17888 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices

establishing a new position for

compliance in this generic letter.

Dated at Rockville, Maryland, this 3rd day

of April 1997.

For the Nuclear Regulatory Commission.

Marylee M. Slosson,

Deputy Director, Division of Reactor Program

Management, Office of Nuclear Reactor

Regulation.

[FR Doc. 97–9392 Filed 4–10–97; 8:45 am]

BILLING CODE 7590–01–P

NUCLEAR REGULATORY

COMMISSION

Notice of Removal of the Texas

Instruments, Incorporated, Attleboro,

Massachusetts Site From the NRC Site

Decommissioning Management Plan

and Termination of the NRC License

for the Facility

SUMMARY: This notice is to inform the

public that the U.S. Nuclear Regulatory

Commission is removing the Texas

Instruments, Incorporated, Attleboro,

Massachusetts site from the NRC Site

Decommissioning Management Plan

(SDMP). NRC has determined that

remediation of residual radioactive

contamination, as a result of past

operations with NRC licensed material

in buildings and in exterior areas on the

site, has successfully been completed

and the facility meets the current NRC

criteria for release for unrestricted use.

FOR FURTHER INFORMATION CONTACT:

Mark Roberts, Division of Radiation

Safety and Safeguards, Region I, 475

Allendale Road, King of Prussia, PA

19406, Telephone: (610) 337–5094.

SUPPLEMENTARY INFORMATION: The Texas

Instruments, Incorporated site in

Attleboro, Massachusetts was identified

in 1990 by NRC as a site where residual

radioactive contamination was present,

as a result of past operations.

Radioactive contamination was

identified by Texas Instruments in a

former burial area on the site. In order

to ensure that remediation of the burial

area was accomplished in a timely

manner, NRC added this site to its

SDMP. Contamination in three of the

site buildings, as well as additional

exterior contamination, was

subsequently identified. Texas

Instruments has remediated residual

contamination in all of these areas,

performed radiological surveys

throughout the entire site and site

buildings, where radioactive materials

may have been used, and requested, by

letter dated October 29, 1996, that NRC

remove the Attleboro, Massachusetts

site from the SDMP and terminate the

license.

NRC staff has periodically inspected

the site remediation activities, reviewed

final radiological surveys performed by

the licensee’s contractors, and

performed confirmatory measurements

at the site. NRC staff has determined

that the facility meets the requirements

for release for unrestricted use and has

removed the site from the SDMP and

terminated the NRC license.

For further details with respect to this

action, documents are available for

inspection at NRC’s Region I office

located at 475 Allendale Road, King of

Prussia, PA 19406. Persons desiring to

review documents at the Region I office

should call Ms. Cheryl Buracker at (610)

337–5093 several days in advance to

assure that the documents will be

readily available for review.

Dated at Rockville, Maryland this 7th day

of April 1997.

For the Nuclear Regulatory Commission.

John W.N. Hickey,

Chief, Low-Level Waste and Decommissioning

Projects Branch, Division of Waste

Management, Office of Nuclear Material

Safety and Safeguards.

[FR Doc. 97–9394 Filed 4–10–97; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22602; File No. 812–10476]

EQ Advisors Trust, et al.

April 4, 1997.

AGENCY: The Securities and Exchange

Commission (the ‘‘Commission’’).

ACTION: Notice of application for an

exemption pursuant to the Investment

Company Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: EQ Advisors Trust

(‘‘Trust’’), The Equitable Life Assurance

Society of the United States

(‘‘Equitable’’), Equitable Distributors,

Inc. (‘‘EDI’’), EQ Financial Consultants,

Inc. (‘‘Manager’’) and certain life

insurance companies and their separate

accounts investing now or in the future

in the Trust.

RELEVANT 1940 ACT SECTIONS: Order

requested pursuant to Section 6(c) of the

1940 Act for exemptions from Sections

9(a), 13(a), 15(a), and 15(b) thereof and

Rules 6e–2(b)(15) and 6e–3(T)(b)(15)

thereunder.

SUMMARY OF APPLICATION: Appliants seek

exemptive relief to the extent necessary

to permit shares of the Trust and any

other investment company that is

designed to fund variable insurance

products and for which Equitable, EDI,

the Manager of any of their affiliates

may serve as investment adviser,

manager, administrator, principal

underwriter, or depositor (collectively

‘‘Insurance Products Funds’’) to be sold

to and held by separate accounts

funding variable annuity and variable

life insurance contracts issued by

affiliated or unaffiliated life insurance

companies (‘‘Participating Insurance

Companies’’) or qualified pension and

retirement plans outside of the separate

account context (‘‘Plans’’).

FILING DATE: The application was filed

on December 31, 1996, and amended on

April 1, 1997.

HEARING AND 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 must be received by the

Commission by 5:30 p.m. on April 29,

1997, and must 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,

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

Applicants, c/o Jane A. Kanter, Esq.,

Katten Muchin & Zavis, 1025 Thomas

Jefferson Street, N.W., East Lobby, Suite

700, Washington, D.C. 20007–5201.

