[Federal Register Volume 66, Number 232 (Monday, December 3, 2001)]
[Notices]
[Pages 60227-60230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29826]



[[Page 60227]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25299/File No. 812-12572]


Mutual of America Life Insurance Company, et al.

November 26, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application for an order pursuant to section 11(a) 
of the Investment Company Act of 1940 (the ``Act'').

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Applicants: Mutual of America Life Insurance Company (``Mutual of 
America''), Mutual of America Separate Account No. 2 (the ``Annuity 
Account'') and Mutual of America Separate Account No. 3 (the ``VUL 
Account,'' and together with the Annuity Account, ``Mutual Accounts'').

Summary of Application: Applicants seek an order approving the terms of 
a proposed offer of exchange of interests in the Mutual Accounts for 
interests issued by The American Life Insurance Company of New York 
(``American Life'').

Filing Date: The application was filed on July 13, 2001.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on December 21, 2001, and be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, Deborah S. Becker, Esq., Senior Vice President and 
Associate General Counsel, Mutual of America, 320 Park Avenue, New 
York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Kenneth C. Fang, Attorney, or Keith E. 
Carpenter, Branch Chief, at (202) 942-0670, Office of Insurance 
Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 450 Fifth Street, NW., 
Washington DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Mutual of America is a mutual life insurance company organized 
under the laws of the State of New York in 1945, having its home office 
at 320 Park Avenue, New York, New York 10022. Mutual of America is 
authorized to sell individual and group life insurance policies, 
variable annuity contracts and variable universal life policies in 50 
states and the District of Columbia.
    2. The Annuity Account is a separate account of Mutual of America 
established for the purpose of providing an investment medium for 
variable contracts, including individual annuities. It is registered 
under the Act as a unit investment trust (File No 811-4679), and three 
registration statements on Form N-4 filed pursuant to the Securities 
Act of 1933 (``1933 Act'') are in effect for sales of interests under 
group and individual variable accumulation annuity contracts (File Nos. 
2-90201, 33-5609 and 33-11023). One registration statement (File No. 2-
90201) covers several forms of contract, including Individual 
Retirement Annuity (``IRA'') Contracts and Flexible Premium Deferred 
Annuity (``FPA'') Contracts. The IRA and FPA Contracts issued by Mutual 
of America are herein referred to as the ``Contracts.''
    3. The VUL Account is a separate account of Mutual of America 
established for the purpose of providing an investment medium for 
variable contracts, including individual life policies. It is 
registered under the Act as a unit investment trust (File No. 811-
9487), and a registration statement on Form S-6 filed pursuant to the 
1933 Act is in effect for sales of interests under individual variable 
universal life insurance policies (the ``Policies'') (File No. 333-
83413).
    4. The Mutual Accounts currently hold assets in their respective 
seventeen subaccounts (``investment funds''), each of which invests in 
shares of a corresponding mutual fund portfolio (collectively, the 
``Underlying Funds''). Each of the Underlying Funds is a series of a 
management investment company registered under the Act and its shares 
are registered for sale under the 1933 Act.
    5. Mutual of America serves as the principal underwriter of the 
Contracts and the Policies, and also is the principal underwriter for 
the Mutual of America Investment Corporation. It is a broker-dealer 
registered under the Securities and Exchange Act of 1934 and is a 
member of the National Association of Securities Dealers, Inc.
    6. Mutual of America intends to make offers of exchange to the 
holders (``Owners'') of variable annuity and life insurance products 
that were issued by American Life at a time when American Life was an 
indirectly wholly-owned subsidiary of Mutual of America. American Life 
is a stock life insurance company organized under the laws of the State 
of New York in 1955, with headquarters at 435 Hudson Street, New York, 
New York 10014, and substantial operations at 300 Distillery Commons, 
Louisville, Kentucky 40206.
    7. The American Separate Account No. 2 (the ``American Annuity 
Account'') is a separate account of American Life established for the 
purpose of providing an investment medium for variable contracts, 
including individual annuities. The American Annuity Account is 
registered under the Act as a unit investment trust (File No. 811-
7904), and a registration statement on Form N-4 filed pursuant to the 
1933 Act is in effect for sales of interests under IRA Contracts and 
FPA Contracts, which are variable individual accumulation annuity 
contracts (File No. 33-66406). The American IRA and American FPA 
Contracts issued by American Life are herein referred to as the 
``American Contracts.''
    8. The American Separate Account No. 3 (the ``American VUL 
Account'') is a separate account of American Life established for the 
purpose of providing an investment medium for variable contracts, 
including individual life policies. The American VUL Account is 
registered under the Act as a unit investment trust (File No. 811-
8368), and a registration statement on Form S-6 filed pursuant to the 
1933 Act is in effect for sales of interests under individual variable 
universal life insurance policies (the ``American Policies'') (File No. 
33-75280).
    9. The American Annuity Account and American VUL Account are herein 
called the ``American Accounts.'' The American Accounts each have 
seventeen investment funds that invest in shares of corresponding 
Underlying Funds.
    10. American Life ceased selling the American Contracts and 
Policies as of April 1, 2000. In reliance on the Commission's no-action 
position in Great-West Life & Annuity Insurance Co. (publicly available 
October 23, 1990), American Life in 2001 did not file updating 
amendments to the registration statements covering the American 
Contracts and the American Policies.
    11. On March 16, 2001, Mutual of America sold to a third party all 
of the

