Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices 22423

1 15 U.S.C. § 78s(b)(1) (1988).

2Securities Exchange Act Release No. 35513

(March 17, 1995), 60 FR 15614.

3Securities Exchange Act Release No. 33958

(April 22, 1994), 59 FR 22878 [File No. SR–DTC–

93–12] (order temporarily approving proposed rule

change expanding DTC’s MMI program).

amounts at risk under the benefit or

benefits selected by the cost per $1,000

of the amount at risk. Applicants also

represent that the amounts at risk used

will be actual figures, and that the

determination of the figures on a

monthly basis is reasonable. Applicants

state that the cost per $1,000 of amount

at risk, i.e., the cost of insurance charge,

was determined using assumptions

regarding the expected mortality of the

Contract owners. Applicants state that

these assumptions reflect that the

Contracts are both insurance and

investment vehicles and could appeal to

a different group than would a

traditional annuity. CG Life represents

that there could be less self selection of

this product by healthy individuals than

a traditional annuity. Applicants further

state that, because of the optional death

benefits provided under the Contracts

without health underwriting, there

could be self selection by unhealthy

individuals who would not ordinarily

quality for traditional life insurance. CG

Life asserts that the foregoing mortality

assumptions are reasonable. Applicants

state the CG Life undertakes to

maintain, at its home office and

available to the Commission, a

memorandum detailing the

methodology used in determining that

the optional death benefit charge is

reasonable in relation to the risks

assumed by CG Life under the

Contracts.

6. Applicants acknowledge that the

Sales Charge will likely be insufficient

to cover all costs relating to the

distribution of the Contracts. To the

extent distribution costs are not covered

by the Sales Charge, CG Life will

recover its distribution costs from the

assets of the general account. These

assets may include that portion of the

mortality and expense risk charge which

is profit to CG Life, and that portion of

the optional death benefit charge that is

profit. Applicants represent that CG Life

has concluded that there is a reasonable

likelihood that the proposed

distribution financing arrangement will

benefit the Account, the Other Accounts

and the owners of the Contracts. The

basis for this conclusion is set forth in

a memorandum which will be

maintained by CG Life at its home office

and will be made available to the

Commission.

7. CG Life also represents that the

Accounts will invest only in open-end

management investment companies

which undertake, in the event such

company adopts a plan under Rule 12b–

1 of the 1940 Act to finance distribution

expenses, to have such plan formulated

and approved by either the company’s

board of directors or the board of

trustees, as applicable, a majority of

whom are not interested persons of such

company within the meaning of the

1940 Act.

8. Applicants also request an order

under Section 6(c) granting exemptions

from Sections 2(a)(32) and 27(c)(1) of

the 1940 Act and Rule 22c–1 thereunder

to the extent necessary to permit the

deduction from Account values of the

optional death benefit charges at the

following times: upon surrender; upon

anuitization; and upon payment of a

death benefit.

9. Section 27(c)(1) requires that

periodic payment plan certificates, such

as the Contracts, be redeemable

securities. Section 2(a)(32) defines a

‘‘redeemable security’’ as one which,

upon presentation to the issuer, entitles

the holder to receive ‘‘approximately his

proportionate share of the issuer’s

current net assets, or the cash equivalent

thereof.’’ Rule 22c–1 under the 1940 Act

prohibits redemptions ‘‘except at a price

based on the current net asset value of

such security which is next computed

* * *.’’ Applicants concede that where

the optional death benefit charge is

imposed upon annuitization, surrender

or payment of the death benefit, the net

dollar amount paid upon surrender or in

the form of a death benefit, or applied

to the purchase of annuity units under

the Contract, will be less than the full

accumulation unit value of the variable

portion of the Contract. Applicants

state, however, that the gross proceeds

will equal the full net asset value of the

variable portion of the Contract.

Applicants represent that the difference

between the gross proceeds and the net

dollar amount paid or applied will be

equal to the unpaid aggregate charges

for the optional death benefit that have

accrued since the most recent Contract

anniversary, Applicants state that if the

cost for the optional death benefit were

deducted from the value of the Contract

upon accrual, there would be no

difference between the gross proceeds

and the net amount paid or applied.

Applicants argue that payment of the

accrued but unpaid charges out of the

gross proceeds of redemption,

annuitization or a death benefit should

be viewed as a delayed deduction of

otherwise permitted charges. Applicants

assert that the prohibitions of Sections

2(a)(32) and 27(c)(1) and Rule 22c–1 are

designed to prevent diminution or

dilution of investment company assets

and should not, therefore, be applied to

a transaction that, but for its timing,

would be otherwise permissible.

Conclusion

Applicants assert that the resons and

upon the facts set forth above, the

requested exemptions from Sections

2(a)(32), 26(a)(2)(C) and 27(c)(2) of the

1940 Act and Rule 22c–1 thereunder are

unnecessary and 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

Investment Management, pursuant to

delegated authority.