FOR FURTHER INFORMATION CONTACT:

Michael B. Koffler, Staff Attorney, or

Kevin M. Kirchoff, 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 Public

Reference Branch of the Commission.

Applicants’ Representations

1. The Trust is a Delaware business

trust which is registered pursuant to the

1940 Act as an open-end, management

investment company. The Trust consists

of multiple separately managed

investment portfolios (‘‘Portfolios’’) and

may in the future issue shares of

additional portfolios.

2. The Trust has adopted a plan

pursuant to Rule 18f–3 of the 1940 Act

in order to offer multiple classes of

shares of each of its Portfolios. Two

such classes are currently contemplated

and have been preliminarily designated
Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices 17889

Class IA and Class IB. In addition, the

Trust has adopted a plan pursuant to

Rule 12b–1 of the 1940 Act to permit

one or more of its classes of shares to

pay for the distribution of its shares.

3. The Manager, the investment

manager for the Trust, is a corporation

organized pursuant to the laws of

Delaware and is registered as an

investment adviser pursuant to the

Investment Advisers Act of 1940. The

Manager is responsible for providing

investment management and

administrative services to the Trust. In

the exercise of its responsibility, the

Manager selects other registered

investment advisers (‘‘Advisers’’) for the

Trust’s portfolios and monitors the

Advisers’ investment programs and

results, reviews brokerage matters,

oversees compliance matters and

supervises the provision of services by

third parties such as the Trust’s

custodian. The Manager has entered

into or will enter into investment

advisory agreements with the Advisers

that will be primarily responsible for the

day-to-day investment program of each

Portfolio. The Manager also serves as

the principal underwriter for the Trust’s

Class IA shares. The Manager is an

indirect, wholly-owned subsidiary of

Equitable.

4. Shares of each Portfolio may be

offered to insurance company separate

accounts, which are both registered and

unregistered under the federal securities

laws, that fund variable annuity

contracts or variable life insurance

policies (‘‘Contracts’’). The Trust

initially intends to offer its shares to

variable annuity and variable life

insurance separate accounts established

by Equitable.

5. Following the grant by the

Commission of the exemptive order

requested by the application to which

this notice relates, shares of each

Portfolio may be offered to variable

annuity and variable life insurance

separate accounts established by other

affiliated and unaffiliated insurance

companies.

6. The Participating Insurance

Companies will establish their own

separate accounts and design their own

Contracts. Each Participating Insurance

Company will have the legal obligation

of satisfying all applicable requirements

under the federal securities laws. The

role of the Insurance Products Funds, so

far as the federal securities laws are

concerned, will be limited to that of

offering their shares to separate

accounts of the Participating Insurance

Companies and the Plans and of

fulfilling the conditions imposed by the

Commission provided in the application

to which this notice relates.

7. Shares of each Portfolio may also be

offered to Plans. The Plans may choose

any of the Insurance Products Funds as

the sole investment under the Plan or as

one of several investment options.

Participants in Plans may or may not be

given an investment choice depending

upon the Plan itself.

8. The Manager and Advisers will not

act as an investment manager or

investment adviser to any of the Plans

that purchase shares of any of the

Insurance Products Funds, unless

permitted by applicable law.

Applicants’ Legal Analysis

1. Applicants request that the

Commission issue an order under

Section 6(c) of the 1940 Act exempting

them from Sections 9(a), 13(a), 15(a),

and 15(b) thereof and Rules 6e–2(b)(15)

and 6e–3(T)(b)(15) thereunder, to the

extent necessary to permit ‘‘mixed’’ and

‘‘shared’’ funding, as defined below.

2. Section 6(c) authorizes the

Commission to grant exemptions from

the provisions of the 1940 Act, and rules

thereunder, if and to the extent that an

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.

3. In connection with the funding of

scheduled premium variable life

insurance contracts issued through a

separate account registered under the

1940 Act as a unit investment trust,

Rule 6e–2(b)(15) under the 1940 Act

provides partial exemptions from

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

the 1940 Act. The relief provided by the

rule also extends to the investment

adviser, principal underwriter, and

sponsor or depositor of a separate

account.

4. The exemptions granted by Rule

6e–2(b)(15) are available only where all

of the assets of the separate account

consist of shares of one or more

registered management investment

companies which offer their shares

exclusively to variable life insurance

separate accounts of the life insurer, or

of any affiliated life insurance company.

Therefore, the relief granted by Rule 6e–

2(b)(15) is not available if the scheduled

premium variable life insurance

separate account owns shares of a

management investment company that

also offers its shares to a variable

annuity separate account of the same

insurance company or an affiliated or

unaffiliated life insurance company.

The use of a common investment

company as the underlying investment

vehicle for both variable annuity

contracts and scheduled or flexible

premium variable life insurance

contracts is referred to herein as ‘‘mixed

funding.’’ Also, the relief granted by

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

scheduled premium variable life

insurance separate account owns shares

of an underlying management company

that also offers its shares to Plans.

