2702 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices

and maintain the facility, as NMPC will

continue to be responsible for the

maintenance and operation of NMP2

and is not involved in the restructuring

of NYSEG.

The change will not increase the

probability or consequences of

accidents, no changes are being made in

the types of any effluents that may be

released offsite, and there is no

significant increase in the allowable

individual or cumulative occupational

radiation exposure. Accordingly, the

Commission concludes that there are no

significant radiological environmental

impacts associated with the proposed

action.

With regard to potential

nonradiological impacts, the

restructuring would not affect

nonradiological plant effluents and

would have no other environmental

impact. Accordingly, the Commission

concludes that there are no significant

nonradiological environmental impacts

associated with the proposed action.

Alternatives to the Proposed Action

Since the Commission has concluded

there are no significant environmental

effects that would result from the

proposed action, any alternatives with

equal or greater environmental impact

need not be evaluated.

As an alternative to the proposed

action, the staff considered denial of the

proposed action. Denial of the

application would result in no change

in current environmental impacts. The

environmental impacts of the proposed

action and the alternative action are

similar.

Alternative Use of Resources

This action does not involve the use

of any resources not previously

considered in the Final Environmental

Statements Related to the Operation of

Nine Mile Point Nuclear Station, Unit

No. 2, (NUREG–1085) dated May 1985.

Agencies and Persons Contacted

In accordance with its stated policy,

on January 12, 1998, the staff consulted

with the New York State official, Mr.

Jack Spath, regarding the environmental

impact of the proposed action. The State

official had no comments.

Finding of No Significant Impact

Based upon the environmental

assessment, the Commission concludes

that the proposed action will not have

a significant effect on the quality of the

human environment. Accordingly, the

Commission has determined not to

prepare an environmental impact

statement for the proposed action.

For further details with respect to the

proposed action, see NYSEG’s

application dated September 18, as

supplemented by letters dated October

20 and 27, 1997, and January 6, 1998,

which are available for public

inspection at the Commission’s Public

Document Room, the Gelman Building,

2120 L Street, NW., Washington, DC,

and at the local public document room

located at the Reference and Documents

Department, Penfield Library, State

University of New York, Oswego, New

York 13126.

Dated at Rockville, Maryland, this 12th day

of January 1998.

For the Nuclear Regulatory Commission.

S. Singh Bajwa,

Director Project Directorate I–1, Division of

Reactor Projects—I/II, Office of Nuclear

Reactor Regulation.

[FR Doc. 98–1108 Filed 1–15–98; 8:45 am]

BILLING CODE 7590–01–P

POSTAL SERVICE

Sunshine Act Meeting, Board of

Governors; Notification of Items Added

to Meeting Agenda

DATE OF MEETING: January 5, 1998.

STATUS: Closed.

PREVIOUS ANNOUNCEMENT: 62 FR 66884,

December 22, 1997.

CHANGE: At its meeting on January 5,

1998, the Board of Governors of the

United States Postal Service voted

unanimously to add two items to the

agenda of its closed meeting held on

that date:

1. Performance Measurement.

2. Facilities Redevelopment Project.

CONTACT PERSON FOR MORE INFORMATION

CONTACT: Thomas J. Koerber, Secretary

of the Board, U.S. Postal Service, 475

L’Enfant Plaza, S.W. Washington, D.C.

20260–1000. Telephone (202) 268–4800.

Thomas J. Koerber,

Secretary.

[FR Doc. 98–1190 Filed 1–13–98; 4:39 pm]

BILLING CODE 7710–12–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22996; File No. 812–10604]

The Dreyfus Socially Responsible

Growth Fund, Inc., and The Dreyfus

Corporation

January 9, 1998.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of application for an

order under Section 6(c) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’) for exemptions from the

provisions of 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.

SUMMARY OF APPLICATION: Applicants

seek an order to permit shares of The

Dreyfus Socially Responsible Growth

Fund and shares of any other

investment company or portfolio thereof

that is designed to fund insurance

products and for which The Dreyfus

Corporation or any of its affiliates may

serve in the future, as investment

adviser, administrator, manager,

principal underwriter, or sponsor (such

other investment companies or

investment portfolios thereof being

hereinafter referred to, individually, as

a ‘‘Future Fund’’ and collectively, as the

‘‘Future Funds’’) 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; and (2) qualified pension

and retirement plans outside of the

separate account context.

APPLICANTS: The Dreyfus Socially

Responsible Growth Fund, Inc. (the

‘‘Fund’’) and The Dreyfus Corporation

(‘‘Dreyfus’’).

