31720 Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices

SECURITIES AND EXCHANGE

COMMISSION

[Docket No. IC–24997; File No. 812–12326]

Met Investors Series Trust, et al.

June 5, 2001.

AGENCY: Securities and Exchange

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

ACTION: Notice of Application for an

order under Section 6(c) of the

Investment Company Act of 1940

(‘‘1940 Act’’ or ‘‘Act’’) for exemptions

from the provisions of Sections 9(a),

13(a), 15(a) and 15(b) of the 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 any

current or future series of Met Investors

Series Trust (the ‘‘Trust’’) and shares of

any other investment company that is

designed to fund insurance products

and for which Met Investors Advisory

Corp. (‘‘Met Advisory’’ or the

‘‘Manager’’) or any of its affiliates may

in the future serve as investment

adviser, administrator, manager,

principal underwriter or sponsor (the

Trust and such other investment

companies collectively, the ‘‘Funds’’) to

be sold to and held by: (a) variable

annuity and variable life insurance

separate accounts (‘‘Participating

Separate Accounts’’) of both affiliated

qualified pension and retirement plans

outside the separate account context

(‘‘Plans’’); and (c) the investment

adviser of any Fund or any of the

investment adviser’s affiliates.

Applicants: The Trust and Met

Advisory.

Filing Date: The Application was filed

on November 21, 2000, and amended on

March 5, 2001 and June 4, 2001.

Hearing or Notification of Hearing: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving Applicants with a

copy of the request, in person or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on July

2, 2001, and should be accompanied by

proof of service on the Applicants in the

form of an affidavit or, for lawyers, a

certificate of service. Hearing requests

should state the nature of the writer’s

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, NW., Washington, DC 20549–

0609. Applicants, c/o Elizabeth M.

Forget, President, Met Investors Series

Trust, 610 Newport Center Drive, Suite

1400, Newport Beach, California 92660.

FOR FURTHER INFORMATION CONTACT:

Joyce M. Pickholz, Senior Counsel, or

Keith E. Carpenter, Branch Chief,

Division of Investment Management,

Office of Insurance Products, at (202)

942–0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch, 450 Fifth

Street, NW., Washington, DC 20549–

0102 [tel. (202) 942–8090).

Applicants’ Representations

1. The Trust was organized on July 27,

2000 as a Delaware business trust and

is registered with the SEC as an openend investment company. The Trust

consists of multiple separately managed

investment portfolios (‘‘Portfolios’’) and

may in the future issue shares of

additional Portfolios.

2. Met Advisory serves as Manager of

the Trust. Met Advisory is a subsidiary

of Met Life Investors Group, Inc.

(formerly known as Security First

Group, Inc.) which in turn is an indirect

wholly-owned subsidiary of

Metropolitan Life Insurance Company.

The Manager is responsible for

providing investment management and

certain administrative services to the

Trust and in the exercise of such

responsibility selects other affiliated

and unaffiliated registered investment

advisers (‘‘Advisers’’) for each of the

Portfolios and monitors the Advisers’

investment programs and results,

reviews brokerage matters, oversees

compliance matters and supervises the

provision of services by third parties as

the Trust’s custodian and administrator.

The Manager will enter into investment

advisory agreements with the Advisers

that will be primarily responsible for the

day-to-day investment programs of each

Portfolio. Met Advisory is registered

under the Investment Advisers Act of

1940.

3. The Funds (including the Trust)

propose to offer shares of one or more

of their series to insurance company

separate accounts that fund variable

annuity and variable life insurance to

insurance company separate accounts

that fund variable annuity and variable

life insurance contracts (the

‘‘Contracts’’) established by

Participating Insurance Companies

including Security First Life Insurance

Company (which is in the process of

changing its name to MetLife Investors

USA Insurance Company) and certain of

its affiliates. These separate accounts

may be registered as investment

companies under the Act or exempt

from registration under the Act. Each

Participating Insurance Company will

enter into a fund participation

agreement with the Funds in which the

Participating Separate Account invests.

4. The Funds also will offer shares of

each series directly to Plans outside of

the separate account context. The Plans

may choose from one of several series of

any of the Funds as the sole investment

under the Plan or as one of several

investments. Plan participants may or

may not be given the right to select

among Funds, depending on the Plans.

Plan participants include not only those

participants of qualified pension or

retirement plans as set forth in Treasury

Regulation § 1.817–5(f)(3)(iii) and

Revenue Ruling 94–62, but also include

the holders of annuity contracts

described in Section 403(b) of the Code,

including Section 403(b)(7); holders of

individual retirement accounts

described in Section 408(b) of the Code;

and holders of any other trust, account,

contract or annuity that is determined to

be within the scope of Treasury

Regulation § 1.817–5(f)(3)(iii).