5. In addition, the relief granted by

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

scheduled premium variable life

insurance separate account owns shares

of an underlying management

investment company that also offers its

shares to separate accounts funding

variable contracts of one or more

unaffiliated life insurance companies.

The use of a common investment

company as the underlying investment

vehicle for separate accounts of

unaffiliated insurance companies is

referred to herein as ‘‘shared funding.’’

Moreover, because the relief granted by

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

shares are offered exclusively to

separate accounts of insurance

companies, additional relief is necessary

if the shares of the Insurance Products

Funds are also to be sold to Plans.

6. In connection with flexible

premium variable life insurance

contracts issued through a separate

account registered under the 1940 Act

as a unit investment trust, Rule 6e–

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

partial exemptions from Sections 9(a),

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

The exemptions granted 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

registered management investment

companies which offer their shares

exclusively to separate accounts of the

life insurer, or of any affiliated life

insurance company, offering either

scheduled premium variable life

insurance contracts or flexible premium

variable life insurance contracts, or

both; or which also offer their shares to

variable annuity separate accounts of

the life insurer or of an affiliated life

insurance company. Thus, Rule 6e–

3(T)(b)(15) grants an exemption if the

underlying management investment

company engages in mixed funding, but

not if it engages in shared funding.

Moreover, because the relief granted by

6e–3(T)(b)(15) is available only where

shares are offered exclusively to

separate accounts of insurance

companies, additional relief is necessary

if shares of the Insurance Products

Funds are also to be sold to Plans.

7. The current tax law permits the

Insurance Products Funds to increase

their asset base through the sale of their

shares to Plans. Section 817(h) of the

Internal Revenue Code (‘‘Code’’)

imposes certain diversification
17890 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices

requirements on the underlying assets of

the Contracts invested in the Insurance

Products Funds. The Code provides that

such Contracts shall not be treated as an

annuity contract or life insurance policy

for any period in which the underlying

assets are not adequately diversified, as

prescribed by Treasury regulations. To

meet the diversification requirements,

all of the beneficial interests in the

investment company must be held by

the segregated asset accounts of one or

more insurance companies. Treas. Reg.

§ 1.817–5. The regulations do, however,

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 also to be

held by the separate accounts of

insurance companies in connection

with their Contracts. Treas. Reg. § 1–

817–5(f)(3)(iii).

8. The promulgation of Rules 6e–2

and 6e–3(T) preceded the issuance of

these treasury regulations. Given the

then-current tax law, the sale of shares

of the same investment company to both

separate accounts and Plans could not

have been envisioned at the time of the

adoption of Rules 6e–2(b)(15) and 6e–

3(T)(b)(15).

9. Applicants assert that if the

Insurance Products Funds were to sell

their shares only to Plans, no exemptive

relief would be necessary. Applicants

state that none of the relief provided for

Rules 6e–2(b)(15) and 6e–3(T)(b)(15)

relates to Plans or to a registered

investment company’s ability to sell its

shares to Plans. It is only because the

separate accounts investing in the

Insurance Products Funds are

themselves investment companies

seeking relief under Rules 6e–2 and 6e–

3(T), and do not wish to be denied such

relief if the Insurance Products Funds

sell to Plans, that Applicants are

applying for the requested relief.

Disqualification

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

provides that it is unlawful for any

company to serve as investment adviser

or principal underwriter of any

registered open-end investment

company if an affiliated person of that

company is subject to a disqualification

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

Rules 6e–2(b)(15) (i) and (ii) and 6e–

3(T)(b)(15) (i) and (ii) provide partial

exemptions from Section 9(a) under

certain circumstances, subject to the

limitations discussed above on mixed

and shared funding. These rules

provide: (a) that the eligibility

restrictions of Section 9(a) shall not

apply to persons who are officers,

director or employees of the life insurer

or its affiliates who do not participate

directly in the management or

administration of the underlying fund;

and (b) that an insurer shall be ineligible

to serve as an investment adviser or

principal underwriter of the underlying

fund only if an affiliated person of the

life insurer who is disqualified by

Section 9(a) participates in the

management or administration of the

underlying fund.

11. Applicants assert that applying

the restrictions of Section 9(a) to many

individuals in a typical insurance

company complex, most of whom will

have no involvement in matters

pertaining to underlying investment

companies funding the separate

accounts of the Participating Insurance

Companies, would serve no regulatory

purpose.

12. Applicants submit that there is no

regulatory purpose in denying the

partial exemptions because of mixed

and shared funding and sales to Plans.

Applicants submit that sales to those

entities do not change the fact that the

purposes of the 1940 act are not

advanced by applying the prohibitions

of Section 9(a) to persons in a life

insurance complex who have no

involvement in the underlying fund.

