account(s) may now or in the future

own shares of the Insurance Funds are

referred to herein as ‘‘Participating

Insurance Companies.’’

5. The Participating Insurance

Companies will establish their own

Separate Accounts and design their own

variable annuity and variable life

insurance contracts. Each Participating

Insurance Company will have the legal

obligation to satisfy all applicable

requirements under both state and

federal laws. It is anticipated that

Participating Insurance Companies will

rely on rule 6e–2 or Rule 6e–3(T) under

the 1940 Act, in connection with the

establishment and maintenance of

variable life insurance Separate

Accounts, although some Participating

Insurance Companies, in connection

with variable life insurance contracts,

may rely on individual exemptive

orders as well.

6. Each Participating Insurance

Company will enter into a participation

agreement with the applicable Insurance

Trust on behalf of the Insurance Funds

in which the Participating Insurance

Company invests. The role of the

Insurance Funds under this

arrangement, insofar as federal

securities laws are applicable, will

consist of offering their shares to the

Separate Accounts and fulfilling any

conditions that the Commission may

impose upon granting the order

requested herein.

7. The Insurance Trusts intend to offer

shares of the Insurance funds directly to

Qualified Plans outside of the separate

accounts context. Section 817(h) of the

Internal Revenue Code of 1986, as

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

diversification standards on the

underlying assets of separate accounts

funding variable annuity contracts and

variable life insurance contracts. In

particular, the Code provides that such

contracts shall not be treated as an

annuity contracts or life insurance

contract for any period (and any

subsequent period) for which the

separate account investments are not, in

accordance with regulations prescribed

by the Treasury Department, adequately

diversified. On March 2, 1989, the

Treasury Department issued regulations

(Treas. Reg. 1.817–5) (‘‘Treasury

Regulations’’) that establish

diversification requirements for variable

annuity and variable life insurance

contracts, which require the separate

accounts upon which these contracts are

based to be diversified as provided in

the Treasury Regulations. In the case of

separate accounts that invest in

underlying investment companies, the

Treasury Regulations provide a ‘‘look

through’’ rule that permits the separate

account to look to the underlying

investment company for purposes of

meeting the diversification

requirements, provided that the

beneficial interests in the investment

company are held only by the

segregated asset accounts of one or more

insurance companies. However, the

Treasury Regulations also contain

certain exceptions to this requirement,

one of which allows shares in an

investment company to be held by the

trustee of a qualified pension or

retirement plan without adversely

affecting the ability of shares in the

same investment company to also be

held by the separate accounts of

insurance companies in connection

with their variable annuity and variable

life contracts (Treas. Reg. 1.817–

5(f)(3)(iii). Another exception allows the

investment manager of the investment

company and certain companies related

to the investment manager to hold

shares of the investment company.

8. Qualified Plans may choose any of

the Insurance Funds that are offered as

the sole investment under the Plan or as

one of several investments. Plan

participants may or may not be given an

investment choice depending on the

terms of the Plan itself. Shares of any of

the Insurance Funds sold to such

Qualified Plans would be held or

deemed to be held by the trustee(s) of

said Plans.3 Certain Qualified Plans,

including Section 403(b)(7) Plans and

Section 408(a) Plans, may vest voting

rights in Plan participants instead of

Plan trustees. Exercise of voting rights

by participants in any such Qualified

Plans, as opposed to the trustees of such

Plans, cannot be mandated by the

Applicants. Each Plan must be

administered in accordance with the

terms of the Plan and as determined by

its trustee or trustees.

9. shares of each Insurance Trust also

may be offered to the Manager and its

affiliates, in reliance on Treasury

Regulation 1.817–5(f)(3)(ii). Applicants

state that the Treasury Regulations

permit such sales as long as the return

on shares held by the Manager or its

affiliates is computed in the same

manner as for shares held by the

Separate Accounts, and the Manager

and its affiliates do not intend to sell to

the public shares of the Insurance Trust

that they hold. An additional restriction

is imposed by the Treasury Regulations

on sales to the Manager and its affiliates

who may hold shares only in

connection with the creation or

management of the Insurance Trust.

Applicants anticipate that sales in

reliance on these provisions of the

Treasury Regulations generally will be

made to the Manager and its affiliates

and generally for the purpose of

providing necessary capital required by

Section 14(a) of the 1940 Act.

10. Applicants state that the

promulgation of Rules 6e–2(b)(15) and

6e–3(T)(b)(15) under the 1940 Act

preceded the issuance of the Treasury

Regulations that made it possible for

shares of an investment company to be

held by a Qualified Plan or the

investment company’s investment

manager or its affiliates without

adversely affecting the ability of shares

in the same investment company to also

be held by separate accounts of

insurance companies in connection

with their variable life insurance

contracts. Thus, Applicants believe that

the sale of shares of the same

investment company to separate

accounts through which variable life

insurance contracts and variable

annuity contracts are issued, to

Qualified Plans, or to the investment

company’s investment manager and its

affiliates (collectively, ‘‘eligible

shareholders’’) could not have been

envisioned at the time of the adoption

of Rules 6e–2(b)(15) and 6e–3(T)(b)(15),

given the then-current tax law.

Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71339

4The relief provided by Rule 6e–2 is also

available to a separate account’s investment

manager, principal underwriter, and sponsor or

depositor.

5The Commission has published proposed

amendments to Rule 6e–2 that, if adopted, would

permit shares of one underlying fund to be sold to

separate accounts of the insurer, or any affiliated

life insurance company, offering variable annuity

contracts or scheduled premium or flexible

premium variable life insurance. See Investment

Company Act Release No. 14421 (Mar. 15, 1985).

However, the proposed amendments would not

permit shares of one underlying fund to be sold to

separate accounts of unaffiliated companies.

6The relief provided by Rule 6e–3(T) is also

available to a separate account’s investment

manager, principal underwriter, and sponsor or

depositor.

Applicants’ Legal Analysis

1. In connection with the funding of

scheduled premium variable life

insurance contracts issued through a

separate account organized as a unit

investment trust (‘‘Trust Account’’),

Rule 6e–2(b)(15) provides partial

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

15(a), and 15(b) of the 1940 Act.4 The

exemptions granted to a separate

account by Rule 6e–2(b)(15) are

available only where each registered

management investment company

underlying the Trust Account

(‘‘underlying fund’’) offers its shares

‘‘exclusively to variable life insurance

separate accounts of the life insurer or

of any affiliated life insurance company

* * *.’’ (emphasis added). Therefore,

the relief granted by Rule 6e–2(b)(15) is

not available with respect to a

scheduled premium variable life

insurance separate account that owns

shares of an underlying fund that also

offers its shares to a variable annuity

separate account of the same company

or of any affiliated life insurance

company.5 The use of a common

underlying fund as the underlying

investment medium for both variable

annuity and variable life insurance

separate accounts of the same life

insurance company or of any affiliated

life insurance company is referred to

herein as ‘‘mixed funding.’’

2. In addition, the relief granted by

Rule 6e–2(b)(15) is not available with

respect to a scheduled premium variable

life insurance separate account that

owns shares of an underlying fund that

also offers its shares to separate

accounts funding variable contracts of

one or more unaffiliated life insurance

companies. The use of a common

underlying fund as the underlying

investment medium for variable life

insurance separate accounts of one

insurance company and separate

accounts funding variable contracts of

one or more unaffiliated life insurance

companies is referred to herein as

‘‘shared funding.’’

3. Moreover, because the relief under

Rule 6e–2(b)(15) is available only where

shares are offered exclusively to variable

life insurance separate accounts,

additional exemptive relief may be

necessary if the shares of the Insurance

Trusts are also to be sold to Qualified

Plans or to the Manager and its

affiliates.