5. In addition, shares of a Fund may

be offered to the Manager, an Adviser,

or any of their affiliates for purposes of

providing necessary capital required by

Section 14(a) of the 1940 Act or for

other investment purposes in

compliance with Treasury Regulation

1.817–5(f)(3)(ii). The return on shares of

a Fund purchased by the Manager, an

Advisor, or their affiliates will be

computed in the same manner as for

shares held by a separate account. Any

shares of a Fund purchased by such

persons will be automatically redeemed

if and when their investment advisory

agreement with a Fund terminates, to

the extent required to comply with

applicable Treasury Regulations.

Applicants’ Legal Analysis

1. 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

(‘‘UIT’’), Rule 6e–2(b)(15) provides

partial exemptions from Sections 9(a),

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

relief provided by Rule 6e–2 is available

to a separate account’s investment

adviser, principal underwriter, and

sponsor or depositor. The exemptions

granted by Rule 6e–2(b)(15) are

available only where the management

investment company underlying the

UIT offers its shares ‘‘exclusively to

variable life insurance separate accounts

of the life insurer, or of any affiliated

life insurance company.’’ The use of a

Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices 31721

common management investment

company as the underlying investment

medium for both variable annuity and

variable life insurance separate accounts

of a single insurance company (or of two

or more affiliated insurance companies)

is referred to as ‘‘mixed funding.’’ The

use of a common management

investment company as the underlying

investment medium for variable annuity

and variable life insurance separate

accounts of unaffiliated insurance

companies is referred to as ‘‘shared

funding.’’ ‘‘Mixed and shared funding’’

denotes the use of a common

management investment company to

fund the variable annuity and variable

life insurance separate accounts of

affiliated and unaffiliated insurance

companies. 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 offers

its shares to a variable annuity separate

account of the same company or of any

other affiliated or unaffiliated life

insurance company. Therefore, Rule 6e–

2(b)(15) precludes mixed funding as

well as shared funding.

2. Applicants state that because the

relief under Rule 6e–2(b)(15) is available

only where shares are offered

exclusively to separate accounts of

insurance companies, additional

exemptive relief is necessary if shares of

the Funds also are to be sold to Plans,

the Manager, an Adviser or any of their

affiliates.

3. In connection with flexible

premium variable life insurance

contracts issued through a separate

account registered under the 1940 Act

as a UIT, Rule 6e–3(T)(b)(15) provides

partial exemptions from Sections 9(a),

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

exemptions granted to a separate

account by Rule 6e–3(T)(b)(15) are

available only where all of the assets of

the separate account consist of the

shares of one or more 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 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.’’

Thus, Rule 6e–3(T) permits mixed

funding, but does not permit shared

funding.

4. Applicants state that because the

relief under Rule 6e–3(T) is available

only where shares are offered

exclusively to separate accounts,

additional relief is necessary if shares of

the Funds also are to be sold to Plans,

the Manager, an Adviser or any of their

affiliates. Applicants assert that the

relief granted by paragraph (b)(15) of

Rules 6e–2 and 6e–3(T) should not be

affected by the proposed sale of Fund

shares to Plans, the Manager, an Adviser

or any of their affiliates. Applicants

therefore request relief in order to have

the Participating Insurance Companies

enjoy the benefits of the relief granted

in Rules 6e–2(b)(15) and 6e–3(T)(b)(15).

Applicants assert that if the Funds were

to sell shares only to Plans, the

Manager, an Adviser or their affiliates

and/or separate accounts funding

variable annuity contracts, no

exemptive relief would be necessary.

None of the relief provided for in Rule

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

Plans, the Manager, an Adviser or their

affiliates, or to a registered investment

company’s ability to sell its shares to

such purchasers. It is only because some

of the separate accounts that may invest

in the Funds may themselves be

investment companies that rely upon

Rules 6e–2 and 6e–3(T) and that desire

to have the relief continue in place, that

the Applicants are applying for the

requested relief. If and when an

irreconcilable material conflict between

the separate accounts arises in this

context, the Participating Insurance

Companies must take whatever steps

necessary to remedy or eliminate the

conflict, including eliminating the

Funds as an eligible investment.

Applicants have concluded that the

inclusion of Plans as eligible

shareholders should not increase the

risk of irreconcilable material conflicts

among shareholders. However,

Applicants further assert that even if an

irreconcilable material conflict

involving Plans arose, the Plans, unlike

the separate accounts, can redeem their

shares and make alternative

investments. Because shares of the

Funds will be sold without either a

front-end or a contingent deferred sales

load, such redemption is at the net asset

value of these shares. Further, the

Manager, an Adviser or their affiliates

that purchases Fund shares will agree to

vote its shares of the Fund in the same

proportion as all Contract owners

having voting rights with respect to that

Fund or in such other manner as may

be required by the SEC or its staff.

Applicants thus argue that allowing

investment by Plans, the Manager, an

Adviser and their affiliates in the Funds

should not increase the opportunity for

conflicts of interest.