[[Page 60228]]

outstanding common stock of a holding company, which owned all of the 
outstanding common stock of American Life. For accounting purposes, the 
sale was effective as of February 28, 2001. Under an Indemnity 
Reinsurance Agreement, dated as of February 28, 2001, between Mutual of 
America and American Life (the ``Indemnity Agreement''), Mutual of 
America has indemnity reinsured American Life's general account 
liabilities under the American Contracts and Policies. Under an 
Administrative Services Agreement, dated as of February 28, 2001, 
between Mutual of America and American Life (the ``Servicing 
Agreement''), Mutual of America provides all administrative services 
for the American Contracts and America Policies, including 
administrative services with respect to the American Accounts. Under an 
Amendment, dated as of February 28, 2001, to the Distribution and 
Administration Agreement between Mutual of America and American Life, 
Mutual of America is the principal underwriter of the American 
Contracts and Policies for new contributions and premiums paid by 
existing Owners (the ``Distribution Agreement''). Mutual of America 
entered into the Servicing Agreement, the Indemnity Agreement and the 
Distribution Agreement to facilitate the sale of American Life to a 
third party.
    12. American Life and Mutual of America entered into a reinsurance 
and assumption agreement, which was effective April 1, 2000 (the 
``assumption agreement''), relating to various individual annuity 
contracts and individual life policies, including the then outstanding 
American Contracts and Policies. In the assumption agreement, American 
Life ceded all of its obligations, rights and liabilities under the 
American Contracts and Policies to Mutual of America on an assumption 
reinsurance basis, and Mutual of America agreed to assume all such 
obligations, rights and liabilities transferred to it, subject to 
compliance with applicable state insurance laws and regulations.
    13. Under the insurance laws and regulations of some states, Owners 
had the right to opt out of the proposed assumption reinsurance of 
their contracts by Mutual of America, and in some states Owners were 
required to affirmatively consent to the assumption reinsurance. In 
addition, the New York State Insurance Department has administratively 
prohibited the assumption reinsurance of variable annuity contracts and 
variable life insurance policies issued in New York when 
contractholders are no longer New York residents. Upon effectiveness of 
the assumption agreement, a substantial portion of the American 
Contracts and Policies were transferred to Mutual of America, which 
replaced American Life as the issuer of such Contracts and Policies. 
Mutual of America, however, was not able to assumption reinsure 
American Contracts and Policies when an Owner: (a) Was required under 
applicable state insurance law to give affirmative consent to Mutual of 
America's assumption reinsurance and did not provide such consent; (b) 
had the right under applicable state insurance law to opt out of Mutual 
of America's assumption reinsurance and timely exercised such right; or 
(c) was a resident of the State of New York when the American Contract 
or Policy was issued and subsequently moved to another state.
    14. On November 4, 1999, Mutual of America, the Mutual Accounts, 
American Life and the American Accounts (the ``Initial Applicants'') 
filed with the Commission an application for an order pursuant to 
Section 17(b), Section 17(d) and Rule 17d-1 thereunder, and Section 
11(a) of the Act, in connection with the assumption agreement and the 
reinsurance transactions contemplated thereunder. Among other things, 