[FR Doc. 95–11131 Filed 5–4–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35655; File No. SR–DTC–

95–05]

Self-Regulatory Organizations; The

Depository Trust Company; Order

Extending Temporary Approval of a

Proposed Rule Change Expanding the

Money Market Instrument Settlement

Program

April 28, 1995.

On March 7, 1995, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–95–05) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on March 24, 1995.2

No comment letters were received. For

the reasons discussed below, the

Commission is extending its temporary

approval of the proposed rule change

through April 30, 1996.

I. Description of the Proposal

A. Generally

On April 22, 1994, the Commission

approved, on a temporary basis until

April 30, 1995, DTC’s proposed rule

change making its existing Money

Market Instrument (‘‘MMI’’) settlement

services available for transactions in

additional types of MMIs.3 The current

proposed rule change seeks permanent

approval of the new and expanded MMI

settlement program. The expanded MMI

settlement program includes

institutional certificates of deposit

(‘‘CD’’), municipal commercial paper,

and bankers’ acceptances. Prior to the

April 1994 enhancement, the MMI

program included corporate commercial
22424 Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices

4 DTC’s SDFS system currently includes the

following issue types: corporate commercial paper,

municipal notes and bonds, municipal variable-rate

demand obligations, zero coupon bonds backed by

U.S. Government securities, continuously offered

medium-term corporate notes, short-term bank

notes, auction-rate and tender-rate preferred stocks

and notes, collateralized mortgage obligations and

other asset-backed securities, Government trust

certificates and Government agency securities not

eligible for the Fed’s book-entry system, retail

certificates of deposit, corporate and municipal

variable mode obligations, corporate bonds,

discount notes, and unit trusts. For a detailed

description and discussion of DTC’s SDFS system,

including the implementation of the commercial

paper program, refer to Securities Exchange Act

Release Nos. 26051 (August 31, 1988), 53 FR 34853

[File No. SR–DTC–88–06] (order permanently

approving DTC’s SDFS system) and 30986 (July 31,

1992), 57 FR 35856 [File No. SR–DTC–92–01] (order

approving implementation of commercial paper

program).

5Uncertificated MMIs are not evidenced by any

certificate whatsoever. Bills, notes, bonds, and other

securities have been issued in uncertificated form

by U.S. government and federal agencies for many

years.

6Supra note 4.

7Each participant’s net debit is limited

throughout the processing day to a net debit cap

that is the least of the following four amounts: (1)

A multiple of the participant’s required and

voluntary deposits to the SDFS fund, (2) an amount

that is equal to seventy-five percent of DTC’s

liquidity resources, including cash deposits to the

SDFS fund and lines of credit for loans to facilitate

SDFS settlement, (3) an amount, if any, determined

by the participant’s settling bank, and (4) an

amount, if any, determined by DTC. Supra note 4.

8Supra note 4.

9 15 U.S.C. § 78q–1(b)(3)(F) (1988).

paper (‘‘CP’’), medium-term notes,

preferred stock in a CP-like mode, shortterm bank notes, and discount notes.

The new and expanded MMI program

is an extension of DTC’s Same-Day

Funds Settlement (‘‘SDFS’’) system.4

The automated operating procedures for

the MMI program are virtually the same

as those followed by SDFS participants

and by Institutional Delivery (‘‘ID’’)

system users for basic depository

services in other eligible SDFS

securities. The MMI issues being made

SDFS-eligible will be distributed in

book-entry-only form by the issuer’s

issuing agent that, as with commercial

paper and medium-term notes in the

MMI program, will send MMI issuance

instructions to DTC electronically.

Settlement of an issue will be on the

same day as the issuance or on a

specified future day. The issuer’s paying

agent will serve as DTC’s custodian and

will hold a master or balance MMI

certificate for DTC unless the issuer and

its issuing and paying agent bank

choose to distribute uncertificated MMIs

through DTC.5 Because SDFS-eligible

MMIs will be book-entry-only,

participant operating procedures for

deposits and withdrawals will not apply

to MMIs.

B. Risk Management

The fundamental risk in the SDFS

system is that a participant will default

on its payment obligation. The

expanded MMI program is offered as an

extension of DTC’s current SDFS

system; therefore, DTC will employ the

same risk management controls (e.g., net

debit collateralization, net debit caps,

and receiver-authorized deliveries) to

transactions in these new MMIs as are

employed in the current SDFS system.6

Net debit collateralization requires

each participant to maintain in its

account throughout the processing day

collateral at least equal in value to the

participant’s net settlement debit.