5. Applicants state that current tax

law permits the Funds to sell their

shares to Plans, the Manager, an Adviser

or any of their affiliates. Applicants

state that Section 817(h) of the Internal

Revenue Code of 1986, as amended (the

‘‘Code’’), imposes certain diversification

requirements on the underlying assets of

the Contracts held in the Funds. The

Code provides that such Contracts shall

not be treated as an annuity contract or

life insurance contract for any period in

which the underlying assets are not, in

accordance with regulations prescribed

by the Treasury Department, adequately

diversified. On March 2, 1989, the

Treasury Department issued regulations

that established diversification

requirements for the investment

portfolios underlying variable contracts

[Treas. Reg. § 1.817–5 (1989)]. The

regulations provide that, 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. The regulations do,

however, contain certain exceptions to

this requirement, one of which allows

shares in an investment company to be

held by a qualified pension or

retirement plan without adversely

affecting the ability of shares in the

same investment company to also be

held by the separate accounts of

insurance companies in connection

with their variable contracts [Treas. Reg.

§ 1.817–5(f)(3)(iii)].

6. Applicants state that the

promulgation of Rules 6e–2 and 6e–3(T)

under the Act preceded the issuance of

these Treasury regulations. Applicants

assert that, given the then current tax

law, the sale of shares of the same

investment company to 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).

7. Applicants therefore request relief

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

of the Act, and Rules 6e–2(b)(15) and

6e–3(T)(b)(15) thereunder, to the extent

necessary to permit shares of the Funds

to be offered and sold in connection

with both mixed and shared funding,

and to be sold directly to Plans, the

Manager, an Adviser or any of their

affiliates. Relief is requested for a class

or classes of persons and transactions

consisting of Participating Insurance

Companies and their scheduled

premium variable life insurance

separate accounts and flexible premium

variable life insurance separate accounts

(and, to the extent necessary, any

investment adviser, principal

underwriter and depositor of such

separate accounts) investing in any of

the Funds.

8. Section 9(a) of the 1940 Act

provides that it is unlawful for any

company to serve as an investment

adviser to or principal underwriter for

31722 Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices

any registered open-end investment

company if an affiliated person of that

company is subject to a disqualification

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

Rules 6e–2(b)(15) and 6e–3(T)(b)(15)

provide exemptions from Section 9(a)

under certain circumstances, subject to

the limitations on mixed and shared

funding. The relief provided by Rules

6e–2(b)(15)(i) and 6e–3(T)(b)(15)(i)

permits a person disqualified under

Section 9(a) to serve as an officer,

director or employee of the life insurer,

or any of its affiliates, so long as that

person does not participate directly in

the management or administration of

the underlying fund. The relief provided

by Rules 6e–2(b)(15)(ii) and 6e–

3(T)(b)(15)(ii) permits the life insurer to

serve as the underlying fund’s

investment adviser or principal

underwriter, provided that none of the

insurer’s personnel who are ineligible

pursuant to Section 9(a) participate in

the management or administration of

the fund.

9. Applicants state that the partial

relief from Section 9(a) found in Rules

6e2–(b)(15) and 6e–3(T)(b)(15), in effect,

limits the amount of monitoring

necessary to ensure compliance with

Section 9 to that which is appropriate in

light of the policy and purposes of that

Section. 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 Act to apply the

provisions of Section 9(a) to the many

individuals employed by the

Participating Insurance Companies,

most of whom will have no involvement

in matters pertaining to investment

companies within that organization.

Applicants note that the Participating

Insurance Companies are not expected

to play any role in the management or

administration of the Funds. Therefore,

applicants assert, applying the

restrictions of Section 9(a) serves no

regulatory purpose. Applicants state

that the relief requested should not be

affected by the proposed sale of shares

of the Funds to the Plans because the

Plans are not investment companies and

are not, therefore, subject to Section

9(a). Nor is there a regulatory purpose

in extending the Section 9(a) monitoring

requirements because the Funds may

also sell their shares to the Manager, an

Adviser, or their affiliates. Rules 6e–2

and 6e–3(T) provides relief from the

eligibility restrictions of Section 9(a)

only for officers, directors or employees

of Participating insurance Companies or

their affiliates. The eligibility

restrictions of Section 9(a) will still

apply to any officers, directors or

employees of the Manager, an Adviser

or an affiliate who participate directly in

the management or administration of a

Fund. Furthermore, there is no reason

why the monitoring requirements

should extend to all officers, directors

and employees of the Participating

Insurance Companies and their affiliates

simply because the Funds sell certain

shares to the Manager, an Adviser or

their affiliates. This monitoring would

not benefit Contract owners and Plan

participants and would only increase

costs, thus reducing net rates of return.

10. Rules 6e–2(b)(15)(iii) and 6e–

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

existence of a pass-through voting

requirement with respect to

management investment company

shares held by a separate account.