the application requested an order to permit the offers of exchange 
when Owners had opt out rights or the consent of Owners was required in 
connection with the assumption reinsurance of American Contracts and 
Policies by Mutual of America. The Initial Applicants filed an amended 
and restated application on February 16, 2000 (the ``Initial 
Application''), and the Commission issued an Order granting the 
requested exemptions to the Initial Applicants on March 13, 2000, Inv. 
Co. Act Rel. No. 24336, File No. 812-11840 (the ``Initial Order'').
    15. At the time of the Initial Application, Mutual of America and 
American Life contemplated that they would make additional offers of 
exchange only through requests for consent to assumption by Owners 
whose American Contracts and Policies were not assumption reinsured 
effective April 1, 2000. Accordingly, the exemptive relief that was 
requested in the Initial Application and granted in the Initial Order 
with respect to offers of exchange contemplated that such offers would 
be made in connection with assumption reinsurance transactions, either 
before or after the sale of American Life by Mutual of America.
    16. Mutual of America intends to make offers of exchange to Owners, 
pursuant to which Owners would exchange their American Contracts and 
Policies for Contracts and Policies, respectively. A reduction in the 
number of Owners, or their elimination, would reduce or eliminate, 
respectively, the cost to Mutual of America of providing administrative 
services for the American Contracts and Policies and the American 
Accounts, as required under the Servicing Agreement, and for reinsuring 
American Life's general account liabilities, pursuant to the Indemnity 
Agreement. It would be less expensive for Mutual of America to provide 
administrative services only to owners of its Contracts and Policies 
rather than to provide such services for both Contracts and Policies 
and American Contracts and Policies. The exchanges also would benefit 
Owners, because owners of Contracts and Policies may utilize Mutual of 
America's regional service offices and may use Mutual of America's 
toll-free telephone number and Internet web site for transactions as 
well as to obtain contract information, while Owners must send 
transaction requests in writing to the New York administrative office 
that is servicing the American Contracts and Policies and may use a 
toll free number only to obtain information. American Life will not 
issue additional contracts or policies through the American Accounts, 
and therefore the Accounts are expected to decline in asset size and 
number of Owners over a period of time.
    17. The terms of the Contracts and Policies are identical to the 
American Contracts and Policies except for the identity of the issuing 
company and depositor of the separate account, the funding separate 
account, and the right of owners of Contracts and Policies to 
participate in the divisible surplus of Mutual of America, a mutual 
company. In addition, when Mutual of America issues policies in 
exchange for American Policies, it will waive the suicide clause and 
will not require medical underwriting. As a consequence, Owners will 
not be subject to new incontestability periods under their Policies for 
suicide or medical conditions.
    18. The Underlying Funds, the current administrative charges and 
the maximum permitted administrative charges, the mortality and expense 
risk charges, and the rates for the cost of insurance charges in the 
case of the Policies are identical under the Contracts and Policies and 
the American Contracts and Policies, respectively. The unit values for 
the investment funds of the Annuity Account and the American Annuity

[[Page 60229]]