4. Accordingly, Applicants are

requesting an order of the Commission

granting exemptions from Sections 9(a),

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

and Rule 6e–2(b)(15) thereunder, to the

extent necessary to permit shares of

each Insurance Trust to be offered and

sold to, and held by: (a) Separate

Accounts funding variable annuity

contracts and scheduled premium and

flexible premium variable life insurance

contracts issued by both affiliated and

unaffiliated life insurance companies;

(b) Qualified Plans; and (c) any Manager

to an Insurance Trust and affiliates

thereof.

5. In connection with the funding of

flexible premium variable life insurance

contracts through a Trust Account, Rule

6e–3(T)(b)(15) provides partial

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

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

extent that those sections have been

deemed by the Commission to require

‘‘pass-through’’ voting with the respect

to an underlying fund’s shares. The

exemptions granted to a separate

account by Rule 6e–3(T)(b)(15) are

available only where all of the assets of

the separate account consist of the

shares of one or more underlying funds

which offer 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

offers their shares to variable annuity

separate accounts of the life insurer or

of an affiliated life insurance company’’

(emphasis added). Therefore, Rule 6e–

3(T) permits mixed funding with respect

to a flexible premium variable life

insurance separate account, subject to

certain conditions.6 However, Rule 6e–

3(T) does not permit shared funding

because the relief granted by Rule 6e–

3(T)(b)(15) is not available with respect

to a flexible premium variable life

insurance separate account that owns

shares of an underlying fund that also

offers its shares to separate accounts

(including variable annuity and flexible

premium and scheduled premium

variable life insurance separate

accounts) of unaffiliated life insurance

companies.

6. The relief provided by Rule 6e–3(T)

is not relevant to the purchase of shares

of the Insurance Trusts by Qualified

Plans or by the Manager and its

affiliates. However, because the relief

granted by Rule 6e–3(T)(b)(15) is

available only where shares of the

underlying fund are offered exclusively

to separate accounts, or to life insurers

in connection with the operation of a

separate account, additional exemptive

relief may be necessary if the shares of

the Insurance Trusts are also to be sold

to Qualified Plans or to the Manager and

its affiliates.

7. Accordingly, Applicants are

requesting an order of the Commission

granting exemptions from Sections 9(a),

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

and Rule 6e–3(T)(b)(15) (and any

comparable permanent rule) thereunder,

to the extent necessary to permit shares

of each Insurance Fund to be offered

and sold to, and held by: (a) Separate

Accounts funding variable annuity

contracts and scheduled premium and

flexible premium variable life insurance

contracts issued by unaffiliated life

insurance companies; (b) Qualified

Plans; and (c) any Manager to an

Insurance Trust and affiliates thereof.

8. Applicants state that none of the

relief provided for in Rules 6e–2(b)(15)

and 6e–3(T)(b)(15) relates to Qualified

Plans, the Manager and its affiliates, or

to an underlying fund’s ability to sell its

shares to such purchasers. It is only

because some of the Separate Accounts

that may invest in the Insurance Trusts

may themselves be investment

companies that rely upon the relief

provided by Rules 6e–2 and 6e–3(T) and

wish to continue to rely upon that relief

provided in those Rules, that the

Applicants are applying for the relief

described in this Application.

9. In its most recent release adopting

amendments to Rule 6e–3(T), the

Commission stated that shared funding

arrangements presented ‘‘a very new

and somewhat complicated area from a

regulatory perspective’’ (Investment

Company Act Release No. 15651 (March

30, 1987)). In the context of mixed

funding, the Commission noted in this

same Release that ‘‘it would prefer to

see any evolvement in this area * * *

take place in the context of the

application process.’’

10. Applicants presume that the

reason that the Commission did not

grant greater relief in the area of mixed

and shared funding when it adopted

Rule 6e–3(T) is because of the

Commission’s uncertainty in this area

with respect to such issues as conflicts

of interest. Applicants believe that any

Commission concern in this area is not

warranted in the context of this

Application. Applicants state that, if

and when a material irreconcilable

71340 Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices

7E.g., Warburg Pincus Trust, et al., Investment

Company Act Release No. 24482 (May 30, 2000)

(order), Investment Company Act Release No. 24442

(May 5, 2000) (notice); Kelmoore Strategy TM

Variable Trust, et al., Investment Company Act

Release No. 24454 (May 16, 2000) (order),

Investment Company Act Release No. 24399 (April

19, 2000) (notice); Pacific Select Fund, et al.,

Investment Company Act Release No. 24196 (Dec.

14, 1999) (order), Investment Company Act Release

no. 24140 (Nov. 17, 1999) (notice); Aetna Variable

Fund, et al., Investment Company Act Release No.

23616 (Dec. 21, 1998) (order), Investment Company

Act Release No. 23545 (Nov. 23, 1998) (notice);

PIMCO Variable Insurance Trust, et al., Investment

Company Act Release No. 23022 (Feb. 9, 1998)

(order), Investment Company Release No. 22994

(Jan. 7, 1998) (notice); The Dreyfus Socially

Responsible Growth Fund, Inc., et al., Investment

Company Act Release No. 23021 (Feb. 5, 1998)

(order), Investment Company Act Release No. 22996

(Jan. 9, 1998) (notice); and EQ Advisors Trust, et al.,

Investment Company Act Release No. 22651 (Apr.

30, 1997) (order), Investment Company Act Release

No. 22602 (Apr. 4, 1997) (notice).

8E.g., Potomac Insurance Trust, et al., Investment

Company Act Release No. 24560 (July 18, 2000)

(order), Investment Company Act Release No. 24544

(June 22, 2000) (notice); SEI Insurance Products

Trust, et al., Investment Company Act Release no.

24134 (Nov. 15, 1999) (order), Investment Company

Act Release No. 24089 (Oct. 18, 1999) (notice); Barr

Rosenberg Variable Insurance Trust, et al.,

Investment Company Act Release No. 23402 (Aug.

26, 1998) (order), Investment Company Act Release

No. 23372 (July 31, 1998) (notice); Variable Annuity

Portfolios, et al., Investment Company Act Release

No. 22857 (Oct. 16, 1997) (order), Investment

Company Act Release No. 22823 (Sept. 17, 1997)

(notice); and The Palladian Trust, et al., Investment

Company Act Release No. 22493 (Feb. 5, 1997)

(order), Investment Company Act Release No. 22456

(Jan. 9, 1997) (notice).

9See Variable Insurance funds, et al., Investment

Company Act Release No. 21675 (Jan. 16, 1996)

(Order), Investment Company Act Release No.

21592 (Dec. 12, 1995) (notice) (Commission granted

relief extending to all investment companies

designed to fund insurance products for which

BISYS Fund Services, or any of its affiliates, may

serve as principal underwriter and administrator).

See also precedent cited supra note 9 (Commission

granted relief extending to all investment

companies for which the named investment

adviser, or an affiliate of the adviser, may serve as

investment manager, investment adviser, subadviser, administrator, manager, principal

underwriter or sponsor).

conflict between the Separate Accounts

arises in this context or between

Separate Accounts on the one hand and

Qualified Plans or the Manager and its

affiliates on the other hand, the

Participating Insurance Companies,

Qualified Plans and the Manager and its

affiliates must take whatever steps are

necessary to remedy or eliminate the

conflict, including eliminating the

Insurance Funds as an eligible

investment option. Applicants believe

that investment by the Manager and its

affiliates or the inclusion of Qualified

Plans as eligible shareholders should

not increase the risk of material

irreconcilable conflicts among

shareholders. Applicants further assert,

however, that even if a material

irreconcilable conflict involving the

Qualified Plans arose, the Qualified

Plans, unlike the Separate Accounts,

can simply redeem their shares and

make alternative investments. By

contrast, insurance companies cannot

simply redeem their separate accounts

out of one fund and invest in another.