FILING DATE: The application was filed

on April 4, 1997, amended and restated

on October 20, 1997, and amended on

December 16, 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 on this application by writing

to the Secretary of the SEC and serving

Applicants with a copy of the request,

in person or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on February 3, 1998, and

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 the interest, the reason for the request

and the issues contested. Persons may

request notification of the date of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

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

Applicants, 200 Park Avenue, New

York, NY 10166.

FOR FURTHER INFORMATION CONTACT:

Zandra Y Bailes, Senior Counsel, or

Mark C. Amorosi, Branch Chief,

Division of Investment Management,

Office of Insurance Products, at (202)

942–0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices 2703

1The exemptions provided by Rule 6e–2 also are

available to the investment adviser, principal

underwriter, and sponsor or depositor of the

separate account.

2The exemptions provided by Rule 6e–3(T) also

are available to the investment adviser, principal

underwriter, and sponsor or depositor of the

separate account.

complete application is available for a

fee from the Public Reference Branch of

the SEC, 450 Fifth Street, N.W.,

Washington, D.C. 20549 (tel. (202) 942–

8090).

Applicants’ Representations

1. The Fund is a Maryland

corporation and is registered under the

1940 Act as an open-end diversified

management investment company. Its

authorized capital stock presently

consists of one class of stock, but in the

future the Fund may create one or more

additional classes of stock, each

corresponding to a portfolio of

securities.

2. Dreyfus, an investment adviser

registered under the Investment

Advisers Act of 1940, is the investment

adviser for the Fund. NCM Capital

Management Group, Inc. is the subinvestment adviser for the Fund and

provides day-to-day management of the

Fund’s portfolio.

3. The Fund currently offers its shares

to insurance companies as the

investment vehicle for their separate

accounts that fund variable annuity

contracts and intends to offer its shares

to affiliated and unaffiliated insurance

companies as the investment vehicle for

their separate accounts that fund

variable life insurance contracts

(together, variable annuity contracts and

variable life insurance contracts are

referred to herein as ‘‘Variable

Contracts’’). Separate accounts owning

shares of the Fund and their insurance

company depositors are referred to

herein as ‘‘Participating Separate

Accounts’’ and ‘‘Participating Insurance

Companies,’’ respectively.

4. Each Participating Insurance

Company will enter into a participation

agreement with the Fund on behalf of its

Participating Separate Account. The role

of the Fund under this agreement,

insofar as the federal securities laws are

applicable, will consist of offering

shares to the Participating Separate

Accounts and complying with any

conditions that the Commission may

impose upon granting the order

requested in the application.

5. Applicants also propose that the

Fund offer and sell its shares directly to

qualified pension and retirement plans

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

of the separate account context.

Applicants’ Legal Analysis

1. Section 6(c) of the 1940 Act

authorizes the Commission, by order

upon application, to conditionally or

unconditionally exempt any person,

security or transaction, or any class or

classes of persons, securities or

transactions from any provisions of the

1940 Act or the rules or regulations

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.

2. 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 exemptions granted

by Rule 6e–2(b)(15) are available,

however, only where the management

investment company underlying the

separate 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

supplied).1 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 or a flexible premium variable

life insurance separate account of the

same company or of any affiliated life

insurance company. The use of a

common management investment

company as the underlying investment

medium for both variable annuity and

variable life insurance separate accounts

of the same insurance company or of

any affiliated life insurance company is

referred to herein as ‘‘mixed funding.’’

In addition, the relief granted by Rule

6e–2(b)(15) is not available if shares of

the underlying management investment

company are offered to variable annuity

or variable life insurance separate

accounts of unaffiliated life insurance

companies. The use of a common

management investment company as the

underlying investment medium for

separate accounts of unaffiliated life

insurance companies is referred to

herein as ‘‘shared funding.’’

Furthermore, Rule 6e–2(b)(15) does not

contemplate that shares of the

underlying fund might also be sold to

Qualified Plans.

3. In connection with the funding of

flexible premium variable life insurance

contracts issues through a separate

account registered under the 1940 Act

as a unit investment trust, Rule 6e–

3(T)(b)(15) provides partial exemptions

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

of the 1940 Act. These exemptions,

however, are available only where the

separate account’s underlying fund

offers its shares ‘‘exclusively to separate

accounts of the life insurer, or of any

affiliated life insurance company,

offering either scheduled contracts or

flexible contracts, or both; or which also

offer their shares to variable annuity

separate accounts of the life insurer or

of an affiliated life insurance company’’

(emphasis supplied).2 Therefore, Rule

6e–3(T) permits mixed funding with

respect to a flexible premium variable

life insurance separate account but does

not permit shared funding. Also, Rule

6e–3(T) does not contemplate the sale of

shares of the underlying fund to

Qualified Plans.