Account are identical, and the unit values for the investment funds of 
the VUL Account and the American VUL Account also are identical.
    19. Mutual of America will send offers of exchange to Owners who, 
after being contacted by a Mutual of America representative, indicate 
their interest in receiving the exchange materials. The materials will 
include a current prospectus and any supplements thereto for the 
Contract or Policy, as appropriate. Owners who wish to accept the 
offers of exchange will complete and return the exchange materials to 
Mutual of America, which will review them for completeness. When an 
Owner's exchange materials are incomplete, a representative of Mutual 
of America will contact the Owner to attempt to obtain any missing 
information or signatures.
    20. Applicants expect that Owners will have no adverse tax 
consequences from the exchanges. Exchanges of American IRA Contracts 
will be non-taxable direct transfers under the Internal Revenue Code, 
as amended (the ``Code''), and exchanges of American FPA Contracts and 
American VUL Policies will be tax-free exchanges under Section 1035 of 
the Code.
    21. In certain limited circumstances, a Policy may be treated 
differently for tax purposes than the American Policy being exchanged. 
Prior to making offers of exchange to Owners, Mutual of America will 
review the amount of insurance coverage under each American Policy, the 
initial premium to be paid under the Policy issued in exchange and the 
Policy's scheduled premiums to ascertain whether the Policy (a) Would 
be a modified endowment contract (``MEC'') under the Code when the 
American Policy is not an MEC, (b) would be unable to accept additional 
premiums, because such payments would cause the Policy to not be 
treated as life insurance under the Code when premiums could be paid 
under the American Policy, (c) would become an MEC upon the payment of 
additional scheduled premiums, when payment of such premiums under the 
American Policy would not cause that Policy to become an MEC, or (d) 
would fail to continue to qualify as life insurance as defined in the 
Code. As part of any exchange offer made in such situation, Mutual of 
America will notify the Owner in writing of the potential change in tax 
treatment that would result from the issuance of a Policy in exchange 
for the Owner's American Policy. Mutual of America may suggest an 
increase in the face amount of the insurance coverage under the Policy 
in an amount sufficient so that the situations in (a)-(d), as the case 
may be, would not apply to the Policy, and Mutual of America will not 
issue a Policy if it would not be deemed life insurance under the Code.
    22. When an Owner's exchange materials are complete, Mutual of 
America will provide the surrender request to American Life, which will 
redeem the shares of the Underlying Funds held by the American Accounts 
that are attributable to the American Contract or Policy exchanged and 
arrange for the withdrawal of any funds held in American Life's general 
account. An Owner's account balance as of the close of business on the 
date of surrender of the American Contract or Policy, without the 
imposition of any sales charge, as of the close of business on the 
purchase order date. The applicable Mutual Account will purchase shares 
of the Underlying Funds, and/or Mutual of America will allocate amounts 
to its General Account,\1\ based on the allocation instruction set 
forth on the purchaser's application and the amount transferred to 
Mutual of America from American Life.
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    \1\ The transfer of general account amounts under American 
Contracts and Policies to Contracts and Policies issued in exchange 
will be without charge or expense to the Owners.
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    23. Because Mutual of America is providing all administrative 
services for the American Contracts and Policies and the American 
Accounts and has indemnity reinsured American Life's general account 
portion of the American Contracts and Policies, Mutual of America will 
implement the surrender of an American Contract or Policy and issue its 
Contract or Policy on the same day. As a result, the redemption order 
given to the Underlying Funds by Mutual of America, as servicer for 
American Life and the American Accounts, and the purchase order given 
to the Underlying Funds by Mutual of America, as issuer of the Contract 
or Policy, will be placed with the Underlying Funds on the same day. 
Assuming that the Owner selects the same investment allocations in the 
Mutual of America application as the Owner has selected under the 
American Contract or Policy, the Underlying Funds will be able to 
offset the redemption and purchase orders, and therefore the exchange 
will have no impact on the Underlying Funds' portfolio securities. The 
Underlying Funds are not parties to the exchange offers, and the terms 
of the Participation Agreements pursuant to which they sell shares to 
and redeem shares from the American Accounts and Mutual Accounts are 
not affected by the exchanges.
    24. Applicants anticipate that some Owners will retain their 
American Contracts and Policies, which will remain unchanged. Mutual of 
America will continue to provide administrative services to these 
Owners pursuant to the Servicing Agreement, and will indemnity reinsure 
the general account portion of such Contracts and Policies pursuant to 
the Indemnity Agreement. As previously noted, the American Accounts are 
expected to decline in asset size and number of Owners over a period of 
time. Depending on the number of Owners who remain in each of the 
American Accounts, either one or both of the American Accounts may be 
deregistered pursuant to Section 8(f) of the Act, immediately following 
the exchanges made in response to the offers or at some future date.