Time consuming, complex transactions

must be undertaken to accomplish such

redemptions and transfers. Applicants

thus argue that allowing the Manager

and its affiliates or Qualified Plans to

invest directly in the Insurance Trusts

should not increase the opportunity for

conflicts of interest.

11. The Commission has previously

granted exemptive orders permitting

open-end management investment

companies to offer their shares directly

to Qualified Plans as well as to separate

accounts of affiliated or unaffiliated

insurance companies that issue variable

annuity contracts and variable life

insurance contracts,7 and has granted

comparable relief in instances in which

the investment managers of investment

companies serving as the underlying

investment media for variable insurance

contracts proposed to purchase shares of

such investment companies.8

12. Consistent with the Commission’s

authority under Section 6(c) of the 1940

Act to grant exemptive orders to a class

or classes of persons and transactions,

this Application requests relief for the

class consisting of the Insurance Funds.

Applicants maintain that there is ample

precedent, in a variety of contexts, for

granting exemptive relief not only to the

applicants in a given case, but also to

members of the class not currently

identified that may be similarly situated

in the future. In the context of mixed

and shared funding, the Commission

has granted exemptions covering a class

composed of registered investment

companies designed to fund variable

contracts for which a named party to the

exemptive application or, in some

instances, an affiliate thereof, would

serve in one of more of the following

capacities: investment manager,

investment adviser, sub-adviser,

administrator, manager, principal

underwriter or sponsor.9

13. Section 6(c) authorizes the

Commission to exempt any person,

security, or transaction or any class or

classes of persons, securities, or

transactions from any provision or

provisions of the 1940 Act and/or of any

rule thereunder if and to the extent that

such exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act. For the reasons stated

below, Applicants believe that the

requested exemptions 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.

14. In general, Section 9(a) of the 1940

Act disqualifies any person convicted of

certain offenses, and any company

affiliated with that person, from acting

or serving in various capacities with

respect to a registered investment

company. More specifically, paragraph

(3) of Section 9(a) provides, among other

things, that it is unlawful for any

company to serve as investment adviser

to or principal underwriter for any

registered open-end investment

company if an affiliated person of that

company is subject to a disqualification

enumerated in Sections 9(a)(1) or (a)(2).

Rule 6e–2(b)(15)(i) and (ii) under the

1940 Act and Rule 6e–3(T)(b)(15)(i) and

(ii) under the 1940 Act provide

exemptions from Section 9(a) under

certain circumstances, subject to the

limitations discussed above on mixed

and shared funding. These exemptions

limit the application of the eligibility

restrictions to affiliated individuals or

companies that directly participate in

the management of the underlying fund.

15. Applicants state that the relief

provided by Rules 6e–2(b)(15)(i) and

6e–3(T)(b)(15)(i) under the 1940 Act

permits a person disqualified under

Section 9(a) to serve as an officer,

director, or employee of the life insurer,

or any of its affiliates, so long as that

person does not participate directly in

the management or administration of

the underlying fund.

16. Applicants contend that the relief

provided by Rules 6e–2(b)(15)(ii) and

63–3(T)(b)(15)(ii) under the 1940 Act

permits the life insurer 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), are

participating in the management or

administration of the Trust.

17. Applicants state that the partial

relief granted in Rules 6e–2(b)(15) and

6e–3(T)(b)(15) under the 1940 Act from

the requirements of Section 9 of the

1940 Act limits, in effect, the amount of

monitoring of an insurer’s personnel,

which would otherwise be necessary to

ensure compliance with Section 9, to

that which is appropriate in light of the

policy and purposes of Section 9.

Applicants maintain that those Rules

recognize that it is not necessary for the

protection of investors or the purposes

fairly intended by the policy and

provisions of the 1940 Act to apply the

provisions of Section 9(a) to the many

individuals in an insurance company

complex, most of whom typically will

Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71341

10 Investment Company Act Release No. 9482

(Oct. 18, 1976) (adopting Rule 6e–2).

11 Investment Company Act Release No. 8000

(Sept. 20, 1973) (proposing to amend Rule 3c–4, the

predecessor of Rule 6e–2).

12 Investment Company Act Release No. 9104

(Dec. 30, 1975) (proposing Rule 6e–2).

13Applicants are not aware of any rule or

exemptive order granting relief for variable annuity

separate accounts from the disqualification or passthrough voting provisions, and no such relief is

requested herein.

14As noted supra note 8, Section 403(b)(7) Plans

and Section 408(a) Plans may permit shares

beneficially owned by participants to be owned of

record by custodians. Offers and sales of Insurance

Fund shares to such plans would be permitted to

the extent that Insurance Fund shares owned of

record by the custodians are deemed to be held by

Section 403(b)(7) Plan and Section 408(a) Plan

trustees.

have no involvement in matters

pertaining to investment companies in

that organization. Applicants assert that

it is also unnecessary to apply Section

9(a) of the 1940 Act to the many

individuals employed by Participating

Insurance Companies (or affiliated

companies of Participating Insurance

Companies) who do not directly

participate in the administration or

management of the Insurance Trusts.

18. Applicants believe that there is no

regulatory purpose in extending the

monitoring requirements to embrace a

full application of Section 9(a)’s

eligibility restrictions because of mixed

funding or shared funding. Applicants

state that the Participating Insurance

Companies are not expected to play any

role in the management or

administration of the Insurance Trusts,

and that those individuals who

participate in the management or

administration of the Insurance Trusts

will remain the same regardless of

which separate accounts or insurance

companies use the Insurance Trusts.

Applicants maintain that, therefore,

applying the monitoring requirements of

Section 9(a) to the thousands of

individuals employed by the

participating Insurance Companies

would not serve any regulatory purpose.

Applicants also state that, furthermore,

the increased monitoring costs would

reduce the net rates of return realized by

contract owners and Plan participants.

19. Applicants state that, moreover,

the relief requested should not be

affected by the sale of shares of the

Insurance Trusts to Qualified Plans or

the Manager and its affiliates.

Applicants believe that the insulation of

the Insurance Trusts from those

individuals who are disqualified under

the 1940 Act remains in place. Because

Qualified Plans and the Manager and its

affiliates are not investment companies

and will not be deemed to be affiliated

with the Insurance Trusts solely by

virtue of their shareholdings, Applicants

state that no additional relief is

necessary.

20. Applicants submit that Sections

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

have been deemed by the Commission

to require ‘‘pass-through’’ voting with

respect to underlying fund shares held

by a separate account. Applicants state

that Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) under the 1940 Act

provide partial exemptions from those

sections to permit the insurance

company to disregard the voting

instructions of its contract owners in

certain limited circumstances.

Applicants maintain that Rules 6e–

2(b)(15)(iii)(A) and 6e–

3(T)(b)(15)(iii)(A)(1) under the 1940 Act

provide that the insurance company

may disregard the voting instructions of

its contract owners in connection with

the voting of shares of an underlying

fund if such instructions would require

such shares to be voted to cause such

underlying funds to make (or refrain

from making) certain investments that

would result in changes in the

subclassification or investment

objectives of such underlying funds or

to approve or disapprove any contract

between an underlying fund and its

investment manager, 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

such Rules). Applicants further state

that Rules 6e–2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(A)(2) under the 1940 Act

provide that the insurance company

may disregard contract owners’ voting

instructions if the contract owners

initiate any change in such underlying

funds’ investment policies, principal

underwriter, or any investment manager

(provided that disregarding such voting

instructions is reasonable and subject to

the other provisions of paragraphs

(b)(5)(ii) and (b)(7)(ii)(B) and (C) of

Rules 6e–2 and 6e–3(T)).