4. Applicants state that changes in the

federal tax law have created the

opportunity for the Fund to

substantially increase its net assets by

selling shares to Qualified Plans.

Section 817(h) of the Internal Revenue

Code of 1986, as amended (the ‘‘Code’’),

imposes certain diversification

standards on the assets underlying

Variable Contracts. The Code provides

that Variable Contracts will not be

treated as annuity contracts or life

insurance contracts, as the case may be,

for any period (or any subsequent

period) for which the underlying assets

are not, in accordance with regulations

issued by the Treasury Department (the

‘‘Regulations’’), adequately diversified.

On March 2, 1989, the Treasury

Department issued regulations (Treas.

Reg. 1.817–5) which established specific

diversification requirements for

investment portfolios underlying

Variable Contracts. The regulations

generally provide that, in order to meet

these diversification requirements, all of

the beneficial interests in the underlying

investment company must be held by

the segregated asset accounts of one or

more life insurance companies.

Notwithstanding this, the Regulations

also contain an exception to this

requirement that permits trustees of a

Qualified Plan to hold shares of an

investment company, the shares of

which are also held by insurance

company segregated asset accounts,

without adversely affecting the status of

the investment company as an

adequately diversified underlying

investment for Variable Contracts issued

through such segregated asset accounts

(Treas. Reg. 1.817–5(f)(3)(iii)).
2704 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices

5. Applicants note that if the Fund

and Future Funds were to sell their

shares only to Qualified Plans,

exemptive relief under Rule 6e–2 and

Rule 6e–3(T) would not be necessary.

The relief provided under Rule 6e–

2(b)(15) and Rule 6e–3(T)(b)(15) does

not relate to qualified pension and

retirement plans or to a registered

investment company’s ability to sell its

shares to such plans.

6. Applicants also note that the

promulgation of Rules 6e–2(b)(15) and

6e–3(T)(b)(15) preceded the issuance of

the Regulations. Thus, the sale of shares

to both separate accounts and Qualified

Plans was not contemplated at the time

of the adoption of Rules 6e–2(b)(15) and

6e–3(T)(b)(15).

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

provides that it is unlawful for any

company to serve as investment adviser

or principal underwriter of any

registered open-end investment

company if an affiliated person of that

company is subject to a disqualification

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

the 1940 Act. Rules 6e–2(b)(15)(i) and

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

exemptions from Section 9(a) under

certain circumstances, subject to the

limitations on mixed and shared

funding. These exemptions limit the

application of the eligibility restrictions

to affiliated individuals or companies

that directly participate in the

management of the underlying fund.

8. Applicants state that the partial

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

6e–3(T)(b)(15) from the requirements of

Section 9 of the 1940 Act limits, in

effect, the amount of monitoring of an

insurer’s personnel that 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 state

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 involved in an

insurance company complex, most of

whom typically will have no

involvement in matters pertaining to

investment companies funding the

separate accounts.

9. Applicants state that neither the

Participating Insurance Companies nor

the Qualified Plans are expected to play

any role in the management or

administration of the Fund or Future

Funds. Those individuals who

participate in the management or

administration of the Fund and Future

Funds will remain the same regardless

of which separate accounts, insurance

companies or Qualified Plans use such

Funds. Applicants maintain that

applying the requirements of Section

9(a) because of investment by other

insurers’ separate accounts and

Qualified Plans would be unjustified

and would not serve any regulatory

purpose. Moreover, Qualified Plans,

unlike separate accounts, are not

themselves investment companies, and

therefore are not subject to Section 9 of

the 1940 Act. Furthermore, it is not

anticipated that a Qualified Plan would

be deemed to be an affiliated person of

the Fund or any Future Fund by virtue

of its shareholders.

10. Applicants state that Rules 6e–

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

the 1940 Act provide exemptions from

the pass-through voting requirement

with respect to several significant

matters, assuming the limitations on

mixed and shared funding are observed.

More specifically, Rules 6e–

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

provide that the insurance company

may disregard the voting instructions of

its contractowners with respect to the

investments of an underlying fund or

any contract between a fund and its

investment adviser, when required to do

so by an insurance regulatory authority

and subject to the provisions of

paragraphs (b)(5)(i) and (b)(7)(ii)(A) of

the Rules. In addition, Rules 6e–

2(b)(15)(iii)(B) and 6e–

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

insurance company may disregard

contractowner’s voting instructions if

the contractowners initiate any change

in such company’s investment policies,

principal underwriter or any investment

adviser (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 the Rules).