Applicants Legal Analysis

    1. Section 11(a) of the Act makes it unlawful for a registered 
open-end investment company or its principal underwriter to offer 
securities of an investment company in exchange for other securities of 
the same or another investment company, unless the exchange either is 
based on the respective net asset values of the securities or the terms 
of the offer have received prior approval of the Commission. Section 
11(c) provides that in the case of a unit investment trust, the 
prohibition of Section 11(a) is applicable irrespective of the basis of 
exchange.
    2. The exchange offers to be made to Owners by Mutual of America 
relate to contracts that participate in the American Accounts and the 
Mutual Accounts, which are registered unit investment trusts. 
Therefore, the offers of exchange fall within the prohibitions of 
Section 11(a) and (c).\2\
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    \2\ In Alexander Hamilton Funds (available July 20, 1994), the 
Commission stated that the legislative history of Section 11(a) 
shows ``Congress primarily intended to deter switching between 
affiliated investment funds,'' rather than offers by unaffiliated 
investment companies, so long as offers are at relative net asset 
values. It noted, however, that ``there may be circumstances when 
Section 11(a) would apply to exchange offers between unaffiliated 
funds,'' explaining in footnote 4: ``For example, Section 11 would 
apply if two unaffiliated fund complexes agree, formally or 
informally, to offer a waiver of sales load or some other incentive 
for an exchange of shares from one fund family to the other.'' 
Mutual of America has an economic incentive to issue Contracts and 
Policies in place of American Contracts and Policies in order to 
reduce or eliminate the costs of administering the American 
Contracts and Policies and the American Accounts and of indemnity 
reinsuring the general account portion of the American Contracts and 
Policies. In addition, Owners may not place orders via a toll free 
telephone number of Internet web site, while holders of Contracts 
and Policies may place orders using Mutual of America's toll free 
telephone number or its web site, which may provide an incentive to 
Owners to make the exchanges.

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[[Page 60230]]