Pass-Through Voting

13. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) assume the existence of a

pass-through voting requirement with

respect to management investment

company shares held by a separate

account. Applicants state that passthrough voting privileges will be

provided by the Participating Insurance

Companies so long as the Commission

interprets the 1940 Act to require passthrough voting privileges for Contract

owners.

14. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) provide partial

exemptions form Sections 13(a), 15(a),

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

these sections have been deemed by the

Commission to require pass-through

voting with respect to management

investment company shares held by a

separate account, to permit the

insurance company to disregard the

voting instructions of its Contract

owners in certain circumstances. Rules

6e–2(b)(15)(iii)(A) and 6e–

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

insurance company may disregard the

voting instructions of its Contract

owners with respect to the investments

of an underlying investment company

or any contract between an investment

company and its investment adviser,

when required to do so by an insurance

regulatory authority. Rules 6e–

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

provide that the insurance company

may disregard the voting instructions of

its Contract owners if the Contract

owners initiate any change in the

underlying investment company’s

investment objectives, principal

underwriter, or investment adviser,

provided that disregarding such voting

instructions is reasonable and complies

with the other provisions of Rules 6e–

2 and 6e–3(T).

15. Rule 6e–2 recognizes that a

variable life insurance contract has

important elements unique to insurance

contracts, and is subject to extensive

state regulation. Applicants assert that

in adopting Rule 6e–2(b)(15)(iii), the

Commission expressly recognizes that

exemptions from pass-through voting

requirements were 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.

Applicants state that, in this respect,

flexible premium variable life insurance

contracts are subject to substantially the

same state insurance regulatory

authority; therefore, the corresponding

provisions of Rule 6e–3(T) were adopted

in recognition of the same factors.

16. Applicants further represent that

the offer and sale of the Insurance

Products Funds’ shares to Plans will not

have any impact on the relief requested

in this regard. Shares of the Insurance

Products Funds sold to Plans will be

held by the trustee(s) (or custodian(s)) of

the Plans as required by Section 403(a)

of the Employee Retirement Income

Security Act of 1974, as amended

(‘‘ERISA’’). Section 403(a) also provides

that the trustee(s) must have exclusive

authority and discretion to manage and

control Plan investments with two

exceptions: (a) when the Plan expressly

provides that the Fund Trustee(s) is

(are) subject to the direction of a named

fiduciary who is not a trustee, in which

case the Trustee(s) is (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 two exceptions stated in

Section 403(a) applies, Plan trustees

have the exclusive authority and

responsibility for voting proxies. Where

a named fiduciary appoints an

investment manager, the investment

manager has the responsibility to vote
Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices 17891

the shares held unless the right to vote

such shares is reserved to the trustees or

to the named fiduciary. In any event,

there is no pass through voting to the

participants in the Plans. Accordingly,

Applicants note that unlike the case

with separate accounts of Participating

Insurance Companies, the issue of the

resolution of material irreconcilable

conflicts with respect to voting is not

present with respect to the Plans.

Conflicts of Interest

17. Applicants state that no increased

conflicts of interest would be presented

by the granting of the requested relief.

Applicants assert 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 states. For example, when

different Participating Insurance

Companies are domiciled in different

states, it is possible that the state

insurance regulatory body in a state in

which one Participating Insurance

Company is domiciled could require

action that is inconsistent with the

requirements of insurance regulators in

one or more other states in which other

Participating Insurance Companies are

domiciled. Applicants assert that this

possibility is no different and no greater

than exists when a single issuer and its

affiliates offer their insurance products

in several states, as currently is

permitted.

18. Applicants submit that affiliations

do not reduce the potential for

differences in state regulatory

requirements. Affiliated insurers may be

domiciled in different states and be

subject to differing state law

requirements. In any event, the

conditions proposed below (which are

adapted from the conditions included in

Rule 6e–3(T)(b)(15)) are designed to

safeguard against any adverse effects

that differences among state regulatory

requirements may produce. If a

particular state insurance regulatory

decision conflicts with the majority of

other state regulators, then the affected

insurer will be required to withdraw its

separate account’s investment in the

relevant Insurance Products Fund.

19. Similarly, affiliation does not

eliminate the potential for divergent

judgments as to when a Participating

Insurance Company could disregard

Contract owner voting instructions. The

potential for disagreement is limited by

the requirement in Rules 6e–2 and 6e–

3(T) that the insurance company’s

disregard of voting instructions be

reasonable and based on specific goodfaith determinations. However, if a

Participating Insurance Company’s

decision to disregard Contract owner

voting instructions represents a

minority position or would preclude a

majority vote approving a particular

change, then such Participating

Insurance Company may be required, at

the election of the relevant Insurance

Products Fund, to withdraw its separate

account’s investment in that Insurance

Product Fund, and no charge or penalty

will be imposed as a result of such

withdrawal.