21. Applicants state that Rule 6e–2

recognizes that a variable life insurance

contract is an insurance contract; it has

important elements unique to insurance

contracts; and it is subject to extensive

state regulation of insurance. In

adopting Rule 6e–2(b)(15)(iii),

Applicants believe that the Commission

expressly recognized that state

insurance regulators have authority,

pursuant to state insurance laws or

regulations, to disapprove or require

changes in investment policies,

investment advisers, or principal

underwriters.10Applicants state that the

Commission also expressly recognized

that state insurance regulators have

authority to require an insurer to draw

from its general account to cover costs

imposed upon the insurer by a change

approved by contract owners over the

insurer’s objection.11 Applicants further

state that the Commission therefore

deemed such exemptions necessary ‘‘to

assure the solvency of the life insurer

and performance of its contractual

obligations by enabling an insurance

regulatory authority or the life insurer to

act when certain proposals reasonably

could be expected to increase the risks

undertaken by the life insurer.’’ 12

Applicants conclude that, in this

respect, flexible premium variable life

insurance contracts are identical to

scheduled premium variable life

insurance contracts; therefore, Rule 6e–

3(T)’s corresponding provisions

presumably were adopted in recognition

of the same factors.

22. Applicants believe that state

insurance regulators have much the

same authority with respect to variable

annuity separate accounts as they have

with respect to variable life insurance

separate accounts. Insurers generally

assume both mortality and expense risks

under variable annuity contracts.

Therefore, Applicants note that variable

annuity contracts pose some of the same

kinds of risks to insurers as variable life

insurance contracts. Applicants state

that the Commission staff has not

addressed the general issue of state

insurance regulators’ authority in the

context of variable annuity contracts

and has not developed a single

comprehensive exemptive rule for

variable annuity contracts.13

23. Applicants assert that the

Insurance Trusts’ sale of shares to

Qualified Plans for the Manager and its

affiliates will not have any impact on

the relief requested herein in this

regard. Applicants note that shares of

the Insurance Trusts sold to Qualified

Plans would be held by the trustees of

such Plans.14 Applicants state that the

exercise of voting rights by Qualified

Plans, whether by the trustees, by

participants, by beneficiaries, or by

investment managers engaged by the

Plans, does not present the type of

issues respecting the disregard of voting

rights that are presented by variable life

separate accounts. With respect to the

Qualified Plans, which are not

registered as investment companies

under the 1940 Act, Applicants submit

that there is no requirement to pass

through voting rights to Plan

participants. Applicants believe that,

indeed, to the contrary, applicable law

expressly reserves voting rights

associated with certain types of Plan

assets to certain specified persons.

Applicants state that, for example,

under Section 403(a) of ERISA, shares of

71342 Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices

15Treas. Reg. 1.817–5, which established

diversification requirements for such funds,

specifically permits, among other things,

investment company managers, insurance company

general and separate accounts and ‘‘qualified

pension or retirement plans’’ to share the same

underlying management investment company.

Therefore, neither the Code, the Treasury

Regulations nor Revenue Rulings thereunder

present any inherent conflicts of interest if

investment company managers, insurance company

general accounts, Qualified Plans, variable annuity

separate accounts and variable life insurance

separate accounts all invest in the same

management investment company.

a fund sold to a Qualified Plan must be

held by the trustee(s) of the Plan.

Applicants further note that Section

403(a) also provides that the trustee(s)

must have exclusive authority and

discretion to manage and control the

Plan with two exceptions: (1) When the

Plan expressly provides that the

trustee(s) are subject to the direction of

the named fiduciary who is not a

trustee, in which case the trustee(s) 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 assets of the Plan is delegated

to one or more investment managers

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

Unless one of the above two exceptions

stated in Section 403(a) applies,

Applicants state that Plan trustee(s)

have the exclusive authority and

responsibility for voting proxies.

24. Applicants note that, if a named

fiduciary to a Qualified Plan appoints

an investment manager, the investment

manager has the responsibility to vote

the shares held unless the right to vote

such shares is reserved to the trustees or

the named fiduciary. Applicants further

note that the 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.

Applicants state that certain Qualified

Plans, however, may provide for the

trustees(s) or another named fiduciary to

exercise voting rights in accordance

with instructions from participants.

25. If a Qualified Plan does not

provide participants with the right to

give voting instructions, Applicants do

not see any potential for material

irreconcilable conflicts of interest

between or among variable contract

owners and Plan participants with

respect to voting of the respective

Insurance Fund’s shares. Accordingly,

unlike the case with insurance company

separate accounts, Applicants argue that

the issue of the resolution of material

irreconcilable conflicts with respect to

voting is not present with respect to

such Qualified Plans because the

Qualified Plans are not entitled to passthrough voting privileges.

26. Applicants further note that there

is no reason to believe that participants

in Qualified Plans which provide

participants with the right to give voting

instructions generally, or those in a

particular Plan, either as a single group

or in combination with participants in

other Qualified Plans, would vote in a

manner that would disadvantage

variable contract owners. Applicants,

therefore, assert that the purchase of

shares of the Insurance Funds by

Qualified Plans that provide voting

rights does not present any

complications not otherwise occasioned

by mixed or shared funding.

27. Applicants note that, similarly,

the Manager and its affiliates are not

subject to any pass-through voting

requirements. Accordingly, unlike the

case with Separate Accounts,

Applicants state that the issue of the

resolution of material irreconcilable

conflicts with respect to voting is not

present with Qualified Plans or the

Manager and its affiliates.

28. Applicants submit that the

prohibitions on mixed and shared

funding might reflect some concern

with possible divergent interests among

different classes of investors. Applicants

note that when Rule 63–2 was adopted,

variable annuity separate accounts

could (and some did) invest in mutual

funds whose shares were also offered to

the general public. Therefore, at the

time of the adoption of Rule 6e–2,

Applicants state that the Commission

staff contemplated underlying funds

with public shareholders, as well as

with variable life insurance separate

account shareholders. Applicants

believe that the Commission staff may

have been concerned with the

potentially different investment

motivations of public shareholders and

variable life insurance contract owners.

Applicants further believe that there

also may have been some concern with

the problems of permitting a state

insurance regulatory authority to affect

the operations of a publicly-available

mutual fund, and hence, affect the

investments decisions of public

shareholders.

29. However, for reasons unrelated to

the 1940 Act, Applicants note that

Internal Revenue Service Ruling 81–225

(Sept 25, 1981) (‘‘Ruling 81–225’’)

effectively deprived variable annuities

funded by publicly-available mutual

funds of their tax-benefited status.

Applicants state that the Tax Reform

Act of 1984 codified the prohibition

against the use of publicly available

mutual funds as an investment medium

for variable contracts (including variable

life contracts). Applicants further state

that Section 817(h) of the Code in effect

requires that the investments made by

variable annuity and variable life

insurance separate accounts be

‘‘adequately diversified.’’ If a separate

account is registered as a unit

investment trust that invests in a single

fund or series, Applicants maintain that

Section 817(h) and the Treasury

Regulations provide, in effect, that the

diversification test will be applied at the

underlying fund level rather that at the

separate account level, but only if,

subject to certain exceptions, ‘‘all of the

beneficial interests’’ in the underlying

fund ‘‘are held by one or more insurance

companies (or affiliated companies) in

their general account or in segregated

asset accounts * * *.’’ 15 Applicants

state that, accordingly, a Trust Account

that invests solely in a publicly

available mutual fund would not be

adequately diversified. In addition,

Applicants state that any underlying

fund, including the Insurance Funds,

that sells its shares to separate accounts

would, in effect, be precluded from

selling its shares to the public.