Applicants represent that the

Participating Insurance Companies will

provide pass-through voting privileges

to all Contract owners so long as the

SEC interprets the Act to require such

privileges.

11. Rules 6e–2(b)(15)(iii) and 6e–

3(b)(15)(iii) under the Act provide

exemptions from the pass-through

voting requirement with respect to

several significant matters, assuming

observance of the limitations on mixed

and shared funding imposed by the Act

and the rules thereunder. 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 Contract owners 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.

Rules 6e–2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(B) provide that the

insurance company may disregard

voting instructions of its Contract

owners if the Contract owners initiate

any change in the investment

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)(15)(ii) and

(b)(7)(ii)(B) and (C) of each Rule.

12. Applicants state that the Funds’

sale of shares to Plans, the Manager, an

Adviser and their affiliates will not have

any impact on the relief requested in

this regard. Shares of the Funds sold to

Plans will be held by the trustees of

such Plans as required by Section 403(a)

of ERISA. Section 403(a) also provides

that the trustees 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) or 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

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 such Plans. Accordingly,

Applicants note that, unlike the case

with insurance company separate

accounts, the issue of the resolution of

irreconcilable material conflicts with

respect to voting is not present with

Plans because the Plans are not entitled

to pass-through voting privileges.

Applicants further assert that

investments in the Funds by Plans will

not create any of the voting

complications occasioned by mixed and

shared funding because Plan investor

voting rights cannot be frustrated by

veto rights of insurers or state

regulators.

13. Applicants state that some Plans

may provide participants with the right

to give voting instructions. Applicants

submit that there is no reason to believe

that participants in Plans generally, or

those in a particular Plan, either as a

single group or in combination with

other Plans, would vote in a manner

that would disadvantage Contract

owners. Accordingly, Applicants assert

that the purchase of Fund shares by

Plans that provide voting rights to

participants does not present any

complications not otherwise occasioned

by mixed and shared funding. Similarly,

the exercise of voting rights by the

Manager, an Adviser and their affiliates

does not present the type of issues

respecting the disregard of voting rights

that are presented by variable life

separate accounts.

14. Applicants state that no increased

conflicts of interest would be present by

the granting of the requested relief.

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 states. Applicants note that

where 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

Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices 31723

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 submit that this

possibility is no different or greater than

exists where a single insurer and its

affiliates offer their insurance products

in several

15. Applicants further submit that

affiliation does not reduce the potential

for differences in state regulatory

requirements. In any event, the

conditions (adapted from the conditions

included in Rule 6e–3(T)(b)(15)

discussed below) are designed to

safeguard against any adverse effects

that these differences may produce. 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

separate account’s investment in the

relevant Funds.

16. Applicants argue that affiliation

does not eliminate the potential, if any

exists, for divergent judgments as to

when a Participating Insurance

Company could disregard Contract

owner voting instructions. Potential

disagreement is limited by the

requirements that the Participating

Insurance Company’s disregard of

voting instructions be both reasonable

and based on specified good faith

determinations. However, if a

Participating Insurance Company’s

decision to disregard Contract owner

instructions represents a minority

position or would preclude a majority

vote approving a particular change, such

Participating Insurance Company may

be required, at the election of the

relevant Fund, to withdraw its separate

account’s investment in that Fund. No

charge or penalty will be imposed as a

result of such a withdrawal.

17. Investments by the Manager, an

Adviser or an affiliate will similarly

present no conflict. The Manager,

Adviser or affiliate, as applicable, will

agree to vote its shares of the Fund in

the same proportion as all Contract

owners having voting rights with

respect to that Fund or in such other

manner as may be required by the SEC

or its staff. This ‘‘echo’’ voting

requirement is similar to the

requirements imposed by the SEC on

the voting of shares of an underlying

fund held directly by a Participating

Insurance Company through a registered

separate account. Should the SEC no

longer interpret the Act as requiring

pass-through voting privileges for

Contract owners, the Manager, Adviser

or affiliate will no longer be required to

vote their shares in this manner.

Because the Manager, Adviser or

affiliate will ‘‘echo’’ the vote of Contract

owners, there will be no conflict among

them.

18. Applicants submit that there is no

reason why the investment policies of a

Fund with mixed funding would, or

should, be materially different from

what those policies would, or should, be

if such investment company or series

thereof funded only variable annuity or

variable life insurance contracts.

Applicants therefore argue that there is

no reason to believe that conflicts of

interest would result from mixed

funding. Moreover, Applicants

represent that the funds will not be

managed to favor or disfavor any

particular insurer or type of Contract.

19. Section 817(h) of the Code

imposes certain diversification

requirements on the underlying assets of

variable annuity and variable life

insurance contracts held in the

portfolios of management investment

companies. Treasury Regulation

§ 1.817–5(f)(3)(iii), which established

diversification requirements for such

portfolios, specifically permits

‘‘qualified pension or retirement plans’’

and separate accounts to share the same

underlying management investment

company. Therefore, Applicants have

concluded that neither the Code, the

Treasury regulations, nor the revenue

rulings thereunder present any inherent

conflicts of interest if Plans, variable

annuity and variable life insurance

separate accounts all invest in the same

management investment company.