During the processing day, if a

transaction will cause a net debit greater

than the amount of collateral in the

participant’s account at the time the

transaction is being processed, DTC will

recycle the transaction until there is

sufficient collateral in the participant’s

account. Transactions in the new MMI

programs also will be subject to the

participant’s net debit cap.7 The net

debit cap helps to protect against

abnormal intraday debit peaks that are

out of line with a participant’s prior

month’s average daily activity level. The

net debit cap also reduces the

possibility that the failure to settle by

more than one participant will not cause

DTC to exceed its liquidity resources.

The new MMI programs also will utilize

the receiver-authorized delivery control

which allows a participant to monitor

deliveries and payment orders directed

to its account before the orders are

posted to the account.

In addition, DTC’s three failure to

settle procedures applicable to the CP

program will be applicable to the new

MMI programs. First, DTC will employ

the same procedures with regard to the

sequence in which DTC will use MMI

collateral and eliminate payment order

debits in a failing participant’s account.

Second, if DTC is notified before 3 p.m.

eastern standard time (‘‘E.S.T.’’) that a

paying agent will not pay on an MMI

issuer’s maturity presentments,

reorganization presentments, periodic

principal presentments, or periodic

income presentments or if DTC is

informed of an MMI issuer’s bankruptcy

and a participant fails to settle with DTC

on that day, DTC has the authority to

reduce the settlement credits of

participants who had transactions on

the day of default with the defaulting

issuer or the defaulting participant on

the day of default. Third, if the paying

agent has not settled with DTC by noon

E.S.T. on the DTC business day

following the settlement day or if a

paying agent is determined to be

insolvent according to DTC’s rules, DTC

will notify the issuers utilizing that

paying agent and provide those issuers

with information on any presentments

related to their MMIs on which the PA

failed to pay DTC.

C. Expanded MMI Program

DTC will be expanding its CP program

to include ‘‘uncommon CP.’’

Uncommon CP is CP paying income

periodically, a variable amount of

income, or a variable amount of

principal. It also includes CP

denominated in a foreign currency, CP

with a maturity of 271 days to a year,

or corporate variable-rate demand

obligations in CP mode. These

instruments were not included in the

original CP program.8

DTC also will be enhancing its MMI

program for medium-term notes, shortterm notes, discount notes, and

preferred stock in CP-like mode.

Processing of medium-term notes will

be enhanced by DTC’s collection and

allocation of income, principal,

reorganization, and maturity payments

within the SDFS system. Paying agents

will no longer have to separately wire

such payments to DTC. Instead, as with

maturity payments in the CP program,

these payments will be included in each

paying agents’ net settlement figure due

to or from DTC at the end of each day.

Similarly, settlement of short-term notes

will be enhanced with the inclusion of

maturity payments and periodic income

payments in the SDFS system and in the

paying agent’s net SDFS amounts due to

or from DTC. The restriction that shortterm notes must have a minimum

maturity period of thirty days to be

included in this program will be

removed. The short-term notes, the

discount notes, and the preferred stock

in CP-like mode aspects of the program

will all provide for uncertificated issuer

programs. However, one master note or

certificate may be held for DTC by the

paying agent.

II. Discussion

Section 17A(b)(3)(F) 9 of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible. As discussed below, the

Commission believes that DTC’s

proposed rule change is consistent with

DTC’s obligations under the Act.

The new and enhanced MMI program

is an extension of DTC’s current SDFS

system and includes many of the same
Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices 22425

10Supra note 4.

11Supra note 4.

12Supra note 3.

13 If DTC can not confirm that an MMI issuer is

insolvent before 3:00 p.m. E.S.T., DTC will not

reverse credits attributable to that issuer because

after 3:00 p.m. E.S.T. credits are no longer

provisional in DTC’s SDFS system.

14For a complete discussion of DTC’s proposed

changes, refer to Securities Exchange Act Release

No. 35613 (April 17, 1995), 60 FR 19971 [File No.

SR–DTC–95–06] (notice of proposed rule change).

DTC proposes to establish to all-cash participants

fund in an amount of $400 million and a fixed net

debit cap of $900 million. DTC has also proposed

to add the Largest Provisional Net Credit (‘‘LPNC’’)

calculation control which is to be applied to a

participant’s net settlement balance and collateral

monitor in order to protect DTC against the

combined failure of a MMI issuer and a participant.

Under the LPNC Control, DTC will subtract the

amount of a participant’s largest provisional net

credit due to transactions in any single issuer’s

MMIs from the participant’s collateral monitor

(‘‘simulated collateral monitor’’) and net debit or

credit balance (‘‘simulated balance’’). If a

transaction will cause the simulated collateral

monitor to turn negative (i.e., the participant’s

collateral would be insufficient to cover its

simulated net debit after the transaction) or the

resulting net debit balance to exceed the

participant’s net debit cap, the transaction will be

blocked. Blocked transactions will be recycled until

credits from other transactions in MMIs of issuers

other than those of the largest provisional net credit

cause the simulated collateral monitor to be

positive or the resulting net debit balance to be

within the net debit cap limits.