Consequently, Applicants submit that

the Insurance Funds will be obligated

not to sell their shares directly to the

public.

30. While there are differences in the

manner in which distributions are taxed

for variable annuity contracts, variable

life insurance contracts and Qualified

Plans, Applicants assert that the tax

consequences do not raise any conflicts

of interests. When distributions are to be

made, and the separate account or the

Qualified Plan cannot net purchase

payments to make the distributions,

Applicants state that the separate

account or the Plan will redeem shares

of the Insurance Trusts at their net asset

value. Applicants further state that the

Qualified Plan will then make

distributions in accordance with the

terms of the Qualified Plan and the

insurance company will make

distributions in accordance with the

terms of the variable contract.

31. 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.

Applicants assert that 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. Applicants submit that the fact

that different Participating Insurance

Companies may be domiciled in

different states does not create a

significantly different or enlarged

problem.

Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71343

32. Applicants submit that shared

funding by unaffiliated Participating

Insurance Companies is, in this respect,

no different than the use of the same

investment company as the funding

vehicle for affiliated Participating

Insurance Companies, which Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) under the

1940 Act permit under various

circumstances. Applicants state that

affiliated Participating Insurance

Companies may be domiciled in

different states and be subject to

differing state law requirements, and

that affiliation does not reduce the

potential, if any exists, for differences in

state regulatory requirements.

Applicants assert that, in any event, the

conditions discussed below are

designed to safeguard against and

provide procedures for resolving any

adverse effects that differences among

state regulatory requirements may

produce.

33. Applicants maintain that the right

under Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) of an insurance company to

disregard contract owners’ voting

instructions does not raise any issues

different from those raised by the

authority of state insurance

administrators over separate accounts.

Applicants believe that, under Rules 6e–

2(b)(15) and 6e–3(T)(b)(15), an insurer

can disregard contract owner voting

instructions only with respect to certain

specified items and under certain

specified conditions. Applicants state

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. Applicants submit that 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.

34. Applicants note, however, that a

particular Participating Insurance

Company’s disregard of voting

instructions, nevertheless, could

conflict with the majority of contract

owner voting instructions. Applicants

state that the Participating Insurance

Company’s action could arguably be

different than the determination of all or

some of the other Participating

Insurance Companies (including

affiliated insurers) that the contract

owners’ voting instructions should

prevail, and could either preclude a

majority vote approving the change or

could represent a minority view. If the

Participating Insurance Company’s

judgment represents a minority position

or would preclude a majority vote,

Applicants note that the Participating

Insurance Company may be required, at

an Insurance Trust’s election, to

withdraw its Separate Account’s

investment in that Insurance Trust, and

no charge or penalty would be imposed

as a result of such withdrawal.

35. With respect to voting rights,

Applicants maintain that it is possible

to provide an equitable means of giving

such voting rights to contract owners

and to Qualified Plans and the Manager

and its affiliates. Applicants note that

the transfer agent(s) for the Insurance

Trusts will inform each shareholder,

including each Separate Account, each

Qualified Plan, and the Manager and its

affiliates, of its share ownership, in an

Insurance Trust. According to the

Applicants, each Participating Insurance

Company will then solicit voting

instructions in accordance with the

‘‘pass-through’’ voting requirement.

36. Applicants assert that investment

by Qualified Plans in any Insurance

Trust will similarly present no conflict.

Applicants submit that the likelihood

that voting instructions of variable

contract owners will ever be disregarded

or the possible withdrawal referred to

immediately above is extremely remote

and this possibility will be known,

through prospectus disclosure, to any

Qualified Plan choosing to invest in an

Insurance Trust. Applicants state that,

moreover, even if a material

irreconcilable conflict involving

Qualified Plans arises, the Qualified

Plans may simply redeem their shares

and make alternative investments.

Applicants note that votes cast by the

Qualified Plans, of course, cannot be

disregarded but must be counted and

given effect.

37. Applicants believe that there is no

reason why the investment policies of

an Insurance fund would or should be

materially different from what they

would or should be if such Insurance

Fund funded only variable annuity

contracts or variable life insurance

policies, whether flexible premium or

scheduled premium policies.

Applicants contend that each type of

insurance product is designed as a longterm investment program. Applicants

further submit that, similarly, the

investment strategy of Qualified Plans

(i.e., long-term investment) coincides

with that of variable contracts and

should not increase the potential for

conflicts.

38. Applicants maintain that each of

the Insurance Funds will be managed to

attempt to achieve its investment

objective, and not to favor or disfavor

any particular Participating Insurance

Company or type of insurance product

or other investor. Applicants submit

that there is no reason to believe that

different features of various types of

contracts will lead to different

investment policies for different types of

variable contracts. Applicants note that

the sale and ultimate success of all

variable insurance products depends, at

least in part, on satisfactory investment

performance, which provides an

incentive for the Participating Insurance

Company to seek optimal investment

performance.

39. Applicants state that, furthermore,

no one investment strategy can be

identified as appropriate to a particular

insurance product. Applicants state that

each pool of variable annuity and

variable life insurance contract owners

is composed of individuals of diverse

financial status, age, insurance and

investment goals. Applicants note that

an underlying fund supporting even one

type of insurance product must

accommodate these diverse factors in

order to attract and retain shareholders.

Applicants maintain that permitting

mixed and shared funding will provide

economic justification for the growth of

the Insurance Funds. In addition,

Applicants assert that permitting mixed

and shared funding will facilitate the

establishment of additional Insurance

Funds serving diverse goals. Finally,

Applicants submit that the broader base

of shareholders can also be expected to

provide economic justification for the

creation of additional Insurance Funds

with a greater variety of investment

objectives and policies.

40. Applicants note that Section

817(h) of the Code is the only section in

the Code where separate accounts are

discussed. Applicants state that Section

817(h) imposes certain diversification

standards on the underlying assets of

variable annuity contracts and variable

life contracts held in the portfolios of

underlying funds. Applicants further

state that Treasury Regulation 1.817–5,

which established diversification

requirements for such portfolios,

specifically permits, in paragraph (f)(3),

among other things, ‘‘qualified pension

or retirement plans’’ and separate

accounts to share the same underlying

fund. Applicants assert that, therefore,

neither the Code nor the Treasury

Regulations thereunder present any

inherent conflicts of interest if Qualified

Plans, Separate Accounts and the

Manager and its affiliates all invest in

the same underlying fund.

41. Applicants maintain that the

ability of the Insurance Trusts to sell

their respective shares directly to

Qualified Plans or the Manager and its

affiliates does not create a ‘‘senior

security,’’ as such term is defined under

71344 Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices

16See, e.g., New York Life MFA Series Fund, Inc.,

et al., Investment Company Act Release No. 19069

(Oct. 30, 1992) (order), Investment Company Act

Release No. 19010 (Oct. 8, 1992) (notice); The

Manufacturers Life Insurance Company of America,

et al., Investment Company Act Release No. 18112

(Apr. 25, 1991) (order), Investment Company Act

Release No. 18070 (Mar. 29, 1991)(notice); United

Services Life Insurance Company, Investment

Company Release No. 16384 (Apr. 28, 1988) (order),

Investment Company Act Release No. 16348 (Apr.

5, 1988) (notice); and Mass. Variable Life Separate

Account I, Investment Company Act Release No.

14342 (Jan. 30, 1985) (order), Investment Company

Act Release No. 14306 (Jan. 4, 1985) (notice).

17See, e.g., Pacific Select Fund, et al., Investment

Company Act Release No. 24196 (Dec. 14, 1999)

(order), Investment Company Act Release No. 24140

(Nov. 17, 1999) (notice); Aetna Variable Fund, et al.,

Investment Company Act Release No. 23616 (Dec.