11. Applicants assert that Qualified

Plans, which are not registered as

investment companies under the 1940

Act, have no requirement to pass

through voting rights to plan

participants. Indeed, to the contrary,

applicable law expressly reserves voting

rights associated with Plan assets to

certain specified persons. Under Section

403(a) of the Employee Retirement

Income Security Act (‘‘ERISA’’), shares

of a fund sold to a Qualified Plan must

be held by the trustees of the Plan.

Section 403(a) also provides that the

trustee(s) must have exclusive authority

and discretion to manage and control

the Plan with two exceptions: (a) When

the Plan expressly provides that the

trustees are subject to the direction of a

named fiduciary who is not a trustee, in

which case the trustees are subject to

proper directions made in accordance

with the terms of the Plan and not

contrary to ERISA, and (b) when the

authority to manage, acquire or dispose

of 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, Plan trustees

have the exclusive authority and

responsibility for voting proxies.

12. Where 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. 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.

Some of the Qualified Plans, however,

may provide for the trustee(s), an

investment adviser (or advisers) or

another named fiduciary to exercise

voting rights in accordance with

instructions from participants.

13. Where a Qualified Plan does not

provide participants with the right to

give voting instructions, Applicants

submit that there is no potential for

material irreconcilable conflicts of

interest between or among variable

contract holders and Plan investors with

respect to voting of the respective

Fund’s shares. Accordingly, unlike the

case with insurance company separate

accounts, the issue of the resolution of

material irreconcilable conflicts with

respect to voting is not present with

respect to such Qualified Plans since the

Qualified Plans are not entitled to passthrough voting privileges.

14. Even if a Qualified Plan were to

hold a controlling interest in the Fund

or a Future Fund, Applicants argue that

such control would not disadvantage

other investors in such Fund to any

greater extent than is the case when any

institutional shareholder holds a

majority of the voting securities of any

open-end management investment

company. In this regard, Applicants

submit that investment in the Fund or

a Future Fund by a Plan will not create

any of the voting complications

occasioned by mixed funding or shared

funding. Unlike mixed or shared

funding, Plan investor voting rights

cannot be frustrated by veto rights of

insurers or state regulators.

15. Where a Plan provides

participants with the right to give voting

instructions, Applicants see no reason

to believe that participants in Qualified

Plans 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
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices 2705

contract holders. The purchase of shares

of the Fund or Future Funds by

Qualified Plans that provide voting

rights does not present any

complications not otherwise occasioned

by mixed or shared funding.

16. Applicants submit that the

prohibitions on mixed and shared

funding might reflect some concern

with possible divergent interests among

different classes of investors. Applicants

assert that shared funding 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. Where insurers are domiciled

in different states, it is possible that the

particular state insurance regulatory

body in a state which one insurance

company is domiciled could require

action that is inconsistent with the

requirements of insurance regulators of

other states in which other insurance

companies are domiciled. The fact that

a single insurer and its affiliates offer

their insurance products in different

states does not create a significantly

different or enlarged problem.

17. Applicants submit that shared

funding is, in this respect, no different

than the use of the same investment

company as the funding vehicle for

affiliated insurers, which Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) permit under

various circumstances. Affiliated

insurers may be domiciled in different

states and be subject to differing state

law requirements. Affiliation does not

reduce the potential, if any exists, for

differences in state regulatory

requirements. In any event, Applicants

submit that the conditions set forth in

the application and included in this

notice are designed to safeguard against

and provide procedures for resolving

any adverse effects that differences

among state regulatory requirements

may produce. For instance, if a

particular state insurance regulator’s

decision conflicts with the majority of

other state regulators, the affected

insurer may be required to withdraw its

Participating Separate Account’s

investment in the relevant Fund.

18. Applicants assert that the right of

an insurance company under Rules 6e–

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

contractowners’ voting instructions does

not raise any issues different from those

raised by the authority of state

insurance administrators over separate

accounts. Under Rules 6e–2(b)(15) and

6e–3(T)(b)(15), an insurer can disregard

contractowner voting instructions only

with respect to certain specified items

and under certain specified conditions.

Affiliation does not eliminate the

potential, if any exits, for divergent

judgments as to the advisability or

legality of a change in investment

policies, principal underwriter, or

investment adviser initiated by

contractowners. The potential for

disagreement is limited by the

requirements in Rules 6e–2 and 6e–3(T)

that an insurance company’s disregard

of voting instructions be reasonable and

based on specific good faith

determinations.