20. Applicants submit that there is no

reason why the investment policies of

an Insurance Product Fund with mixed

funding would or should be materially

different from what they would or

should be if such investment company

or portfolio thereof funded only variable

annuity contracts or only variable life

insurance policies. Hence, there is no

reason to believe that conflicts of

interest would result from mixed

funding. Moreover, the Insurance

Product Fund will not be managed to

favor or disfavor any particular insurer,

type of Contract or Plan.

21. Applicants note that no one

investment strategy can be identified as

appropriate to a particular insurance

product. Each pool of variable annuity

and variable life insurance Contract

owners is composed of individuals of

diverse financial status, age, insurance,

and investment goals. An investment

company supporting even one type of

insurance product must accommodate

these diverse factors.

22. As noted above, Section 817(h) of

the Code imposes certain diversification

standards on the underlying assets of

variable annuity contracts and variable

life insurance contracts held in the

portfolios of management investment

companies, such as those held in each

separate portfolio of the Insurance

Product Funds. Treasury Regulation

1.817–5(f)(3)(iii), which established

diversification requirements for such

portfolios, specifically permits

‘‘qualified pension or retirement plans’’

and insurance company separate

accounts to share the same underlying

investment company. Applicants assert

that, therefore, neither the Code, nor the

Treasury Regulations, nor the revenue

rulings thereunder recognize any

inherent conflicts of interests if Plans,

variable annuity separate accounts, and

variable life insurance separate accounts

all invest in the same underlying

management investment company.

23. Applicants state that while there

are differences in the manner in which

distributions are taxed for variable

annuity contracts, variable life

insurance contracts and Plans, the tax

consequences do not raise any conflicts

of interest. When distributions are to be

made, and the separate accounts or the

Plans cannot net purchase payments to

make the distributions, the separate

accounts or the Plans will redeem

shares of the Insurance Products Funds

at their net asset value. The Plans will

then make distributions in accordance

with the terms of the Plans and each

Participating Insurance Company will

make distributions in accordance with

the terms of its Contract.

24. Applicants state that it is possible

to provide an equitable means of giving

voting rights to Contract owners.

Applicants represent that the Insurance

Products Funds will inform each

Participating Insurance Company of its

respective share of ownership in each

separate account and will also inform

the trustees of the Plans of their

respective share in the Insurance

Products Funds. The Participating

Insurance Companies will then solicit

voting instructions in accordance with

Rules 6e–2 and 6e–3(T).

25. Applicants submit that the ability

of the Funds to sell their respective

shares directly to Plans does not create

a ‘‘senior security’’ as defined under

Section 18(g) of the 1940 Act, with

respect to any Contract owner as

opposed to a participant under a Plan.

Regardless of the rights and benefits of

participants under the Plans, or Contract

owners under Contracts, the Plans and

the separate accounts have rights only

with respect to their respective shares of

the Insurance Products Funds. They can

redeem such shares only at their net

asset value. No shareholder of any of the

Insurance Products Funds has any

preference over any other shareholder

with respect to distribution of assets or

payment of dividends.

26. Applicants assert that there are no

conflicts between the Contract owners

of the separate accounts and the

participants under the Plans with

respect to the state insurance

commissioners’ veto powers over

investment objectives. The basic

premise of shareholder voting is that not

all shareholders may agree with a

particular proposal. The state insurance

commissioners have been given the veto

power in recognition of the fact that

insurance companies cannot simply

redeem their separate accounts out of

one fund and invest in another. Timeconsuming, complex transactions must

be undertaken to accomplish such

redemptions and transfers. On the other

hand, trustees of Plans or participants in

participant-directed Plans can make

such a decision quickly and implement

the redemption of their shares from an

Insurance Products Fund and reinvest

in another funding vehicle without the

same regulatory impediments or, as is
17892 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices

the case with most Plans, even hold

cash pending suitable investment. Based

on the foregoing, Applicants maintain

that even if there should arise issues

where the interests of Contract owners

and the interests of Plans or participants

in Plans are in conflict, the issues can

be almost immediately resolved because

the trustees of the Plans can, on their

own, redeem shares out of an Insurance

Products Fund.

27. Applicants assert that various

factors have kept more insurance

companies from offering Contracts than

currently do so. These factors include

the costs of organizing and operating a

fund medium, the lack of expertise with

respect to investment management and

the lack of public name recognition as

investment experts. 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.

28. Applicants assert that use of the

Insurance Products Funds as common

investment media for the Contracts

would ameliorate these concerns.

Participating Insurance Companies

would benefit not only from the

investment management and advisory

expertise of the Manager and Advisers,

but also from the cost efficiencies and

investment flexibility afforded by a large

pool of assets. Therefore, making the

Insurance Products Funds available for

mixed and shared funding will

encourage more insurance companies to

offer Contracts. This should result in

increased competition with respect to

both Contract design and pricing, which

can be expected to result in more

product variation and lower changes.

