Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices 65369

officers, and employees pursuant to an

executive compensation plan would

exceed 15% of the BDC’s outstanding

voting securities, then the total amount

of voting securities that would result

from the exercise of all outstanding

warrants, options, and rights at the time

of issuance shall not exceed 20% of the

outstanding voting securities of the

BDC.

4. Applicant represents that the Plan,

the stock options to be granted

automatically to applicant’s nonemployee directors, and the stock

options to be granted automatically to

applicant’s future non-employee

directors pursuant to the Plan would

meet the requirements of section 61(a):

(a) the options would expire within ten

years from the date of grant; (b) the

exercise price of the options would be

the current market value of applicant’s

common stock on the date of issuance;

(c) the proposal to issue the options

would be authorized by applicant’s

shareholders; (d) the options would not

be transferable except for disposition by

gift, will, or intestacy; (e) applicant does

not have an investment adviser; and (f)

applicant does not have a profit-sharing

plan as described in section 57(n) of the

Act. In addition, the total amount of

voting securities that would result from

the exercise of all outstanding warrants,

options, and rights at the time of

issuance would not exceed 20% of the

outstanding voting securities of

applicant.

5. Applicant represents that its

directors are actively involved in the

oversight of applicant’s affairs, and that

applicant relies on the judgment and

experience of its directors. Applicant’s

directors have experience in many of

the industries in which applicant’s

investee companies operate. The

directors’ backgrounds enhance

applicant’s ability to review and

evaluate its investee companies and

their performance. Applicant states that

in order to attract and retain qualified

personnel, it must provide nonemployee directors with incentives in

the form of an executive compensation

program, as contemplated by section

61(a) of the Act.

6. Applicant submits that the terms of

the Plan and the stock options to be

granted automatically to applicant’s

non-employee directors are fair and

reasonable and do not involve any

overreaching of applicant or its

shareholders. Options granted to

purchase 6,000, 12,000, or 18,000 shares

of applicant’s common stock would

currently represent only .07%, .13%,

and .20%, respectively, of applicant’s

outstanding common stock. Given these

relatively small amounts of stock,

applicant submits that the exercise of

the options would not, absent

extraordinary circumstances, have a

substantial dilutive effect on the net

asset value of applicant’s common

stock.

7. Applicant asserts that because the

stock options granted to a non-employee

director would not vest until after the

first anniversary of the date of grant, the

Plan would provide non-employee

directors with incentives to remain

directors of applicant. In addition,

applicant contends that because the

options granted pursuant to the Plan

have no value unless the price of

applicant’s common stock exceeds the

exercise price of the option, the options

provide significant incentives for its

non-employee directors to devote their

best efforts to the success of applicant’s

business. Applicant also represents that

the options provide a means for the

directors to increase their ownership

interests in applicant, thereby helping to

ensure close identification of their

interests with those of applicant and its

shareholders. Applicant contends that

incentives in the form of stock options

enable it to maintain continuity in the

membership of its board of directors and

to attract and retain as directors the

highly experienced, successful, and

dedicated business and professional

people that are critical to applicant’s

success as a BDC and to the success of

its investee companies.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30764 Filed 12–18–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC. 21592; File No. 812–9236]

Variable Insurance Funds, et al.

December 12, 1995.

AGENCY: Securities and Exchange

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

ACTION: Notice of application for

exemption under the Investment

Company Act of 1940 (‘‘1940 Act’’).

APPLICANTS: Variable Insurance Funds

(the ‘‘Trust’’), The Winsbury Company

(‘‘Winsbury’’) and Qualivest Capital

Management, Inc. (‘‘Qualivest’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) for

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

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

Rules 6e–2(b)(15) and 6e–3(T)(b)(15)

thereunder.

SUMMARY OF APPLICATION: Applicants

seek an order to permit shares of each

existing and future series of the Trust

and shares of any other investment

company that is designed to fund

insurance products and for which

Winsbury, or any of its affiliates, may

serve as principal underwriter and

administrator (collectively with the

Trust, ‘‘Funds’’) to be sold to and held

by variable annuity and variable life

separate accounts of both affiliated and

unaffiliated life insurance companies.

FILING DATE: The application was filed

on September 21, 1994 and amended on

May 9, 1995.