19. A particular insurer’s disregard of

voting instructions nevertheless could

conflict with the majority of

contractowner voting instructions. The

insurer’s action could arguably be

different from the determination of all

or some of the other insurers (including

affiliated insurers) that the

contractowners’ voting instructions

should prevail, and could either

preclude a majority vote approving the

change or could represent a minority

view. If the insurer’s judgment

represents a minority position or would

preclude a majority vote, the insurer

may be required, at the election of the

relevant Fund to withdraw its

Participating Separate Account’s

investment in such Fund, and no charge

or penalty would be imposed as a result

of such withdrawal.

20. Applicants submit that there is no

reason why the investment policies of

the Fund or any Future Fund would or

should be materially different from what

those policies would or should be if the

Funds funded only annuity contracts or

only scheduled or flexible premium life

contracts. In this regard, Applicants

note that each type of insurance product

is designed as a long-term investment

program. In addition, Applicants

represent that neither the Fund or any

Future Fund will be managed to favor

or disfavor any particular insurer or

type of insurance product.

21. Furthermore, applicants submit

that no one investment strategy can be

identified as appropriate to a particular

insurance product. Each pool of variable

annuity and variable life insurance

contractowners is composed of

individuals of diverse financial status,

age, insurance and investment goals. A

fund supporting even one type of

insurance product must accommodate

those factors in order to attract and

retain purchasers.

22. Applicants do not believe that the

sale of shares of the Fund and Future

Funds to Qualified Plans will increase

the potential for material irreconcilable

conflicts of interest between or among

different types of investors. In

particular, Applicants see very little

potential for such conflicts beyond that

which would otherwise exist between

variable annuity and variable life

insurance contractowners. Applicants

note that Section 817(h) of the Code

requires that the investments made by

variable annuity and variable life

insurance separate accounts be

‘‘adequately diversified.’’ Treasury

Department Regulations issued under

Section 817(h) provide that, in order to

meet the statutory diversification

requirements, all of the beneficial

interests in the investment company

must be held by the segregated asset

accounts of one or more insurance

companies. However, the Regulation

specifically permits ‘‘qualified pension

or retirement plans’’ and separate

accounts to invest in the same

underlying fund. For this reason,

Applicants have concluded that neither

the Code, nor the Treasury Regulations

or Revenue Rulings thereunder, present

any inherent conflicts of interest if

Qualified Plans, variable annuity

separate accounts, and variable life

insurance separate accounts all invest in

the same underlying fund.

23. Applicants note that while there

are differences in the manner in which

distributions from Variable Contracts

and Qualified Plans are taxed, these

differences will have no impact on the

Fund and Future Funds. When

distributions are to be made, and a

Separate Account or Qualified Plan is

unable to net purchase payments to

make the distributions, the Separate

Account and Qualified Plan will redeem

shares of the Fund and the Future

Funds at their respective net asset value.

A Qualified Plan will make

distributions in accordance with the

terms of the Plan.

24. Applicants state that they do not

see any greater potential for material

irreconcilable conflicts arising between

the interests of participants under

Qualified Plans and contractowners of

Participating Separate Accounts from

possible future changes in the federal

tax laws than that which already exist

between variable annuity

contractowners and variable life

insurance contractowners.

25. With respect to voting rights,

Applicants state that it is possible to

provide an equitable means of giving

voting rights to Participating Separate

Account contractowners and to

Qualified Plans. Applicants represent

that the Fund and Future Funds will

inform each shareholder, including each

Participating Insurance Company and

Qualified Plan, of information necessary

for the shareholder meeting, including

their respective share of ownership in

the relevant Fund. Each Participating

Insurance Company will then solicit

voting instructions in accordance with

Rules 6e–2 and 6e–3(T), as applicable,

and its participation agreement with the
2706 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices

relevant Fund. Shares held by Qualified

Plans will be voted in accordance with

applicable law. The voting rights

provided to Qualified Plans with respect

to shares of the Fund and Future Funds

would be no different from the voting

rights that are provided to Qualified

Plans with respect to shares of funds

sold to the general public.

26. Applicants submit that there are

no conflicts between the contractowners

of the Participating Separate Accounts

and Qualified Plan participants with

respect to the state insurance

commissioners’ veto powers over

investment objectives. State insurance

commissioners have been given the veto

power in recognition of the fact that

insurance companies usually cannot

simply redeem their separate accounts

out of one fund and invest in another.