Contract owners would benefit because

mixed and shared funding should

eliminate a significant portion of the

costs of establishing and administering

separate funds. Moreover, Applicants

assert that the sale of shares of

Insurance Products Funds to Plans

should result in an increased amount of

assets available for investment by such

Insurance Products Funds. This, in turn,

should inure to the benefit of Contract

owners by promoting economies of

scale, by permitting increased safety

through greater diversification, and by

making the addition of new Portfolios to

the Trust or to each of the Insurance

Products Funds more feasible.

29. Applicants assert that there is no

significant legal impediment to

permitting mixed and shared funding.

Applicant’s Conditions

To the extent required by the

Commission, Applicants consent to the

following conditions:

1. A majority of the Board of Trustees

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

each Insurance Products Fund will

consist of persons who are not

‘‘interested persons’’ thereof, as defined

by Section 2(a)(19) of the 1940 Act and

the rules thereunder and as modified by

any applicable orders of the

Commission, except that if this

condition is not met by reason of the

death, disqualification, or bona fide

resignation of any trustee(s) or

director(s), then the operation 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. The Boards will monitor their

respective Insurance Products Funds for

the existence of any material

irreconcilable conflict among the

interests of the Contract owners of all

the separate accounts investing in the

Insurance Products Funds and the

participants in Plans investing in the

Insurance Products Funds. 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, no

action 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 the

Insurance Products Funds are being

managed; (e) a difference in voting

instructions given by variable annuity

Contract owners and variable life

insurance policy owners; (f) a decision

by a Participating Insurance Company to

disregard the voting instructions of

Contract owners; or (g) if applicable, a

decision by a Plan to disregard the

voting instructions of its participants.

3. Participating Insurance Companies,

the Manager, the Advisers, and any Plan

that executes a fund participation

agreement upon becoming an owner of

ten percent (10%) or more of the assets

of an Insurance Products Fund (a

‘‘Participating Qualified Plan’’) we

report any such potential or existing

conflicts to the Board of any relevant

Insurance Products Fund. Participating

Insurance Companies, the Manager, the

Advisers, and Participating Qualified

Plans will be responsible for assisting

the appropriate Board in carrying out its

responsibilities under these conditions

by providing the Board with all

information reasonably necessary for the

Board to consider any issues raised.

This includes, but is not limited to, an

obligation by a Participating Insurance

Company to inform the appropriate

Board whenever voting instructions of

Contract owners are disregarded, and, if

pass-through voting is applicable, an

obligation by each Participating

Qualified Plan to inform the Board

whenever it has determined to disregard

the voting instructions of its

participants. The responsibility to report

such information and conflicts and to

assist the Board will be contractual

obligations of all Participating Qualified

Plans, and such agreements shall

provide that these responsibilities will

be carried out with a view only to the

interests of participants in such Plans.

4. If it is determined by a majority of

the Board of an Insurance Products

Fund, or by a majority of its

disinterested trustees or directors, that a

material irreconcilable conflict exists,

the relevant Participating Insurance

Companies and Plans will, at their

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. Such

steps could include: (a) withdrawing the

assets allocable to some or all of the

separate accounts from the Insurance

Products Fund or any portfolio thereof

and reinvesting such assets in a

different investment medium, which

may include another portfolio of an

Insurance Products Fund or another

Insurance Products Fund; (b) submitting

the question of whether such

withdrawal should be implemented to a

vote of all affected Contract owners and,

as appropriate, withdrawing the assets

of any appropriate group (i.e., variable

annuity Contract owners or variable life

insurance Contract owners of one of

more Participating Insurance

Companies) that votes in favor of such

withdrawal, or offering to the affected

Contract owners the option of making

such a change; (c) withdrawing the

assets allocable to some or all of the

Plans from the Insurance Products Fund

or any portfolio thereof and reinvesting

such assets in a different investment

medium, which may include another

portfolio of an Insurance Products Fund

or another Insurance Products Fund;

and (d) 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
Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices 17893

represents a minority position or would

preclude a majority vote, the

Participating Insurance Company may

be required, at the election of the

Insurance Products Fund to withdraw

its separate account’s investment in

such Insurance Products Fund, and no

charge or penalty will be imposed as a

result of such withdrawal. If a material

irreconcilable conflict arises because of

a Plan’s decision to disregard its

participants’ voting instructions, if

applicable, and that decision represent

a minority position or would preclude

a majority vote, the Plan may be

required, at the election of the relevant

Fund, to withdraw its investment in

such Fund, and no charge or penalty

will be imposed as a result of such

withdrawal. To the extent permitted by

applicable law, the responsibility of

taking remedial action in the event of a

Board determination of a material

irreconcilable conflict and bearing the

cost of such remedial action will be a

contractual obligation of all

Participating Insurance Companies and

Participating Qualified Plans under

their agreements governing their

participation in the Insurance Products

Funds, and these responsibilities will be

carried out with a view only to the

interests of Contract owners and

participants in such Plans, as

applicable. For purposes of this

condition 4, a majority of the

disinterested members of the applicable

Board will determine whether or not

any proposed action adequately

remedies any material irreconcilable

conflict, but in no event will the

relevant Insurance Products Fund, the

Manager or the Advisers be required to

establish a new funding medium for any

Contract. No Participating Insurance

Company shall be required by this

condition 4 to establish a new funding

medium for any Contract if any offer to

do so has been declined by vote or a

majority of Contract owners materially

and adversely affected by the material

irreconcilable conflict. Further, no Plan

shall be required by this condition 4 to

establish a new funding medium for any

Qualified Plan if: (a) a majority of its

participants materially and adversely

affected by the irreconcilable material

conflict vote to decline such offer, or (b)

pursuant to governing Plan documents

and applicable law, the Qualified Plan

makes such decision without a vote of

its participants.