HEARING AND NOTIFICATION OF HEARING:

An order granting the application will

be issued unless the Commission orders

a hearing. Interested persons may

request a hearing on the application by

writing to the Secretary of the SEC and

serving Applicants with a copy of the

request, personally or by mail. Hearing

requests must be received by the SEC by

5:30 p.m. on January 8, 1996, and

should be accompanied by proof of

service on the Applicants, in the form

of an affidavit or, for lawyers, a

certificate of service. Hearing requests

should state the nature of writer’s

interest, the reason for the request, and

the issues contested. Persons may

request notification of the date of the

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549.

Applicants: The Trust and Winsbury,

1900 East Dublin-Granville Road,

Columbus, Ohio 34229; Qualivest, 111

S.W. Fifth Avenue, Portland, Oregon

97204.

FOR FURTHER INFORMATION CONTACT:

Joyce Merrick Pickholz, Senior Counsel,

or Wendy Finck Friedlander, Deputy

Chief, on (202) 942–0670, Office of

Insurance Products, Division of

Investment Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application; the

complete application is available for a

fee from the SEC’s Public Reference

Branch.

Applicant’s Representations

1. The Trust, an open-end

management investment company

organized as a Massachusetts business

trust, currently consists of four series,

each with its own investment objective

and policies. Additional series may be

established in the future.

2. Winsbury, a registered brokerdealer and member of the National

Association of Securities Dealers, Inc.,

serves as the administrator and the

principal underwriter of the Trust,

Winsbury is a division of BISYS Group,

Inc.
65370 Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices

3. Qualivest serves as the investment

adviser of each existing series of the

Trust. Qualivest is an affiliate of United

States National Bank of Oregon, which

is a wholly owned subsidiary of U.S.

Bancorp.

4. Shares of each series of the Trust

will be offered initially only to one

separate account to serve as the

investment vehicle for variable annuity

contracts issued by one life insurance

company (the ‘‘Company’’). The Trust

intends, however, to offer shares of its

existing and future series to separate

accounts of other insurance companies,

including insurance companies that are

not affiliated with the Company

(together with the Company, the

‘‘participating insurance companies’’),

to serve as the investment vehicle for

variable annuity contracts, scheduled

premium variable life insurance

contracts and flexible premium variable

life insurance contracts (collectively,

‘‘variable contracts’’).

Applicants’ Legal Analysis

1. In connection with 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) provides partial exemptions

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

and 15(b) of the 1940 Act. The

exemptions granted to a separate

account (and any investment adviser,

principal underwriter and depositor

thereof) by Rule 6e–2(b)(15), however,

are not available with respect to a

scheduled premium variable life

insurance separate account that owns

shares of an investment company that

also offers its shares to a variable

annuity separate account of the same or

of any affiliated or unaffiliated

insurance company (‘‘mixed funding’’).

In addition, the relief granted by Rule

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

the underlying investment company are

offered to variable annuity or variable

life insurance separate accounts of

unaffiliated insurance companies

(‘‘shared funding’’). Accordingly,

Applicants seek an order exempting

scheduled premium variable life

insurance separate accounts (and, to the

extent necessary, any investment

adviser, principal underwriter and

depositor of such an account) from

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

the 1940 Act, and Rule 6e–2(b)(15)

thereunder, to the extent necessary to

permit shares of the Funds to be offered

and sold in connection with both mixed

funding and shared funding.

2. In connection with flexible

premium variable life insurance

contracts issued through a separate

account registered under the 1940 Act

as a unit investment trust, Rule 6e–3(T)

(b)(15) provides partial exemptions from

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

the 1940 Act. The exemptions granted to

a separate account (and to any

investment adviser, principal

underwriter and depositor thereof) by

Rule 6e–3(T)(b)(15) permit mixed

funding of flexible premium variable

life insurance but preclude shared

funding. Accordingly, Applicants seek

an order exempting flexible premium

variable life insurance separate accounts

(and, to the extent necessary, any

investment adviser, principal

underwriter and depositor of such an

account) from Section 9(a), 13(a), 15(a)

and 15(b) of the 1940 Act, and Rule 6e–

3(T)(b)(15) thereunder, to the extent

necessary to permit shares of the Funds

to be offered and sold to separate

accounts in connection with shared

funding.

3. Section 9(a) 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).

However, Rule 6e–2(b)(15)(i) and (ii)

and Rule 6e–3(T)(b)(15)(i) and (ii)

provide partial exemptions from Section

9(a) under certain circumstances,

subject to the limitation discussion

above on mixed and shared funding.

These exemptions limit the

disqualification to affiliated individuals

or companies that directly participate in

the management or administration of

the underlying investment company.

