Federal Register / Vol. 64, No. 157 / Monday, August 16, 1999 / Notices 44563

SECURITIES AND EXCHANGE 0609. Applicant, Dow Target Variable business day of the month preceding the COMMISSION Fund LLC, One Financial Way, month for which the portfolio is named Cincinnati, Ohio 45242. (the ‘‘ Selection Date’’). These ten [Rel. No. IC±23938; File No. 812±11594] FOR FURTHER INFORMATION CONTACT: companies are popularly known as the Dow Target Variable Fund LLC; Notice Joyce M. Pickholz, Senior Counsel, or ‘‘Dogs of the Dow.’’ On or about the first of Application Kevin M. Kirchoff, Branch Chief, Office business day of the month for which a of Insurance Products, Division of portfolio is named, First Trust sets the August 10, 1999. Investment Management, at (202) 942– proportionate relationship among the AGENCY: Securities and Exchange 0670. ten to be held in that portfolio for Commission (‘‘SEC’’). the next twelve months. At the end of SUPPLEMENTARY INFORMATION: The a portfolio’s twelfth month, the portfolio ACTION: Notice of application for an following is a summary of the will be rebalanced with a new mix of amended order under Section 6(c) of the application. The complete application is Dogs of the Dow stocks. Investment Company Act of 1940 (the available for a fee from the Public ‘‘Act’’). 6. Each of Applicant’s Dow Target 5 Reference Branch of the SEC, 450 Fifth Portfolios will invest approximately SUMMARY OF APPLICATION: Applicant Street, N.W., Washington, D.C. 20549– 20% of its total assets in the common seeks an order under Section 6(c) of the 0102 [tel. (202) 942–8090]. stock of the five companies of the Dogs Act amending an existing order Applicant’s Representations of the Dow having the lowest per share (Investment Company Act Release No. stock price as of the close of business on 1. Applicant is a registered, open-end 23628, Dec. 20, 1998). The amended the Stock Selection Date. On or about management investment company (File order would exempt Applicant and any the first business day of the month for No. 811–09019). It currently consists of other existing or future open-end which a portfolio is named, First Trust twelve non-diversified portfolios, each management investment company or will set the proportionate relationship named after a calendar month (January portfolio thereof that is advised by its among the five stocks to be held in that Portfolio, February Portfolio, etc.) investment adviser, Ohio National portfolio for the next twelve months. At (collectively, the ‘‘Dow Target 10 Investments, Inc. (the ‘‘Adviser’’), or any the end of a portfolio’s twelfth month, Portfolios’’). Applicant proposes to add entity controlled by or under common the portfolio will be rebalanced with a another twelve non-diversified control with the Adviser that follows an new mix of five Dogs of the Dow stocks. portfolios, also named after the calendar that is the same as 7. Stocks held in any portfolio are not months (collectively, the ‘‘Dow Target 5 one of the two investment strategies expected to reflect the entire index, and Portfolios’’). described in the application (‘‘Future the prices of Interests are not intended 2. Applicant was organized under the Funds’’) from the provisions of Section to parallel or correlate with movements laws of Ohio as a limited liability 12(d)(3) of the Act to the extent in the Dow. Generally, it will not be company on September 21, 1998. Under necessary to permit their portfolios: (a) possible for all of a portfolio’s funds to Ohio law, a limited liability company to invest up to 10.5% of their total be invested in the prescribed mix of does not issue shares of stock. Instead, assets in securities of issuers that derive applicable stocks at any given time. ownership rights are contained in more than 15% of their gross revenues However, the Adviser and First Trust membership interests. Each membership from securities related activities; or (b) will try, to the extent practicable, to interest of Applicant (‘‘Interest’’) to invest up to 20.5% of their total maintain a minimum cash at all represents an undivided interest in the assets in securities of issuers that derive times. Applicant represents that stocks held in one of Applicant’s more than 15% of their gross revenues normally the only cash items held will portfolios. from securities related activities. represent amounts expected to be 3. The Interests are not offered deducted as charges and amounts too APPLICANT: Dow Target Variable Fund directly to the public. The only direct LLC. small to purchase additional owner of the Ohio National Life proportionate round lots of the stocks. FILING DATE: The application was filed Insurance Company (‘‘Ohio National 8. The Dow consists of 30 stocks on March 18, 1999, and amended on Life’’) through its variable annuity selected by Dow Jones & Company, Inc. July 23, 1999. separate accounts. Those of Ohio as representative of the broader HEARING OR NOTIFICATION OF HEARING: An National Life’s variable annuity owners domestic stock market and of American order granting the application will be who have contract values allocated to industry. Dow Jones and Company, Inc. issued unless the SEC orders a hearing. any of Applicant’s portfolios have is not affiliated with the Applicant and Interested persons may request a indirect beneficial rights in the Interests has not participated, and will not hearing by writing to the Secretary of and have the right to instruct Ohio participate, in any way in the creation the SEC and serving Applicant with a National with regard to how it votes the of the portfolios or the selection of the copy of the request, personally or by Interests that it holds in its variable stocks purchased by the portfolios. mail. Hearing requests must be received annuity separate accounts. 