15 17 CFR 200.30–3(a)(12) (1994).

risk management features that are

employed in the SDFS system. The

Commission previously examined these

features with DTC first proposed the

SDFS system,10 when the CP program

was added,11 and when the Commission

granted temporary approval to the

expanded MMI program.12 At those

times, the Commission found, and

continues to believe, that these risk

management measures are consistent

with Section 17A of the Act and should

minimize the impact of a default by a

participant in the SDFS system.

The use of provisional credits and

unwind procedures if an MMI issuer

were to default, however, could increase

the risk of settlement gridlock in certain

circumstances. For example, if DTC

were to confirm the insolvency of an

MMI issuer before 3:00 p.m.,13 DTC

would reverse all participants’ credits

attributable to the insolvent issuer

without regard to any of the risk

management controls. Such reversals of

credits could result in a participant

having a net debit that exceeds the

participant’s net debit cap and DTC’s

liquidity resources. If such a participant

then failed to settle its net debit with

DTC, DTC could possibly have difficulty

completing other settlements.

As an interim solution to reduce these

risks, DTC has obtained additional lines

of credit dedicated to the completion of

settlement in the SDFS system in the

event a participant fails to settle after

application of the unwind procedures.

The additional lines of credit are

supported by securities pledged to the

SDFS fund and are not included as a

part of DTC’s liquidity resources when

determining a participant’s net debit

cap. DTC also continues to employ its

liquidity monitoring system which

simulates double default scenarios every

fifteen minutes beginning at 2:00 p.m.

E.S.T.

As discussed in the original order

granting temporary approval to DTC’s

MMI program, DTC proposed a long

term solution to reduce the risks

associated with the use of provisional

credits. The solution, which changes the

components of DTC’s liquidity

resources and seeks to implement new

risk management controls, was designed

after consulting with the Federal

Reserve Bank of New York and recently

has been filed with the Commission for

approval.14 However, because the

largest provisional net credit procedure

is not scheduled for implementation

until the third quarter of 1995, the

Commission believes that extension of

temporary approval of the rule change is

appropriate pending the full operational

capability of DTC’s system

enhancements.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

Ir is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

DTC–95–05) be, and hereby is, approved

on a temporary basis through April 30,

1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

[FR Doc. 95–11130 Filed 5–4–95; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Declaration of Disaster Loan Area #2768

Alabama; Declaration of Disaster Loan

Area

As a result of the President’s major

disaster declaration on April 21, 1995,

I find that the counties of Cullman,

DeKalb, Marion, Marshall and Winston

in the State of Alabama constitute a

disaster area due to damages caused by

severe storms, tornadoes, and flooding

which occurred February 15 through

February 20, 1995. Applications for

loans for physical damages may be filed

until the close of business on June 20,

1995, and for loans for economic injury

until the close of business on January

22, 1996, at the address listed below:

U.S. Small Business Administration,

Disaster Area 2 Office, One Baltimore

Place, Suite 300, Atlanta, GA 30308, or

other locally announced locations. In

addition, applications for economic

injury loans from small businesses

located in the contiguous counties of

Blount, Cherokee, Etowah, Fayette,

Franklin, Jackson, Lamar, Lawrence,

Madison, Morgan, and Walker in the

State of Alabama; Chatooga, Dade, and

Walker in the State of Georgia; and

Itawamba and Monroe in the State of

Mississippi may be filed until the

specified date at the above location.

The interest rates are:

Percent

For Physical Damage:

Homeowners with credit available elsewhere ...................... 8.000

Homeowners without credit

available elsewhere ............... 4.000

Businesses with credit available

elsewhere .............................. 8.000

Businesses and non-profit organizations without credit available elsewhere ...................... 4.000

Others (including non-profit organizations) with credit available elsewhere ...................... 7.125

For Economic Injury:

Businesses and small agricultural cooperatives without

credit available elsewhere ..... 4.000

The number assigned to this disaster

for physical damage is 276812. For

economic injury the numbers are

850100 for Alabama; 850200 for

Georgia; and 850300 for Mississippi.

Dated: April 28, 1995.

James E. Rivera,

Acting Associate Administrator for Disaster

Assistance.

[FR Doc. 95–11106 Filed 5–4–95; 8:45 am]

BILLING CODE 8025–01–M

RESOLUTION TRUST CORPORATION

Coastal Barrier Improvement Act;

Property Availability; Kitty Hawk

Woods, Dare County, NC

AGENCY: Resolution Trust Corporation.

ACTION: Notice.

SUMMARY: Notice is hereby given that

the property known as Kitty Hawk