5. Any Board’s determination of the

existence of a material irreconcilable

conflict and its implications will be

made known promptly and in writing to

all Participating Insurance Companies

and all Plans.

6. Participating Insurance Companies

will provide pass-through voting

privileges to all Contract owners so long

as the Commission interprets the 1940

Act to require pass-through voting

privileges for Contract owners.

Accordingly, the Participating Insurance

Companies will vote shares of the

Insurance Products Funds held in their

separate accounts in a manner

consistent with voting instructions

timely received from Contract owners.

Participating Insurance Companies will

be responsible for assuring that each of

their separate accounts participating in

an Insurance Products Fund calculates

voting privileges in a manner consistent

with other Participating Insurance

Companies. The obligation to calculate

voting privileges in a manner consistent

with all other separate accounts

investing in the Insurance Products

Fund will be a contractual obligation of

all Participating Insurance Companies

under their agreements governing their

participation in the Insurance Products

Fund. Each Participating Insurance

Company will also vote shares for

which it has not received timely voting

instructions from Contract owners as

well as shares attributable to it in the

same proportion as it votes shares for

which it has received voting

instructions from Contract owners. Each

Plan will vote as required by applicable

law and governing Plan documents.

7. All reports of potential or existing

conflicts received by a Board, and all

Board actions with regard to

determining the existence of a conflict

of interest, notifying Participating

Insurance Companies and Plans of a

conflict, and determining whether any

proposed action adequately remedies a

conflict, will be properly recorded in

the minutes of the appropriate Board or

other appropriate records, and such

minutes or other records shall be made

available to the Commission upon

request.

8. Each Insurance Products Fund will

notify all Participating Insurance

Companies that separate account

prospectus disclosure regarding

potential risks of mixed and shared

funding may be appropriate. Each

Insurance Products Fund will disclose

in its prospectus that: (a) shares of the

Insurance Products Fund are offered to

insurance company separate accounts

on a mixed and shared funding basis

and to Plans; (b) material irreconcilable

may arise between the interests of

various Contract owners participating in

the Insurance Products Fund and the

interests of Plans investing in the

Insurance Products Fund; and (c) the

Board of such Insurance Products Fund

will monitor events in order to identify

the existence of any material

irreconcilable conflict and to determine

what action, if any, should be taken in

response to such material irreconcilable

conflict.

9. Each Insurance Products Fund will

comply with all provisions of the 1940

Act requiring voting by shareholders

(which, for these purposes, will be the

persons having a voting interest in the

shares of the Insurance Products Fund),

and, in particular, each Insurance

Products Fund will either provide for

annual shareholder meetings (except to

the extent that 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, as

well as with Section 16(a), and, if

applicable, Section 16(b) of the 1940

Act. Further, each Insurance Products

Fund will act in accordance with the

Commission’s interpretation of the

requirements of Section 16(a) with

respect to periodic elections of trustees

or directors and with whatever rules the

Commission may promulgate with

respect thereto.

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

2 and 6e–3(T) are amended (or in Rule

6e–3 under the 1940 Act is adopted) to

provide exemptive relief from any

provision of the 1940 Act or the rules

thereunder with respect to mixed and

shared funding on terms and conditions

materially different from any

exemptions granted in the Order

requested by the Applicants, then the

Insurance Products Funds and/or the

Participating Insurance Companies, as

appropriate, shall take such steps as

may be necessary to comply with Rules

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

6e–3, as adopted, to the extend

applicable.

11. No less frequently than annually,

the Participating Insurance Companies

and Participating Qualified Plans, the

Manager, and the Advisers, shall submit

to each Board such reports, materials, or

data as the Board may reasonably

request so that the Board may carry out

fully the obligations imposed upon it by

the conditions contained in this

Application. Such reports, materials,

and data shall be submitted more

frequently if deemed appropriate by the

Board. The obligations of the

Participating Insurance Companies and

Participating Qualified Plans to provide

these reports, materials, and data shall

be a contractual obligation of all

Participating Insurance Companies and

Participating Qualified Plans under the

agreements governing their participation

in the Insurance Products Funds.

12. If a Plan should ever become an

owner of ten percent (10%) or more of

the assets of an Insurance Products
17894 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Notices

1On February 15, 1997, a post-effective

amendment to Capital Company’s current

registration statement on Form N–1A was filed for

the purpose of adding the Small-Cap Equity Fund

as a new series of Capital Company. The

registration statement (File No. 33–10145) will

become effective on May 1, 1997.