Applicants state that the exemptions

contained in Rules 6e–2(b)(15) and 6e–

(T)(b)(15) recognized that it is

unnecessary to apply Section 9(a) to the

many individuals in an insurance

complex, most of whom will have no

connection with the investment

company funding the separate account.

Applicants believe that it is unnecessary

to limit the applicability of the rules

merely because shares of the Funds may

be sold in connection with mixed and

shared funding. Therefore, Applicants

assert that applying the restrictions of

Section 9(a) serve no regulatory

purpose.

4. Rules 6e–2(b)(15)(iii) and 6e–

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

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

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

that those sections have been deemed by

the Commission to require ‘‘passthrough’’ voting with respect to

management investment company

shares held by a separate account, to

permit the insurance company to

disregard the voting instructions of its

contractowners in certain limited

circumstances when required to do so

by an insurance regulatory authority.

Paragraph (b)(15) of both Rules 6e–2 and

6e–3(T) provides that the insurance

company may disregard voting

instructions if its 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

certain other provisions in the rules.

However, a particular insurer’s

disregard of voting instructions could

conflict with the majority of

contractowner voting instructions.

Applicants state that if a particular

insurance company’s disregard of voting

instructions conflicted with a majority

of the contractowners’ voting

instructions, or precluded a majority

vote, the insurer may be required, at a

Fund’s election, to withdraw its

separate account’s investment in the

Fund, and no charge or penalty would

be imposed as a result of such

withdrawal.

5. Applicants assert that shared

funding by unaffiliated insurance

companies does not present any issues

that do not already exist where a single

insurance company is licensed to do

business in several or all states. In this

regard, Applicants state that a particular

state insurance regulatory body could

require action that is inconsistent with

the requirements of other states in

which the insurance company offers its

policies. Accordingly, Applicants

submit that the fact that different

insurers may be domiciled in different

states does not create a significantly

different or enlarged problem.

6. Applicants argue that mixed

funding and shared funding should

benefit variable contractowners by: (1)

Eliminating a significant portion of the

costs of establishing and administering

separate funds; (2) allowing for a greater

amount of assets available for

investment by a fund, thereby

promoting economies of scale,

permitting greater safety through greater

diversification, and/or making the

addition of new series more feasible;

and (3) encouraging more insurance

companies to offer variable contracts,

resulting 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. Each Fund will be

managed to attempt to achieve its

investment objectives and not to favor

or disfavor any particular participating

insurer or type of insurance product.

Applicants see no significant legal
Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices 65371

impediment to permitting mixed and

shared funding. According to

Applicants, separate accounts organized

as unit investment trusts have

historically been employed to

accumulate shares of mutual funds

which have not been affiliated with the

depositor or sponsor of the separate

account. Finally, Applicants represent

that they believe that mixed and shared

funding will have no adverse federal

income tax consequences.

Applicants’ Conditions

Applicants consent to the following

conditions if an order is granted:

1. A majority of the Board of Trustees

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

Fund shall consist of persons who are

not ‘‘interested persons’’ of the Fund, as

defined by Section 2(a)(19) of the 1940

Act and the rules thereunder and as

modified by any applicable orders of the

Commission, except that if this

condition is not met by reason of the

death, disqualification, or bona fide

resignation of any trustee or director,

then the operation of this condition

shall be suspended: (i) For a period of

45 days if the vacancy or vacancies may

be filled by the Board; (ii) for a period

of 60 days if a vote of shareholders is

required to fill the vacancy or vacancies;

or (iii) for such longer period as the

Commission may prescribe by order

upon application.

2. Each Board will monitor the Fund

for the existence of any material

irreconcilable conflict between the

interests of the contractowners of all

separate accounts investing in the Fund.

A material irreconcilable conflict may

arise for a variety of reasons, including:

(i) An action by any state insurance

regulatory authority; (ii) a change in

applicable federal or state insurance,

tax, or securities laws or regulations, or

a public ruling, private letter ruling, noaction or interpretative letter, or any

similar action by insurance, tax, or

securities regulatory authorities; (iii) an

administrative or judicial decision in

any relevant proceeding; (iv) the manner

in which the investments of any Fund

or series are being managed; (v) a

difference in voting instructions given

by variable annuity contractowners and

variable life insurance contractowners;

or (vi) a decision by an insurer to

disregard the voting instructions of

contractowners.