Generally, time-consuming complex

transactions must be undertaken to

accomplish such redemptions and

transfers. Conversely, the trustees of

Qualified Plans or the participants in

participant-directed Qualified Plans can

make the decision quickly and redeem

their interest in the Fund and Future

Funds and reinvest in another funding

vehicle without the same regulatory

impediments faced by separate accounts

or, as is the case with most Qualified

Plans, even hold cash pending suitable

investment. Based on the foregoing,

Applicants have concluded that even if

there should arise issues where the

interests of contractowners and the

interests of Qualified Plans are in

conflict, the issues can be almost

immediately resolved since the trustees

of (or participants in) the Qualified

Plans can, on their own, redeem the

shares out of the Fund and Future

Funds.

27. Applicants assert that various

factors have limited the number of

insurance companies that offer variable

annuities and variable life insurance

contracts. 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 insurers as investment experts.

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.

28. Applicants contend that the use of

the Fund and Future Funds as common

investment vehicles for Variable

Contracts would reduce or alleviate

these concerns. Participating Insurance

Companies will benefit not only from

the investment and administrative

expertise of the Fund’s and Future

Funds’ investment adviser, but also

from the cost efficiencies and

investment flexibility afforded by a large

pool of funds. Therefore, making the

Fund and Future Funds available for

mixed and shared funding may

encourage more insurance companies to

offer Variable Contracts, and

accordingly could result in increased

competition with respect to both

Variable Contract design and pricing,

which can be expected to result in more

product variation and lower charges.

Applicants state that mixed and shared

funding would benefit variable

contractowners by eliminating a

significant portion of the costs of

establishing and administering separate

funds. Applicants also assert that the

sale of shares of the Fund and Future

Funds to Qualified Plans in addition to

separate accounts of Participating

Insurance Companies will result in an

increased amount of assets available for

investment by such Funds. This may

benefit variable contractowners by

promoting economies of scale, by

permitting increased safety of

investments through greater

diversification, and by making the

addition of new portfolios more feasible.

Applicants’ Conditions

Applicants have consented to the

following conditions:

1. A majority of the Board of each

Fund shall consist of persons who are

not ‘‘interested persons’’ of such Fund,

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

1940 Act, and the Rules thereunder, 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 or Director,

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. Each Board will monitor its Fund

for the existence of any material

irreconcilable conflict among the

interests of the contract holders of all

Participating Separate Accounts and of

participants of Qualified Plans investing

in such Fund 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 interpretive letter, or any

similar action by insurance, tax or

securities regulatory authorities; (c) an

administrative or judicial decision in

any relevant proceeding; (d) the manner

in which the investments of such Fund

are being managed; (e) a difference in

voting instructions given by variable

annuity contractowners and variable life

insurance contractowners; (f) a decision

by a Participating Insurance Company to

disregard the voting instructions of

contractowners; or (g) if applicable, a

decision by a Qualified Plan to

disregard the voting instructions of plan

participants.

3. The Participating Insurance

Companies, Dreyfus, and any Qualified

Plan that executes a fund participation

agreement upon becoming an owner of

10% or more of the assets of the Fund

or a Future Fund (the ‘‘Participants’’)

shall report any potential or existing

conflicts to the applicable Board.

Participants will be responsible for

assisting the 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 responsibility includes, but is not

limited to, an obligation by each

Participating Insurance Company to

inform the Board whenever it has

determined to disregard contractowners

voting instructions, and, if pass-through

voting is applicable, an obligation by

each Participant to inform the Board

whenever it has determined to disregard

plan participant voting instructions. The

responsibility to report such conflicts

and information, and to assist the Board

will be contractual obligations of all

Participants under their agreements

governing participation in the Fund and

Future Funds, and such agreements, in

the case of Participating Insurance

Companies, shall provide that such

responsibilities will be carried out with

a view only to the interests of the

contractowners. The responsibility to

report such information and conflicts,

and to assist the Board, also will be

contractual obligations of all

Participants, and such agreements will

provide that their responsibilities will

be carried out with a view only to the

interests of plan participants.