20. Applicants submit that while

there are differences in the manner in

which distributions are taxed for

variable annuity contracts, variable life

insurance contracts and Plans, these tax

consequences do not raise any conflicts

of interest. When distributions are to be

made, and a Participating Separate

Account or a Plan is unable to net

purchase payments to make the

distributions, the Participating Separate

Account or the Plan will redeem shares

of the Funds at their respective net asset

values. The Plan will then make

distributions in accordance with the

terms of the Plan. The life insurance

company will make distributions in

accordance with the terms of the

variable contract.

21. Applicants state that they do not

see any greater potential for

irreconcilable material conflicts arising

between the interests of participants

under the Plans and owners of the

Contracts issued by the Participating

Separate Accounts of Participating

Insurance Companies from possible

future changes in the federal tax laws

than that which already exists between

variable annuity contract owners and

variable life insurance contract owners.

22. With respect to voting rights,

Applicants state that it is possible to

provide an equitable means of giving

such voting rights to Contract owners

and to Plans. Applicants represent that

a Fund will inform each shareholder,

including each separate account and

Plan, of information necessary for the

shareholder meeting, including their

respective share ownership in the Fund.

A Participating Insurance Company will

then solicit voting instructions in

accordance with the ‘‘pass-through’’

voting requirements of Rules 6e–2 and

6e–3(T).

23. Applicants argue that the ability of

the Funds to sell their respective shares

directly to Plans, the Manager, an

Adviser and their affiliates does not

create a ‘‘senior security,’’ as such term

is defined under Section 18(g) of the

Act, with respect to any Contract owner

as opposed to a participant under a Plan

or the Manager, an Adviser or their

affiliates. Regardless of the rights and

benefits of participants and Contract

owners under the respective Plans and

Contracts, the Plans, the Manager, an

Adviser and its affiliates and the

separate accounts have rights only with

respect to their shares of the funds.

Such shares may be redeemed only at

net asset value. No shareholder of any

of the Funds has any preference over

any other shareholder with respect to

distributions of assets or payment of

dividends.

24. Applicants state there are no

conflicts of interest between Contract

owners and participants under the Plans

with respect to the state insurance

commissioners’ veto powers over

investment objectives. The state

insurance commissioners have been

given the veto power to prevent

insurance companies indiscriminately

redeeming their separate accounts out of

one fund and investing those monies in

another fund. Generally, to accomplish

such redemptions and transfers,

complex and time consuming

transactions must be undertaken.

Conversely, trustees of Plans or the

participants in participant-directed

Plans can make the decision quickly

and implement redemption of shares

from a Fund and reinvest the monies in

another funding vehicle without the

same regulatory impediments or, as is

the case with most Plans, even hold

cash pending a suitable investment.

Based on the foregoing, Applicants

represent that even should there arise

issues where the interests of Contract

owners and the interests of Plans and

Plan participants conflict, the issues can

be almost immediately resolved in that

31724 Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices

trustees of the Plans can, indpendently,

redeem shares out of the Funds.

25. Applicants assert that permitting a

Fund to sell its shares to the Manager or

Adviser of a Fund, or a series thereof,

or to an affiliate of the Manager or

Adviser, in compliance with Treas. Reg.

1.817–5 will enhance Fund management

without raising significant concerns

regarding irreconcilable material

conflicts. Section 14(a) of the 1940 Act

generally requires that an investment

company have a net worth of $100,000

upon making a public offering of its

shares. Fund also will require more

limited amounts of initial capital in

connection with the creation of new

series and the voting of initial shares of

such series on matters requiring the

approval of shareholders. In addition,

the Funds may wish to purchase a

substantial portfolio of securities upon

commencement of operations and will

require capital to do so. A potential

source of the requisite initial or

additional capital is the Manager,

Adviser or an affiliate. These parties

may have an interest in making the

requisite capital expenditure, and in

participating with the Fund in its

organization. However, provision of

seed capital or the purchase of shares in

connection with the management of a

Fund by its Manager, Adviser or any of

their affiliates may be deemed to violate

the exclusivity requirement of Rule 6e–

2(b)(15) and/or Rule 6e–3(T)(b)(15).

26. Applicants anticipate that such

investments by the Manager, an Adviser

or their affiliates generally will be

limited in scope and duration, and will

be made only in connection with the

operation of the Funds. Given the

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

and the harmony of interest between a

Fund, on the one hand, and its Manager

or Adviser, on the other, Applicants

assert that little incentive for

overreaching exists. Furthermore, such

limited investments should not

implicate the concerns discussed above

regarding the creation of irreconcilable

material conflicts. Instead, permitting

investment by the Manager, an Adviser

or their affiliates will permit the orderly

and efficient creation and operation of

Funds, or series thereof, and reduce the

expense and uncertainty of using

outside parties at the early stages of

Fund operations.