Fund, such Plan will execute a fund

participation agreement with such

Insurance Products Fund including the

conditions set forth herein to the extent

applicable. A Plan will execute an

investor application containing an

acknowledgment of this condition at the

time of its initial purchase of any

Insurance Products Fund.

Conclusion

For the reasons summarized above,

Applicants assert 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.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–9344 Filed 4–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC—22601; File No. 812–10486]

General American Life Insurance

Company, et al.

April 4, 1997.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or

‘‘Commission’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (‘‘1940 Act’’).

APPLICANTS: General American Life

Insurance Company (‘‘General

American’’) and General American

Capital Company (‘‘Capital Company’’)

(collectively, ‘‘Applicants’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 17(b) of the

1940 Act granting an exemption from

the provisions of Section 17(a) of the

1940 Act.

SUMMARY OF APPLICATION: Applicants

seek an order permitting the assets of

General American’s Separate Account

Twenty (‘‘Separate Account’’) to be

transferred to the Small-Cap Equity

Fund series of Capital Company in

exchange for shares of the Small-Cap

Equity Fund series.

FILING DATE: The application was filed

on January 10, 1997.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing by writing to the Commission

Secretary 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 April 29, 1997, and should be

accompanied by proof of service on

Applicants, in the form of an affidavit

or, for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested. Any

person may request notification of a

hearing by writing to the Commission’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

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

Applicants, c/o Matthew P. McCauley,

Esq., General American Life Insurance

Company, 700 Market Street, St. Louis,

Missouri 63101. Copies to Stephen E.

Roth, Esq., Sutherland, Asbill &

Brennan, L.L.P., 1275 Pennsylvania

Avenue, N.W., Washington, D.C. 20004–

2404.

FOR FURTHER INFORMATION CONTACT:

Joyce Merrick Pickholz, Senior Counsel,

or Patrice M. Pitts, Branch Chief, Office

of Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application may be obtained

for a fee from the Public Reference

Branch of the Commission.

Applicants’ Representations

1. General American is a mutual life

insurance company organized under the

laws of Missouri. The Separate Account

was established in September 1985 as a

separate investment account of General

American to support benefits payable

under the variable portion of certain

group variable annuity contracts issued

by General American (‘‘Contracts’’). The

Separate Account is exempted from the

definition of investment company

pursuant to Section 3(c)(11) of the 1940

Act, and interests in the Separate

Account are exempt securities pursuant

to Section 3(a)(2) of the 1940 Act. The

Contracts provide retirement benefits

under tax-qualified retirement

programs.

2. The Separate Account currently

consists of a single portfolio of assets,

primarily equity securities. The

investment objective of the Separate

Account is to provide a rate of return

that corresponds to the performance of

the common stock of small companies,

while incurring a level of risk that is

generally equal to the risks associated

with small company common stock in

general. The Separate Account is

passively managed to attempt to

replicate the return of the bottom

capitalization quintile of the New York

Stock Exchange traded securities.

3. Capital Company is a registered

open-end diversified management

investment company organized as a

series fund. Capital Company serves as

a funding vehicle for variable annuity

contracts and variable life insurance

policies issued by General American

and affiliated insurance companies.

Currently, shares of Capital Company

are offered to General American

Separate Account Two, General

American Separate Account Eleven,

unregistered separate accounts of

General American, and separate

accounts of RGA Reinsurance Company,

Security Equity Life Insurance

Company, Cova Financial Services Life

Insurance Company, Cova Financial Life

Insurance Company, and First Cova Life

Insurance Company, all affiliates of

General American.

4. Capital Company consists of seven

investment portfolios: the S&P 500

Index Fund; Money Market Fund; Bond

Index Fund; Managed Equity Fund;

Asset Allocation Fund; International

Index Fund; and Mid-Cap Equity Fund.

Capital Company offers its shares at net

asset value and without sales charge,

directly to the separate accounts

without an underwriter or distributor.

General American pays any distribution

expenses and costs arising from any

activity intended primarily to result in

the sale of shares issued by Capital

Company.

5. Conning Asset Management

Company (‘‘Adviser’’) serves as the

investment advisor to Capital Company

and to the Separate Account. The

advisor is wholly owned by Conning

Corporation which, in turn, is wholly

owned by General American Holding

Company, a wholly owned subsidiary of

General American.

6. The Board of Directors of Capital

Company has determined that it would

be desirable to add a new series to

Capital Company to be called the SmallCap Equity Fund (‘‘Fund’’).1 The Fund’s

Investment objective will be identical to

that of the Separate Account. Because

the investment objectives, policies, and

restrictions of the Fund would mirror

those of the Separate Account,

management of General American

proposes to transfer the assets of the

Separate Account to the Fund (the

‘‘Transfer’’) in exchange for shares of the

Fund. The Separate Account would in