4. If it is determined by a majority of

a Board, or a majority of its disinterested

members, that a material irreconcilable

conflict exists, the relevant Participants

shall, at their expense and to the extent

reasonably practicable (as determined

by a majority of the disinterested

members of the Board), take whatever
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices 2707

steps are necessary to eliminate the

material irreconcilable conflict,

including: (1) Withdrawing the assets

allocable to some or all of the

Participating Separate Accounts from

the relevant Fund and reinvesting such

assets in a different investment medium,

which may include another portfolio of

such Fund, if any, or, in the case of

Participating Insurance Companies,

submitting the question whether such

segregation should be implemented to a

vote of all affected contractowners and,

as appropriate, segregating the assets of

any appropriate group (i.e., annuity

contractowners, life insurance

contractowners or Variable

Contractowners of one or more

Participant) that votes in favor of such

segregation, or offering to the affected

contractowners the option of making

such a charge; and (2) 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 contractowners’ voting

instructions and that decision

represents a minority position or would

preclude a majority vote, such

Participant may be required, at the

relevant Fund’s election, to withdraw its

separate account’s investment in such

Fund 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 represent a minority

position or would preclude a majority

vote, the Plan may be required, at the

election of the Fund, to withdraw its

investment in such Fund, 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 determination by

a Board of a material irreconcilable

conflict, and to bear the cost of such

remedial action, will be a contractual

obligation of all Participants under their

agreements governing participation in

the relevant Fund and this

responsibility, in the case of

Participating Insurance Companies, will

be carried out with a view only to the

interest of contractowners and, in the

case of Qualified Plans, will be carried

out with a view only to the interests of

plan participants. A majority of the

disinterested members of the Board

shall determine whether any proposed

action adequately remedies any material

irreconcilable conflict, but in no event

will the Fund, any Future Fund or

Dreyfus be required to establish a new

funding medium for any Variable

Contract. No Participating Insurance

Company will be required to establish a

new funding medium for any Variable

Contracts if an offer to do so has been

declined by the vote of a majority of

contractowners materially and adversely

affected by the irreconcilable material

conflict. Further, no Qualified Plan will

be required by this condition to

establish a new funding medium for the

Plan if: (a) A majority of the plan

participants materially and adversely

affected by the irreconcilable material

conflict vote to decline such offer, or (b)

pursuant to documents governing the

Qualified Plan, the Plan makes each

decision without a plan participant

vote.

5. The determination by a Board of

the existence of a material irreconcilable

conflict and its implications shall be

promptly made known in writing to all

Participants.

6. Participating Insurance Companies

will provide pass-through voting

privileges to all contractowners to the

extent that the Commission continues to

interpret the 1940 Act to require passthrough voting for contractowners.

Accordingly, such Participants, where

applicable, will vote shares of the

applicable Fund held in its Participating

Separate Accounts in a manner

consistent with voting instructions

timely received from contractowners.

Participating Insurance Companies shall

be responsible for assuring that each

Participating Separate Account

investing in a Fund calculates voting

privileges in a manner consistent with

other Participants. The obligation to

calculate voting privileges as provided

in the application shall be a contractual

obligation of all Participating Insurance

Companies under their agreement

governing participation in a Fund. Each

Participating Insurance Company will

vote shares for which it has not received

timely voting instructions as well as

shares it owns in the same proportion as

it votes those shares for which it has

received voting instructions. Each

Qualified Plan will vote as required by

applicable law government Plan

documents.

7. All reports received by a Board

with respect to potential or existing

conflicts and all Board action with

regard to (a) determination of the

existence of a conflict, (b) notification of

Participants of the existence of a conflict

and (c) determination of whether any

proposed action adequately remedies a

conflict, will be properly recorded in

the minutes of the meetings of the Board

or other appropriate records, and such

minutes or other records will be made

available to the Commission upon

request.

8. The Fund and each Future Fund

will notify all Participants that separate

account prospectus disclosure regarding

potential risks of mixed and shared

funding may be appropriate. Each Fund

shall disclose in its prospectus that: (a)

Shares of such Fund may be offered to

insurance company separate accounts of

both annuity and life insurance variable

contracts, and to Qualified Plans; (b)

due to differences of tax treatment and

other considerations, the interest of

various contractowners participating in

such Fund and the interest of Qualified

Plans investing in such Fund may

conflict; and (c) the Board will monitor

such Fund for any material conflicts and

determine what action, if any, should be

taken.

9. The Fund and each Future Fund

will comply with all provisions of the

1940 Act requiring voting by

shareholders (which, for these purposes,

shall be the persons having a voting

interest in the shares of such Fund),

and, in particular, each Fund will either

provide for annual 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

(although the Fund and Future Funds

are or will not be the type of trust

described in 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 Fund will act in

accordance with the Commission’s

interpretation of the requirements of

Section 16(a) with respect to periodic

elections of directors (or trustees) and

with whatever rules the Commission

may promulgate with respect thereto.