21, 1998) (order), Investment Company Act Release

No. 23545 (Nov. 23, 1998) (notice); EQ Advisors

Trust, et al., Investment Company Act Release No.

22651 (Apr. 30, 1997) (order), Investment Company

Act Release No. 22602 (Apr. 2, 1997) (notice);

Neuberger & Berman Advisers Management Trust,

et al., Investment Company Act Release No. 21046

(May 5, 1995) (order), Investment Company Act

Release No. 21003 (April 12, 1995) (notice); and

Janus Aspen Series, et al., Investment Company Act

Release No. 20108 (Mar. 2, 1994) (order),

Investment Company Act Release No. 20054 (Feb.

3, 1994) (notice).

Section 18(g) of the 1940 Act, with

respect to any contract owner as

opposed to a participant under a

Qualified Plan or the Manager and its

affiliates. Applicants state that, as noted

above, regardless of the rights and

benefits of contract owners or Qualified

Plan participants, the Separate

Accounts, Qualified Plans and the

Manager and its affiliates have rights

only with respect to their respective

shares of the Insurance Trusts.

Applicants state that they can only

redeem such shares at net asset value,

and that no shareholder of any of the

Insurance Trusts has any preference

over any other shareholder with respect

to distribution of assets or payment of

dividends.

42. Applicants assert that permitting

an Insurance Trust to sell its shares to

the Manager and its affiliates in

compliance with Treas. Reg. 1.817–5

will enhance Insurance Trust

management without raising significant

concerns regarding material

irreconcilable conflicts.

43. Applicants state that, unlike the

circumstances of many investment

companies that serve as underlying

investment media for variable insurance

products, the Insurance Trusts may be

deemed to lack an insurance company

‘‘promoter’’ for purposes of Rule 14a–2

under the 1940 Act. Applicants note

that it is anticipated that many other

Insurance Trusts may lack an insurance

company promoter. Applicants state

that, accordingly, such Insurance Trusts

will be subject to the requirements of

Section 14(a) of the 1940 Act, which

generally requires that an investment

company have a net worth of $100,000

upon making a public offering of its

shares. Applicants further state that

Insurance Trusts also will require more

limited amounts of initial capital in

connection with the creation of new

series and the voting of initial shares of

such series on matters requiring the

approval of shareholders.

44. Applicants note that a potential

source of the requisite initial capital is

an Insurance Trust’s Manager or a

Participating Insurance Company, and

that either of these parties may have an

interest in making the requisite capital

expenditure and in participating with

the Insurance Trust in its organization.

Applicants submit, however, that

provision of seed capital or the purchase

of shares in connection with the

management of an Insurance Trust by

the Manager and its affiliates or by a

Participating Insurance Company may

be deemed to violate the exclusivity

requirement of Rule 6e–2(b)(15) and/or

Rule 6e–3(T)(b)(15) under the 1940 Act.

45. Applicants anticipate that such

investment by the Manager and its

affiliates generally will be limited in

scope and duration, and will be made

only in connection with the operation of

the Insurance Trusts. Applicants

maintain that the return on shares held

by the Manager and its affiliates will be

calculated in the same manner as for

shares held by a Separate Account.

Applicants state that any shares of an

Insurance Trust purchased by the

Manager or its affiliates will be

automatically redeemed if and when the

Manager’s investment management

agreement terminates, to the extent

required by applicable Treasury

Regulations. Applicants further states

that neither the Manager nor its

affiliates will sell such shares of the

Insurance Trust to the public. Given the

conditions of Treas. Reg. 1.817–5(i)(3)

under the Code and the harmony of

interest between an Insurance Trust, on

the one hand, and its Manager(s) or a

Participating Insurance Company, on

the other, Applicants assert that little

incentive for overreaching exists.

Furthermore, Applicants state that such

investments should not implicate the

concerns discussed above regarding the

creation of material irreconcilable

conflicts. Applicants state that, instead,

permitting investments by the Manager

and its affiliates will permit the orderly

and efficient creation and operation of

Insurance Trusts, and reduce the

expense and uncertainty of using

outside parties at the early states of

Insurance Trust operations.

46. Applicants maintain that various

factors have limited the number of

insurance companies that offer variable

contracts. Applicants state that 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 name

recognition by the public of certain

Participating Insurance Companies as

investment experts. Applicants believe

that, in particular, some smaller life

insurance companies may not find it

economically feasible, or within their

investment or administrative expertise,

to enter the variable contract business

on their own. Applicants contend that

use of the Insurance Trusts as a common

investment medium for variable

contracts and Qualified Plans would

help alleviate these concerns, because

Participating Insurance Companies and

Qualified Plans will benefit not only

from the investment and administrative

expertise of Ayco, or any other

investment manager to an Insurance

Fund, but also from the cost efficiencies

and investment flexibility afforded by a

large pool of funds. Applicants submit,

therefore, that making the Insurance

Trusts available for mixed and shared

funding and permitting the purchase of

Insurance Trust shares by Qualified

Plans may encourage more insurance

companies to offer variable contracts,

and this should result in increased

competition with respect to both

variable contract design and pricing,

which can be expected to result in more

product variation. Applicants assert that

mixed and shared funding also may

benefit variable contract owners by

eliminating a significant portion of the

costs of establishing and administering

separate funds. Applicants state,

furthermore, granting the requested

relief should result in an increased

amount of assets available for

investment by the Insurance Trusts,

which may benefit variable contract

owners by promoting economies of

scale, by reducing risk through greater

diversification due to increased money

in the Insurance Trusts, or by making

the addition of new Insurance Funds

more feasible.

47. Applicants note that the

Commission has previously issued

orders permitting mixed funding 16 and

shared funding. 17 Applicants also

maintain that, in addition, the

Commission has broadened its grant of

exemptive relief by issuing orders

permitting mixed and shared funding

while fund shares are also sold directly

to Qualified Plans and to an investment

Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71345

18See, e.g., supra note 8.

manager and its affiliates. 18 Applicants

submit that the exemptive relief

requested herein is similar to exemptive

recent relief granted by the Commission

in Potomac Insurance Trust, et al.,

Investment Company Act Release No.

24560 (July 18, 2000) (order),

Investment Company Act Release No.

24454 (June 22, 2000) (notice). See also

Barr Rosenberg Variable Insurance

Trust, et al., Investment Company Act

Release No. 23402 (Aug. 26, 1998)

(order), Investment Company Act

Release No. 23372 (July 31, 1998)

(notice); U.S. Global Leaders Variable

Insurance Trust, et al., Investment

Company Act Release No. 23256 (June

16, 1998) (order), Investment Company

Act Release No. 23199 (May 20, 1998)

(notice); and Variable Annuity

Portfolios, et al., Investment Company

Act Release No. 22823 (Sept. 17, 1997)

(notice). Applicants assert that granting

the exemptions requested herein is in

the public interest and, as discussed

above, will not compromise the

regulatory purposes of Sections 9 (a),

13(a), 15(a), or 15(b) of the 1940 Act or

Rules 6e–2 or 6e–3(T) thereunder.

Conditions

Applicants Consent to the Following

Conditions

1. A majority of the Board of Trustees

or Board of Directors (‘‘Board’’) of each

Insurance Trust shall consist of persons

who are not ‘‘interested persons’’ of the

Insurance Trust, 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, disqualifications,

or bona fide resignation of any trustee

or director, then the operator of this

condition shall 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. Each Board will monitor the

respective Insurance Trust for the

existence of any material irreconcilable

conflict among and between the

interests of the contract owners of all

Separate Accounts, and of the Plan

participants, Qualified Plans, and the

Manager or its affiliates investing in that

Insurance Trust, and determine what

action, if any, should be taken in

response to such conflicts. A material

irreconcilable conflict may arise for a

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 any

Insurance Fund are being managed; (e)

a difference in voting instructions given

by variable annuity contract owners,

variable life insurance contract owners,

Plan trustees, or Plan participants; (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 the voting instructions

of Plan participants.