27. Applicants state that various

factors have kept certain insurance

companies from offering variable

annuity and variable life insurance

contracts. According to Applicants,

these factors include: the cost of

organizing and operating an investment

funding medium; the lack of expertise

with respect to investment managers

(principally with respect to stock and

money market investments); and the

lack of public name recognition as

investment experts. Specifically,

Applicants state that smaller life

insurance companies may not find it

economically feasible, or within their

investment or administrative expertise,

to enter the Contract business on their

own. Applicants argue the use of the

Funds as common investment media for

the Contracts would ease these

concerns. Participating Insurance

Companies would benefit not only from

the investment and administrative

expertise of Met Advisory and the

Advisers, but also from the cost

efficiencies and investment flexibility

afforded by a large pool of funds.

Applicants state that making the Funds

available for mixed and shared funding

may encourage more insurance

companies to offer variable contracts

such as the Contracts, which may then

increase competition with respect to

both the design and the pricing of

variable contracts. Applicants submit

that this can be expected to result in

greater product variation and lower

charges. Thus, Applicants argue that

Contract owners would benefit because

mixed and shared funding will

eliminate a significant portion of the

costs of establishing and administering

separate funds. Moreover, Applicants

assert that sales of shares of the Funds

to Plans should increase the amount of

assets available for investment by such

Funds. This should, in turn, promote

economies of scale, permit increased

safety of investments through greater

diversification, and make the addition

of new portfolios more feasible.

28. Applicants state that, regardless of

the types of Fund shareholders, Met

Advisory is legally obligated to manage

the Funds in accordance with each

Fund’s investment objectives, policies

and restrictions as well as any

guidelines established by the relevant

Board of Directors or Trustees of the

Funds. Applicants assert that Met

Advisory works with a pool of money

without consideration for the identity of

shareholders, and, thus, manages the

Funds in the same manner as any other

mutual fund.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions:

1. A majority of the Board of Trustees

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

of each Fund will consist of persons

who are not ‘‘interested persons’’

thereof, as defined by Section 2(a)(19) of

the Act and the Rules thereunder and as

modified by any applicable orders of the

SEC, except that if this condition is not

met by reason of 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 SEC may prescribe

by order upon application.

2. The Board will monitor their

respective Funds for the existence of

any irreconcilable material conflict

between the interests of Contract owners

of all Participating Separate Accounts

and of Plan Participants and Plans

investing in the Funds, and determine

what action, if any, should be taken in

response to such conflicts. An

irreconcilable material conflict may

arise for a variety of reasons, which may

include: (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 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 the

Funds are being managed; (e) a

difference in voting instructions given

by variable annuity and variable life

insurance Contract owners or trustees of

Eligible Plans; (f) a decision by a

Participating Insurance Company to

disregard the voting instructions of

Contract owners; and (g) if applicable, a

decision by a Plan to disregard the

voting instructions of Plan participants.

3. The Manager, Advisers (or any

other investment adviser of a Fund), any

Participating Insurance Company and

any Plan that executes a fund

participation agreement upon becoming

an owner of 10% or more of the issued

and outstanding shares of a Fund (such

Plans referred to hereafter as

‘‘Participating Plans’’) will report any

potential or existing conflicts to the

Board of any relevant Fund. The

Manager, Advisers (or any other

investment adviser of a Fund),

Participating Insurance Companies and

Participating 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 Board whenever it has

determined to disregard Contract owner

Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices 31725

voting instructions and, if pass-through

voting is applicable, an obligation by a

Participating Plan to inform the Board

whenever it has determined to disregard

Plan participant voting instructions. The

responsibility to report such

information and conflicts and to assist

the Boards will be contractual

obligations of all Participating Insurance

Companies and Participating Plans

investing in Funds under their

agreements governing participation in

the Funds, and such agreements shall

provide that these responsibilities will

be carried out with a view only to the

interests of Contract owners and if

applicable, Plan participants.

4. If a majority of the Board of a Fund,

or a majority of its disinterested trustees

or directors, determine that an

irreconcilable material conflict exists,

the relevant Participating Insurance

Companies and Participating Plans, at

their expense and to the extent

reasonably practical (as determined by a

majority of the disinterested trustees or

directors), will take whatever steps are

necessary to remedy or eliminate the

irreconcilable material conflict. Such

steps could include: (a) Withdrawing

the assets allocable to some or all of

Participating Separate Accounts from

the Fund or any series and reinvesting

such assets in a different investment

medium, which may include another

series of a Fund or another Fund; (b)

submitting the question of whether such

segregation should be implemented to a

vote of all affected Contract owners and,

as appropriate, segregating the assets of

any appropriate group (i.e., variable

annuity or variable life insurance

Contract owners of one or more

Participating Insurance Companies) that

votes in favor of such segregation, or

offering to the affected Contract owners

the option of making such a change; and

(c) establishing a new registered

management investment company or

managed separate account. If an

irreconcilable material conflict arises

because of a decision by a Participating

Insurance Company to disregard

Contract owner voting instructions and

that decision represents a minority

position or would preclude a majority

vote, the Participating Insurance

Company may be required, at the

election of the Fund, 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 an irreconcilable material conflict

arises because of a Participating Plan’s

decision to disregard Plan participant

voting instructions, if applicable, and

that decision represents a minor

position or would preclude a majority

vote, the Participating 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.