10. If and to the extent Rule 6e–2 or

6e–3(T) is amended, or proposed Rule

6e–3 is adopted, to provide exemptive

relief from any provision of the 1940

Act or the rules promulgated under the

1940 Act with respect to mixed and

shared funding on terms and conditions

materially different from any

exemptions granted in the order

requested in the application, then the

Fund and each Future Fund and/or the

Participants, as appropriate, shall take

such steps as may be necessary to

comply with Rule 6e–2 or 6e–3(T), as

amended, or Rule 6e–3, as adopted, to

the extent such rules are applicable.

11. The Participants shall at least

annually submit to the Board of each

Fund such reports, materials or data as

a Board may reasonably request so that

the Board may fully carry out

obligations imposed upon them by the

conditions contained in the application.

Such reports, materials and data shall be
2708 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Notices

1 15 U.S.C. § 78s(b)(1).

2See Securities Exchange Act Release No.

37619A (September 6, 1996), 61 FR 48290

(September 12, 1997) (‘‘SEC Limit Order Adopting

Release’’).

3See letters from Richard R. Lindsey, Director,

Division of Market Regulation, SEC, to Mr. Richard

Grasso, Chairman and Chief Executive Officer,

NYSE, dated November 22, 1996; to Mr. Richard G.

Ketchum, Chief Operating Officer, NASD, dated

January 3, 1997; and to Mr. James E Buck, Senior

Vice President and Secretary, NYSE, dated January

17, 1997.

submitted more frequently if deemed

appropriate by the applicable Board.

The obligations of the Participants to

provide these reports, materials and

data to a Board when it so reasonably

requests, shall be a contractual

obligation of all Participants under their

agreement governing participation in

the Fund and Future Funds.

12. Neither the Fund nor any Future

Fund will accept a purchase order from

a Plan if such purchase would make the

Plan shareholder or owner of 10% or

more of the assets of such Fund unless

such Plan executes a fund participation

agreement with the relevant Fund,

including the conditions set forth herein

to the extent applicable. A Plan

shareholder will execute an application

containing an acknowledgment of this

condition at the time of its initial

purchase of shares of such 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.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–1113 Filed 1–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39540; File No. SR–CHX–

97–26]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Stock

Exchange, Inc. Relating to the Display

of Limit Orders

January 12, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

October 1, 1997, the Chicago Stock

Exchange, Incorporated (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change, as described in Items I and

II below, which Items have been

prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is proposing to amend

Article XX, Rule 7 to expressly provide

for the display of customer limit orders

as contained in Rule 11Ac1–4 under the

Act and other limit orders. Proposed

new language is italicized.

Article XX

Rule 7

. . . Interpretation and Policies

.05 Quotation sizes, unless

otherwise specified, shall be assumed to

be for 100 shares. Where bids or offers

are made at the same price the aggregate

quotation size of such equal bids or

offers shall be inputted into the

quotation system. Such aggregate sizes

shall remain firm until withdrawn

unless exempted under one of the

conditions specified in paragraphs .06–

.09 of this Rule. With respect to limit

orders received by specialists, each

specialist shall publish immediately

(i.e., as soon as practicable, which

under normal market conditions means

no later than 30 seconds from time of

receipt) a bid or offer that reflects:

(i) the price and full size of each

limit order that is at a price that would

improve the specialist’s bid or offer in

such security; and

(ii) the full size of each limit order

that is priced equal to the specialist’s

bid or offer for such security;

The requirements with respect to

specialists’ display of limit orders shall

not apply to any limit order that is:

(i) executed upon receipt of the

order;

(ii) placed by a person or entity who

expressly requests, either at the time the

order is placed or prior thereto pursuant

to an individually negotiated agreement

with respect to such person’s orders,

that the order not be displayed;

(iii) and odd-lot order;

(iv) delivered immediately upon

receipt to an exchange or associationsponsored system or an electronic

communications network that complies

with the requirements of Securities and

Exchange Commission Rule 11Ac1–

1(c)(5) under the Securities Exchange

Act with respect to that order;

(v) delivered immediately upon

receipt to another exchange member or

over-the-counter market maker that

complies with the requirements of

Securities and Exchange Commission

Rule 11Ac1–4 under the Securities

Exchange Act with respect to that order;

or

(vi) an ‘‘all or none’’ order.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item III below. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Commission has recently adopted

Rule 11Ac1–4 under the Act 2 which,

among other things, requires specialists

to immediately display the price and

full size of any customer limit order that

improved their quoted bid or offer in a

security. The proposed amendments to

Article XX, Rule 7 would make Rule 7

more consistent with the limit order

display requirements of SEC Rule

11Ac1–4 and Commission

interpretations thereunder.3

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b)(5) of the

Act in that it is designed to promote just

and equitable principles of trade, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.