3. Any Qualified Plan that executes a

fund participation agreement upon

becoming an owner of 10% or more of

the assets of an Insurance Trust, any

Participating Insurance Company, and

the Manager and its affiliates

(collectively, ‘‘Participants’’) will report

any potential or existing conflicts to the

Board. Each of the Participants will be

responsible for assisting the Board in

carrying out the Board’s responsibilities

under these conditions by providing the

Board will all information reasonably

necessary for the Board to consider any

issues raised. This includes, but is not

limited to, an obligation by each

Participating Insurance Company to

inform the Board whenever contract

owner voting instructions are

disregarded and, if pass-through voting

is applicable, an obligation by each

Qualified Plan that is a Participant to

inform the Board whenever it has

determined to disregard Plan participant

voting instructions. The responsibility

to report such information and conflicts

and to assist the Board will be a

contractual obligation of all

Participating Insurance Companies and

Qualified Plans investing in an

Insurance Trust under their agreements

governing participation in the Insurance

Trust, and such agreements shall

provide that such responsibilities will

be carried out with a view only to the

interests of the contract owners or, if

applicable, Plan participants.

4. If it is determined by a majority of

the Board of an Insurance Trust, or a

majority of its disinterested trustees or

directors, that a material irreconcilable

conflict exists, the relevant Participating

Insurance Companies and Qualified

Plan shall, at their expense or, at the

discretion of a Manager to an Insurance

Trust, at that Manager’s expense, and to

the extent reasonably practicable (as

determined by a majority of the

disinterested trustees or directors), take

whatever steps are necessary to remedy

or eliminate the material irreconcilable

conflict, up to an including: (a)

Withdrawing the assets allocable to

some or all of the Separate Accounts

from the relevant Insurance Trust or any

series therein and reinvesting such

assets in a different investment medium

(including another Insurance Fund, if

any); (b) in the case of Participating

Insurance Companies, submitting the

question of 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., variable

annuity contract owners or variable life

insurance contract owners of one or

more Participating Insurance Company)

that does in favor of such segregation, or

offering to the affected contract owners

of the option of making such a change;

and (c) establishing a new registered

management investment company or

managed separate account. If a material

irreconcilable conflict arises because of

a Participating Insurance Company’s

decision to disregard contract owner

voting instructions and that decision

represents a minority position or would

preclude a majority vote, the

Participating Insurance Company may

be required, at the Insurance Trust’s

election, to withdraw its Separate

Account’s investment in the Insurance

Trust, and no charge or penalty will be

imposed as a result of such withdrawal.

If a material irreconcilable conflict

arises because of a Qualified Plan’s

decision to disregard Plan participant

voting instructions, if applicable, and

that decision represents a minority

position or would preclude a majority

vote, the Qualified Plan may be

required, at the election of the Insurance

Trust, to withdraw its investment in the

Insurance Trust, and no charge or

penalty will be imposed as a result of

such withdrawal. The responsibility to

take remedial action in the event of a

Board determination of a material

irreconcilable conflict and to bar the

cost of such remedial action shall be a

contractual obligation of all

Participating Insurance Companies and

Qualified Plans under their agreements

governing participation in the Insurance

Trust, and these responsibilities will be

carried out with a view only to the

interests of the contract owners or, as

applicable, Plan participants.

For the purposes of this Condition (4),

a majority of the disinterested members

of the Board shall determine whether or

not any proposed action adequately

remedies any material irreconcilable

71346 Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices

conflict, but in no event will the

Insurance Trust or its Manager be

required to establish a new funding

medium for any variable contract. No

Participating Insurance Company shall

be required by this Condition (4) to

establish a new funding medium for any

variable contract if an offer to do so has

been declined by vote of a majority of

contract owners materially adversely

affected by the material irreconcilable

conflict. No Qualified Plan shall be

required by this Condition (4) to

establish a new funding medium for

such Qualified Plan if (a) a majority of

Plan participants materially and

adversely affected by the material

irreconcilable conflict vote to decline

such offer or (b) pursuant to governing

Plan documents and applicable law, the

Plan makes such decision without Plan

participant vote.

5. The Board’s determination of the

existence of a material irreconcilable

conflict and its implications shall be

made known promptly in writing to all

Participants.

6. Participating insurance companies

will provide pass-through voting

privileges to all variable contract owners

whose contracts are funded through a

registered separate account for so long

as the Commission continues to

interpret the 1940 Act as requiring passthrough voting privileges for variable

contract owners. Accordingly, such

Participating Insurance Companies will

vote shares of each Insurance Fund held

in their registered separate accounts in

a manner consistent with voting

instructions timely received from such

contract owners. Each Participating

Insurance Company will vote shares of

each Insurance Fund held in its

registered Separate Accounts for which

no timely voting instructions are

received, as well as shares held by any

such registered Separate Account, in the

same proportion as those shares for

which voting instructions are received.

Participating insurance companies shall

be responsible for assuring that each of

their Separate Accounts investing in an

Insurance Trust calculates voting

privileges in a manner consistent with

all other Participating Insurance

Companies. The obligation to vote an

Insurance Trust’s shares and to calculate

voting privileges in a manner consistent

with all other registered Separate

Accounts investing in an Insurance

Trust shall be a contractual obligation of

all Participating Insurance Companies

under their agreements governing

participation in the Insurance Trust.

Each Plan will vote as required by

applicable law and governing Plan

documents.

7. An Insurance Trust will notify all

Participating Insurance Companies and

Qualified Plans that disclosure

regarding potential risks of mixed and

shared funding may be appropriate in

prospectuses for any of the Separate

Accounts and in Plan documents. Each

Insurance Trust will disclose in its

prospectus that: (a) Shares of the

Insurance Trust are offered to insurance

company Separate Accounts that fund

both variable annuity and variable life

insurance contracts, and to Qualified

Plans; (b) due to differences of tax

treatment or other considerations, the

interests of various contract owners

participating in the Insurance Trust and

the interests of Qualified Plans investing

in the Insurance Trust might at some

time be in conflict; and (c) the Board

will monitor the Insurance Trust for any

material conflicts and determine what

action, if any, should be taken.

8. All reports received by the Board of

potential or existing conflicts, 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.

9. If and to the extent Rule 6e–2 and

Rule 6e–3(T) under the 1940 Act are

amended, or Rule 6e–3 is adopted, to

provide exemptive relief from any

provision of the 1940 Act or the rules

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 each

Insurance Trust and/or the Participating

Insurance Companies, as appropriate,

shall take such steps as may be

necessary to comply with Rule 6e–2 and

Rule 6e–3(T), as amended, and Rule 6e–

3, as adopted, to the extent such rules

are applicable.

10. Each Insurance Trust will comply

with all provisions of the 1940 Act

requiring voting by shareholders

(which, for these purposes, shall be

persons having a voting interest in the

shares of that Insurance Trust), and in

particular each Insurance Trust will

either provide for annual meetings

(except insofar as the Commission 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 Trust is not one of the

trusts described in Section 16(c) of the

1940 Act) as well as with Section 16(a)

of the 1940 Act and, if and when

applicable, Section 16(b) of the 1940

Act. Further, each Insurance Trust will

act in accordance with the

Commission’s interpretation of the

requirements of Section 16(a) of the

1940 Act with respect to periodic

elections of directors (or trustees) and

with whatever rules the Commission

may promulgate with respect thereto.