To the extent permitted by applicable

law, the responsibility of taking

remedial action in the event of a Board

determination of an irreconcilable

material conflict and bearing the cost of

such remedial action will be a

contractual obligation of all

Participating Insurance Companies and

Participating Plans under their

agreements governing participation in

the Funds,and these responsibilities

will be carried out with a view only to

the interests of Contract owners and

Plan participants, 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 irreconcilable

material conflict, but in no event will a

Fund, Manager, or Advisers (or any

other investment adviser of the Funds)

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 a majority of Contract owners

materially and adversely affected by the

irreconcilable material conflict, vote to

decline such offer. No Participating Plan

shall be required by this Condition 4 to

establish a new funding medium for

such plan if (a) a majority of Plan

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 Participating

Plan makes such decision without Plan

participant vote.

5. Manager, Advisers, all Participating

Insurance Companies and Participating

Plans will be promptly informed in

writing of any Board’s determination

that an irreconcilable material conflict

exists, and its implications.

6. As to Contracts issued by

Participating Separate Accounts under

the Act, Participating Insurance

Companies will provide pass-through

voting privileges to all Contract owners

so long as the SEC interprets the Act to

require pass-through voting privileges

for Contract owners. However, as to

Contracts issued by unregistered

Participating Separate Accounts, passthrough voting privileges will be

extended to Contract owners to the

extent granted by the issuing insurance

company. Accordingly, the Participating

Insurance Companies will vote shares of

a Fund held in their Participating

Separate Accounts in a manner

consistent with voting instructions

received from Contract owners.

Participating Insurance Companies will

be responsible for assuring that each of

their Participating Separate Accounts

calculates voting privileges in a manner

consistent with all other Participating

Insurance Companies. The obligation to

calculate voting privileges in a manner

consistent with all other Participating

Separate Accounts investing in the

Fund will be a contractual obligation of

all Participating Insurance Companies

under the agreements governing

participation in the Fund. Each

Participating Insurance Company will

vote shares for which it has not received

voting instructions as well as shares

attributable to it in the same proportion

as it votes shares for which it has

received instructions. Each Participating

Plan will vote as required by applicable

law and governing Plan documents.

7. As long as the SEC continues to

interpret the Act as requiring passthrough voting privileges for Contract

owners whose Contracts are funded

through a registered separate account,

the Manager, Adviser of, if applicable,

any of their affiliates will vote the

shares of any Fund or series thereof in

the same proportion as all Contract

owners having voting rights with

respect to that Fund or series thereof,

provided, that the Manager, Adviser or

any such affiliates shall vote its shares

in such other manner as may be

required by the SEC or its staff.

8. All reports of potential or existing

conflicts of interest received by a Board,

and all Board action with regard to

determining the existence of a conflict,

notifying the Manager, Advisers,

Participating Insurance Companies and

Participating 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 SEC upon request.

9. Each Fund will notify all

Participating Insurance Companies and

all Participating Plans that disclosure in

separate account prospectuses or any

Qualified Plan Prospectuses or other

Plan disclosure documents regarding

potential risks of mixed and shared

funding may be appropriate. Each Fund

will disclose in its prospectus that: (a)

Shares of the Fund may be offered to

insurance company separate accounts of

both annuity and life insurance variable

contracts, and to Plans; (b) due to

differences of tax treatment and other

considerations, the interests of various

Contract owners participating in the

Fund and the interests of Plans

31726 Federal Register / Vol. 66, No. 113 / Tuesday, June 12, 2001 / Notices

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

2 17 CFR 240.19b-4.

3See Securities Exchange Act Release No. 43537

(November 9, 2000), 65 FR 69977. 4The substance of Amendment Nos. 1 and 2 is

discussed below. 5 In approving this proposed rule change, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition,

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

6 15 U.S.C. 78f.

7 15 U.S.C. 78f(b)(5).

8See Securities Exchange Act Release No. 42835

(May 26, 2000), 65 FR 35683 (June 5, 2000).

investing in the Fund may conflict; and

(c) the Board will monitor events in

order to identify the existence of any

material conflicts of interest and to

determine what action, if any, should be

taken in response to any such conflict.