3. Participating insurance companies,

Winsbury and any other investment

adviser of a Fund or series will report

any potential or existing conflicts to the

Board. Participating insurance

companies, Winsbury, and the

investment adviser(s) 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 includes, but is not

limited to, an obligation by each

participating insurance company to

inform the Board whenever

contractowner voting instructions are

disregarded. The responsibility to report

such information and conflicts and to

assist the Board will be a contractual

obligation of all insurers investing in a

Fund under their agreements governing

participation in a Fund and such

agreements shall provide that such

responsibilities will be carried out with

a view only to the interests of the

contractowners.

4. If it is determined by a majority of

the Board, or a majority of its

disinterested trustees or directors, that a

material irreconcilable conflict exists,

the relevant participating insurance

companies shall, at their expense and to

the extent reasonably practicable (as

determined by a majority of the

distinguished trustees or directors), take

whatever steps are necessary to remedy

or eliminate the material irreconcilable

conflict, up to and including: (i)

Withdrawing the assets allocable to

some or all of the separate accounts

from the Fund or any series thereof and

reinvesting such assets in a different

investment medium (including another

series, if any, of the Fund) or submitting

the question of 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

participating insurance companies) that

votes in favor of such segregation, or

offering to the affected contractowners

the option of making such a change; and

(ii) establishing a new registered

management investment company or

managed separate account. If a material

irreconcilable conflict arises because of

an insurer’s decision to disregard

contractowner voting instructions and

that decision represents a minority

position or would preclude a majority

vote, the insurer may be required, at the

Fund’s election, to withdraw its

separate account’s investment in the

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 Board

determination of a material

irreconcilable conflict and to bear the

cost of such remedial action shall be a

contractual obligation of all

participating insurance companies

under their agreements governing

participation in the Fund and these

responsibilities will be carried out with

a view only to the interests of the

contractowners.

For the purposes of this condition (4),

a majority of the disinterested members

of the Board shall determine whether or

not any proposed action adequately

remedies any material irreconcilable

conflict, but in no event will the Fund

be required to establish a new funding

medium for any variable contract. No

participating insurance company shall

be required by this condition (4) to

establish a new funding medium for any

variable contract if an offer to do so has

been declined by vote of a majority of

contractowners materially adversely

affected by the material irreconcilable

conflict.

5. The Board’s determination of the

existence of a material irreconcilable

conflict and its implications shall be

made known promptly in writing to all

participating insurance companies.

6. Participating insurance companies

will provide pass-through voting

privileges to all variable contractowners

for so long as the Commission continues

to interpret the 1940 Act as requiring

pass-through voting privileges for

variable contractowners. Accordingly,

participating insurance companies will

vote shares of each Fund or series

thereof held in their separate accounts

in a manner consistent with timely

voting instructions received from

contractowners. Each participating

insurance company also will vote shares

of each Fund or series held in its

separate accounts for which no timely

voting instructions are received, as well

as shares it owns, in the same

proportion as those shares for which

voting instructions are received.

Participating insurance companies shall

be responsible for assuring that each of

their separate accounts participating in

a Fund calculates voting privileges in a

manner consistent with other

participating insurance companies. The

obligation to calculate voting privileges

in a manner consistent with all other

separate accounts investing in a Fund

shall be a contractual obligation of all

participating insurance companies

under their agreements governing

participation in the Fund.

7. A Fund will notify all participating

insurance companies that separate

account prospectus disclosure regarding

potential risks of mixed and shared

funding may be appropriate. Each Fund

shall disclose in every prospectus that

(1) shares of the Fund are offered to

insurance company separate accounts

which fund both annuity and life
65372 Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices

insurance contracts, (2) due to

differences of tax treatment or other

considerations, the interests of various

contractowners participating in the

Fund might at some time be in conflict,

and (3) the Board will monitor for any

material conflicts and determine what

action, if any, should be taken.

8. All reports received by the Board of

potential or existing conflicts, and all

Board action with regard to determining

the existence of a conflict, notifying

participating insurance companies of a

conflict, and determining whether any

proposed action adequately remedies a

conflict, will be properly recorded in

the minutes of the Board or other

appropriate records, and such minutes

or other records shall be made available

to the Commission upon request.