11. As long as the Commission

continues to interpret the 1940 Act as

requiring pass-through voting privileges

for variable contract owners, the

Manager and its affiliates will vote their

shares in the same proportion as all

contract owners having voting rights

with respect to the relevant Insurance

Trust; provided, however, that the

Manager and its affiliates shall vote

their shares in such other manner as

may be required by the Commission or

its staff.

12. The Participants shall at least

annually submit to the Board of an

Insurance Trust such reports, materials

or data as the Board may reasonably

request sot that it may fully carry out

the obligations imposed upon it by the

conditions contained in this

Application and said reports, materials

and data shall be submitted more

frequently, if deemed appropriate, by

the Board. The obligations of a

Participant to provide these reports,

materials and data to the Board of the

Insurance Trust when it so reasonably

requests, shall be a contractual

obligation of all Participating Insurance

Companies and Qualified Plans under

their agreements governing participation

in each Insurance Trust.

13. If a Qualified Plan should become

an owner of 10% or more of the assets

of an Insurance Trust, the Insurance

Trust shall require such Plan to execute

a participation agreement with such

Insurance Trust which includes the

conditions set forth herein to the extent

applicable. A Qualified Plan will

execute an application containing an

acknowledgment of this condition upon

such Plan’s initial purchase of the

shares of any Insurance Trust.

14. Any shares of an Insurance Trust

purchased by the Manager or its

affiliates will be automatically

redeemed if and when the Manager’s

investment management agreement

terminates, and to the extent required by

the applicable Treasury Regulations.

Neither the Manager nor its affiliates

will sell such shares of the Insurance

Trusts to the public.

15. A Participating Insurance

Company, or an affiliate, will maintain

at its home office, available to the

Commission: (a) A list of its officers,

directors and employees who

participate directly in the management

or administration of the Insurance

Federal Register / Vol. 65, No. 231 / Thursday, November 30, 2000 / Notices 71347

Trusts or any variable annuity or

variable life insurance separate account,

organized as a unit investment trust,

that invests in the Insurance Trusts and/

or (b) a list of its agents who, as

registered representatives, offer and sell

the variable annuity and variable life

contracts funded through such a

Separate Account. These individuals

will continue to be subject to the

automatic disqualification provisions of

Section 9(a).

Conclusion

Applicants submit, based on the

grounds summarized above, that their

exemptive request meets the standards

set out in Section 6(c) of the 1940 Act,

namely, that the exemptions requested

are necessary or appropriate in the

public interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act, and that,

therefore, the Commission should grant

the requested order.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30517 Filed 11–29–00; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Notice Seeking Exemption Under

Section 312 of the Small Business

Investment Act, Conflicts of Interest

Notice is hereby given that RiverVest

Venture Fund I, L.P. (the Fund), 7701

Forsyth Boulevard, Suite 740, St. Louis,

Missouri 63105, has filed a License

Application under the Small Business

Investment Act of 1958, as amended

(‘‘the Act’’), in connection with the

financing of a small concern, have

sought an exemption under section 312

of the Act and section 107.730,

Financings which Constitute Conflicts

of Interest of the Small Business

Administration (‘‘SBA’’) rules and

regulations (13 CFR 107.730 (2000)).

The Fund proposes to provide equity

financing to TissueLink Medical, Inc.

(‘‘TissueLink’’), One Washington Center,

Suite 400, Dover, New Hampshire

03820. The financing is contemplated

for working capital or inventory

purchase, marketing activities, and

research and development.

The financing is brought within the

purview of section 107.730(a)(1) of the

regulations because Jay W. Schmelter

and Crescendo Ventures (‘‘Crescendo’’),

Associates of the Fund, currently own,

directly or indirectly, greater than 10%

of TissueLink and therefore TissueLink

is considered an Associate of Jay W.

Schmelter and Crescendo as defined in

section 107.50 of the regulations. (Mr.

Schmelter because he is a Control

Person of the Fund, and Crescendo

Ventures because Mr. Schmelter was

formerly a member of the general

partner of Crescendo within six months

of the date of the subject financing.)

Notice is hereby given that any

interested person may submit written

comments on the transaction to the

Associate Administrator for Investment,

U.S. Small Business Administration,

409 Third Street, SW., Washington, DC

20416.

Dated: November 21, 2000.

Don A. Christensen,

Associate Administrator for Investment.

[FR Doc. 00–30568 Filed 11–29–00; 8:45 am]

BILLING CODE 8025–01–U

DEPARTMENT OF STATE

[Public Notice 3481]

Bureau of Nonproliferation;

Determination Under the Arms Export

Control Act

AGENCY: Department of State.

ACTION: Notice.

Pursuant to Section 654(c) of the

Foreign Assistance Act of 1961, as

amended, notice is hereby given that the

Department of State has made a

determination pursuant to Section 73 of

the Arms Export Control Act. The

Department has concluded that

publication of the determination would

be harmful to the national security of

the United States.

Dated: November 21, 2000.

Robert J. Einhorn,

Assistant Secretary of State for

Nonproliferation, Department of State.

[FR Doc. 00–30552 Filed 11–29–00; 8:45 am]

BILLING CODE 4710–25–U

DEPARTMENT OF STATE

[Public Notice 3486 ]

Culturally Significant Objects Imported

for Exhibition Determinations:

‘‘Correggio and Parmigianino: Master

Draftsmen of the Renaissance’’

DEPARTMENT: United States Department

of State.

ACTION: Notice.

SUMMARY: Notice is hereby given of the

following determinations: Pursuant to

the authority vested in me by the Act of

October 19, 1965 (79 Stat. 985, 22 U.S.C.

2459), the Foreign Affairs Reform and

Restructuring Act of 1998 (112 Stat.

2681, et seq.), Delegation of Authority

No. 234 of October 1, 1999, and

Delegation of Authority No. 236 of

October 19, 1999, as amended, I hereby

determine that the objects to be

included in the exhibition ‘‘Correggio

and Parmigianino: Master Draftsmen of

the Renaissance,’’ imported from abroad

for the temporary exhibition without

profit within the United States, are of

cultural significance. The objects are

imported pursuant to loan agreements

with foreign lenders. I also determine

that the exhibition or display of the

exhibit objects at The Metropolitan

Museum of Art in New York from on or

about February 5, 2001 to on or about

May 6, 2001, is in the national interest.

Public Notice of these Determinations is

ordered to be published in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: For

further information, including a list of

the exhibit objects, contact Paul

Manning, Attorney-Adviser, Office of

the Legal Adviser, U.S. Department of

State (telephone: 202/619–5997). The

address is U.S. Department of State, SA–

44, 301 4th Street, SW., Room 700,

Washington, DC 20547–0001.

Dated: November 22, 2000.

William B. Bader,

Assistant Secretary for Educational and

Cultural Affairs, United States Department

of State.

[FR Doc. 00–30557 Filed 11–29–00; 8:45 am]

BILLING CODE 4710–08–P

DEPARTMENT OF STATE

[Public Notice 3483]

Culturally Significant Objects Imported

for Exhibition Determinations:

‘‘Beyond the Easel: Decorative

Painting by Bonnard, Vuillard, Denis,

and Roussel, 1890–1930’’

DEPARTMENT: United States Department

of State.

ACTION: Notice.

SUMMARY: Notice is hereby given of the

following determinations: Pursuant to

the authority vested in me by the Act of

October 19, 1965 (79 Stat. 985, 22 U.S.C.

2459), the Foreign Affairs Reform and

Restructuring Act of 1998 (112 Stat.

2681, et seq.), Delegation of Authority

No. 234 of October 1, 1999, and

Delegation of Authority No. 236 of

October 19, 1999, as amended, I hereby

determine that the objects to be

included in the exhibition ‘‘Beyond the

Easel: Decorative Painting by Bonnard,