    3. The Commission in the Initial Order granted exemptions for 
exchange offers made in the context of opt-out rights and affirmative 
consent for assumption reinsurance transactions. Those exemptions are 
not applicable to the proposed exchange offers, solely because the 
proposed offers will not involve any assumption reinsurance 
transactions.
    4. Applicants request an order pursuant to Section 11(a) approving 
the terms of Mutual of America's proposed offers of exchange to Owners 
of American Contracts and Policies.
    5. Applicants submit that the terms of the proposed exchange offers 
are fair to Owners and should be approved by the Commission. Since no 
sales or other charges will be assessed in connection with the 
exchanges made pursuant to the offers, the sales charge abuse to which 
Section 11(a) is directed will not be present.\3\ The only change 
resulting from the exchange of American Contracts and Policies for 
Mutual of America's Contracts and Policies is in the identity of the 
issuing insurance company and depositor of the separate account, the 
funding separate account, and the right of owners of Contracts and 
Policies to participate in Mutual of America's divisible surplus. In 
addition, the unit values of the investment funds in the Annuity 
Account are identical to those of the American Annuity Account, and the 
unit values of the investment funds in the VUL Account are identical to 
those of the American VUL Account. Applicants believe as well that the 
exchanges of American IRA Contracts will be tax-free direct transfers 
and that the exchanges of American FPA Contracts and American Policies 
will come within the provisions of Section 1035 of the Code, so that 
there will be no adverse tax consequences for Owners as a result of the 
exchanges. As part of the exchange offers, Mutual of America will 
disclose to each Owner when the tax treatment for the Policy would be 
different than that of the American Policy in that the Policy would be 
an MEC, would not be able to accept additional premiums because such 
payments would cause the Policy to not be treated as life insurance, 
would become an MEC upon the payment of additional scheduled premiums 
or would not qualify as life insurance under the Code. Mutual of 
America will not issue a Policy if it would not be deemed life 
insurance under the Code. Mutual of America has substantial assets and 
surplus to assure the performance of its obligations under the 
Contracts and Policies, and it currently performs all administrative 
services for the American Contracts and Policies pursuant to the 
Servicing Agreement.
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    \3\ The Commission's Report on the ``Public Policy Implications 
of Investment Company Growth,'' H.R. Rep. No. 2337 (1966) at p. 331, 
stated:
    Section 11(a) was specifically designed to prevent the practices 
of ``switching'' and ``reloading'' whereby the holders of securities 
were induced to exchange their certificates for new certificates on 
which a new load would be payable.
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    6. Owners will receive current prospectuses for the Contracts or 
Policies, as applicable. The exchanges of interests will be made on the 
basis of relative net asset values. The provisions of the Contracts and 
Policies will be identical to the provisions of the American Contracts 
and American Policies, respectively, except for the addition of the 
right to participate in Mutual of America's divisible surplus. Owners 
will have investment funds available in the Mutual Accounts with the 
same Underlying Funds as available in the America Accounts.
    7. Applicants note that the Commission has previously approved 
offers of exchange in circumstances when Rule 11a-2 would not apply 
because the insurance companies were not affiliated or might not be 
affiliated at the time certain exchange offers for variable annuities 
were made or consummated relating to assumption reinsurance 
transactions.\4\ In Family Life Insurance Company, et al., the 
applicants noted that the offers of exchange for the variable annuity 
contracts involved would satisfy all of the conditions of Rule 11a-2 if 
made prior to the sale of the ceding company. Applicants state that the 
terms of their proposed exchange offers would satisfy all of the 
conditions of Rule 11a-2 applicable to affiliated companies if they had 
been made prior to the sale of American Life by Mutual of America and 
that the offers satisfy the standards of the Commission for determining 
that the terms of an exchange offer are fair to contract holders. 
Applicants further state that the terms of the proposed exchange offers 
are identical to the exchange offers approved by the Commission in the 
Initial Order except that the proposed offers would not be made in 
connection with assumption reinsurance transactions.
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    \4\ Family Life Insurance Company, et al., Inv. Co. Act Rel. 
Nos. 18179 (June 3, 1991) (notice) and 18217 (July 2, 1991) (order), 
involved exchange offers under assumption reinsurance between 
affiliates in contemplation of the sale of the ceding company; and 
The Lincoln National Life Insurance Company, et al., Inv. Co. Act 
Rel. Nos. 22189 (Aug. 29, 1996) (notice) and 22251 (Sept. 26, 1996) 
(order); AUSA Life Insurance Company, Inc. et al., Inv. Co. Act Rel. 
Nos. 20518 (Aug. 31, 1994) (notice) and 20587 (Sept. 28, 1994) 
(order); and Pacific Corinthian Life Insurance Company, et al., Inv. 
Co. Act Rel. Nos. 18925 (Sept 2. 1992) (notice) and 18975 (Sept. 24, 
1992) (order), involved exchange offers under variable annuity 
assumption reinsurance transactions between non-affiliates when Rule 
11a-2 would have been available if the insurance companies had been 
affiliated.
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Conclusion

    On the basis of the precedents cited and the showing by Applicants 
that the terms of the exchange offers involved are fair, Applicants 
submit that the requested relief should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-29826 Filed 11-30-01; 8:45 am]
BILLING CODE 8010-01-M