9. If and to the extent Rule 6e–2 and

Rule 6e–3(T) are amended, or Rule 6e–

3 is adopted, to provide exemptive relief

from any provision of the 1940 Act or

the rules thereunder with respect to

mixed or shared funding on terms and

conditions materially different from any

exemptions granted in the order

requested in this application, then each

Fund and/or the participating insurance

companies, as appropriate, shall take

such steps as may be necessary to

comply with Rule 6e–2 and Rule 6e–

3(T), as amended, and Rule 6e–3, as

adopted, to the extent such rules are

applicable.

10. Each 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 the

Fund), and in particular the Fund will

either provide for annual meetings

(except insofar as the Commission may

interpret Section 16 not to require such

meetings) or comply with Section 16(c)

of the 1940 Act (although the Trust is

not one of the trusts described in

Section 16(c) of the 1940 Act) as well as

with Sections 16(a) and, if and when

applicable, 16(b). Further, the 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.

11. The participating insurance

companies, Winsbury, and/or any other

investment adviser to a Fund or series,

shall at least annually submit to the

Fund’s Board such reports, materials or

data as the Board may reasonably

request so that it may fully carry out the

obligations imposed upon it by the

conditions contained in the application

and said reports, materials and data

shall be submitted more frequently if

deemed appropriate by the Board. The

obligations of the participating

insurance companies to provide these

reports, materials and data to the Board

when it so reasonably requests, shall be

a contractual obligation of all

participating insurance companies

under their agreements governing

participation in each Fund.

Conclusion

For the reasons and upon the facts

stated above, Applicants assert that the

requested exemptions are appropriate in

the public interest and consistent with

the protection of investors and the

purposes fairly intended by the policy

and provisions of the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30708 Filed 12–18–95; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Revocation of License of Small

Business Investment Company

Pursuant to the authority granted to

the United States Small Business

Administration by the Order of the

United States District Court for the

Northern District of Texas, Dallas

Division, dated November 3, 1995, the

United States Small Business

Administration hereby revokes the

license of Diversified Capital Funding

Corporation, a Texas corporation, to

function as a small business investment

company under the Small Business

Investment Company License No.06/10–

0125 issued to Diversified Capital

Funding Corporation on September 27,

1962 and said license is hereby declared

null and void as of December 13, 1995.

Small Business Administration.

Dated: December 11, 1995.

Don A. Christensen,

Associate Administrator for Investment.

[FR Doc. 95–30758 Filed 12–18–95; 8:45 am]

BILLING CODE 8025–01–P

DEPARTMENT OF STATE

[Public Notice No. 2301]

Advisory Committee on International

Communications and Information

Policy; Public Meeting

The Department of State is holding

the third meeting of its advisory

Committee on International

Communications and Information

Policy. The Committee was

reestablished on August 11, 1994, in

order to provide a formal channel for

regular consultation and coordination

on major economic, social and legal

issues and problems in international

communications and information

policy, especially as these issues and

problems involve users of information

and communication services, providers

of such services, technology research

and development, foreign industrial and

regulatory policy, the activities of

international organizations with regard

to communications and information,

and developing country interests.

The 24-person committee was

appointed by Ambassador Vonya B.

McCann, United States Coordinator for

International Communications and

Information Policy, U.S. Department of

State, and serves under the

Chairmanship of Ed Black, President,

Computer & Communications Industry

Association.

The purpose of this meeting will be to

follow up on the recent creation of

working groups on various issues that

will help chart the future direction and

work plan of the committee. The

members will look at the substantive

issues on which the committee should

focus, as well as specific countries and

regions of interest to the committee.

The committee will follow the

procedures prescribed by the Federal

Advisory Committee Act (FACA).

Meetings will be open to the public

unless a determination is made in

accordance with the FACA Section

10(d), 5 U.S.C. 552b(c) (1) and (4) that

a meeting or a portion of the meeting

should be closed to the public.

This meeting will be held on

Thursday, January 18, 1996, from 9:30

a.m.–12:00 noon in Room 1912 of the

Main Building of the U.S. Department of

State, located at 2201 ‘‘C’’ Street, NW.,

Washington, DC 20520. While the

meeting is open to the public,

admittance to the State Department

Building is only by means of a prearranged clearance list. In order to be

placed on the pre-clearance list, please

provide your name, title, company,

social security number, and date of birth

to Sylvia Conley at (202) 647–5233 or by

fax at (202) 647–5957. All attendees

must use the ‘‘C’’ Street entrance. One

of the following valid ID’s will be

required for admittance: any U.S.

driver’s license with photo, a passport,

or a U.S. Government agency ID.

For further information, contact the

Executive Secretary of the committee, at

(202) 647–5385.