10. Each Fund will comply with all

the provisions of the Act requiring

voting by shareholders (which, for these

purposes, shall be the persons having a

voting interest in the shares of the

Funds) and in particular, each such

Fund will either provide for annual

meetings (except to the extent that the

SEC may interpret Section 16 of the Act

not to require such meetings) or comply

with Section 16(c) of the Act (although

the Funds are not within the trusts

described in Section 16(c) of the Act) as

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

Section 16(b) of the Act. Further, each

Fund will act in accordance with the

SEC’s interpretation of the requirements

of Section 16(a) with respect to periodic

elections of directors (or trustees) and

with whatever rules the SEC may

promulgate with respect thereto.

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

2 and 6e–3(T) are amended (or if Rule

6e–3 under the Act is adopted) to

provide exemptive relief from any

provisions of the Act or the rules

promulgated thereunder with respect to

mixed and shared funding on terms and

conditions materially different from any

exemptions granted in the order

requested by Applicants, then the

Funds, the Participating Insurance

Companies and Participating Plans, 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 extent

applicable.

12. No less than annually, the

Manager, Advisers (or any other

investment adviser of a Fund), the

Participating Insurance Companies and

Participating Plans shall submit to the

Boards such reports, materials, or data

as such Boards may reasonably request

so that the Boards may carry out fully

the obligations imposed upon them by

the conditions contained in the

application. Such reports, materials and

data shall be submitted more frequently

if deemed appropriate by the applicable

Boards. The obligations of the Manager,

Advisers (or any other investment

adviser for a Fund), Participating

Insurance Companies and Participating

Plans to provide these reports, materials

and data to the Boards shall be a

contractual obligation of the Manager,

Advisers (or any other investment

adviser of a Fund), Participating

Insurance Companies and Participating

Plans under the agreements governing

their participation in the Funds.

13. If a Plan or Plan participant

shareholder should become an owner of

10% or more of the issued and

outstanding shares of a Fund, such Plan

will execute a participation agreement

with such Fund including the

conditions set forth herein to the extent

applicable. A Plan or Plan participant

shareholder will execute an application

containing an acknowledgment of this

condition at the time of its initial

purchase of shares of the Fund.

Conclusion

For the reasons summarized above,

Applicants represent that the

exemptions requested are necessary and

appropriate in the public interest and

consistent with the protection of

investors and 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. 01–14675 Filed 6–11–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44394; File No. SR–CBOE–

00–43]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Granting Approval and

Notice of Filing and Order Granting

Accelerated Approval to Amendment

Nos. 1 and 2 to Proposed Rule Change

Relating to Participation Rights in

Crossing Transactions

June 6, 2001.

I. Introduction

On august 29, 2000, the Chicago

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

filed with the Securities and Exchange

Commission (‘‘Commission’’), pursuant

to section 19(b)(1) of the Securities

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

19b-4 thereunder,2 a proposed rule

change to amend CBOE Rule 6.74(d),

which currently entitles a floor broker

representing a member firm to cross a

certain percentage of each customer

order the firm sends to the floor against

another order on behalf of the same

firm.

The proposed rule change would: (a)

Make clear that Rule 6.74(d) includes

the situation where a floor broker is

seeking to cross a solicited order against

the original customer order; and (b)

expand Rule 6.74(d) to allow the floor

broker representing the original

customer order to solicit the order to

trade against it even if that floor broker

is not a nominee of the originating firm.

The proposed rule change was

published for comment in the Federal

Register on November 21, 2000.3 The

Commission received no comments on

the proposal. The CBOE filed

Amendment Nos. 1 and 2 to the

proposed rule change with the

Commission on February 12, 2001, and

May 23, 2001, respectively.4 This order

approves the proposed rule change,

accelerates approval of Amendment

Nos. 1 and 2, and solicits comments

from interested persons on those

amendments.

II. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange 5 and, in particular, the

requirements of section 6 of the Act 6

and the rules and regulations

thereunder. The Commission finds

specifically that the proposed rule

change, as amended, is consistent with

section 6(b)(5) of the Act 7 because it

establishes the ability of firms and floor

brokers to solicit orders to supply the

contra side for customer orders in a

manner that matches or improves the

price available from the crowd while

conforming to the principles and

limitations set forth by the Commission

in its original approval of Rule 6.74(d)

concerning participation rights in

crossing transactions.8

Amendment No. 1 to the proposed

rule change would add Interpretation

.07 to Rule 6.74 to make clear that a

floor broker may not cross an order that

he is holding with an order from a

market maker that is then in the trading

crowd. Amendment No. 2 would clarify

that the proposed change to CBOE Rule

6.74 is intended to supersede the

provisions of paragraph (d) of CBOE

Rule 6.9, ‘‘Solicited Transactions,’’

when the conditions specified in CBOE

Rule 6.74 are met. The Commission

finds that Amendment Nos. 1 and 2 are