9. Until the end of the initial month by the SEC by 5:30 p.m. on August 31, 4. Applicant’s investment adviser is of a portfolio, Interests may be 1999, and must be accompanied by Ohio National Investment, Inc. (the purchased by variable annuity separate proof of service on Applicant in the ‘‘Adviser’’), a wholly owned subsidiary accounts of Ohio National Life. After the form of an affidavit or, for lawyers, a of Ohio National Life. First Trust initial month of a portfolio, no further certificate of service. Hearing requests Advisors L.P. (‘‘First Trust’’) is the sub- Interests in that portfolio may be should state the nature of the writer’s adviser to each of Applicant’s portfolios. purchased until eleven months later. interest, the reason for the request, and 5. Each of Applicant’s Dow Target 10 Interests may be redeemed at any time. the issues contested. Persons who wish Portfolios invests approximately 10% of 10. Any purchase of Interests made to be notified of a hearing may request its total assets in the of after the initial business day of the notification by writing to the Secretary the ten companies in the Dow Jones month for which the portfolio is named of the SEC. Industrial Average (the ‘‘Dow’’) having will duplicate, as nearly as is ADDRESSES: Secretary, SEC, 450 Fifth the highest as of the practicable, the original proportionate Street, N.W., Washington, D.C. 20549– close of business on the next to last relationships of the applicable stocks 44564 Federal Register / Vol. 64, No. 157 / Monday, August 16, 1999 / Notices held by that portfolio. Because the invest up to 10% of their total assets in 4. A potential conflict could occur, for prices of each of the stocks will change securities of issuers that derive more example, if an investment company nearly every day, the ratio of the price than 15% of their gross revenues from purchased securities or other interests of each to the total price of the entire securities related activities. Applicant in a broker-dealer to reward that broker- group of applicable stocks will also now proposes to extend the relief to dealer for selling fund shares, rather change daily. However, the proportion permit Applicant’s portfolios and than solely on investment merit. of stocks held by that portfolio will not Future Funds: (a) to invest up to 10.5% Applicant states that this concern does change materially as a result of the sales of their total assets in securities of not arise in this situation. Applicant of additional Interests after the first issuers that derive more than 15% of states that generally, none of Applicant, business day of the month for which the their gross revenues from securities the Adviser or First Trust has discretion portfolio is named. related activities; or (b) to invest up to in choosing the common stock or 11. Applicant is not a ‘‘regulated 20.5% of their total assets in securities amount purchased. Applicant states that investment company’’ under Subchapter of issuers that derive more than 15% of the stock must first be included in the M of the Internal Revenue Code of 1986, their gross revenues from securities Dow, which is unaffiliated with as amended (the ‘‘Code’’). Nonetheless, related activities. Applicant, the Adviser or First Trust. In it does not pay federal income tax on its addition, the stock must also qualify as Applicant’s Legal Analysis interest, dividend income or capital one of the ten companies in the Dow gains. As a limited liability company 1. Section 12(d)(3) of the Act, with that has the highest as of whose interests are sold only to Ohio limited exceptions, prohibits an the close of business on the Stock National Life, it is disregarded as an investment company from acquiring any Selection Date. In the case of Dow entity for purposes of federal income security issued by any person who is a Target 5 Portfolios, the stock must then taxation. Ohio National Life, through its broker, dealer, underwriter or qualify as one of the five companies of variable annuity separate accounts, is investment adviser. Rule 12d3–1 under the Dogs of the Dow that have the treated as owning the assets of the the Act exempts from Section 12(d)(3) lowest per share stock price as of the portfolios directly and its tax obligations purchases by an investment company of close of business on the Stock Selection thereon are computed pursuant to securities of an issuer, except its own Date. Subchapter L of the Code (which investment adviser, promoter or 5. The Adviser and First Trust are governs the taxation of insurance principal underwriter of the affiliates, obligated to follow the investment companies). Under current tax law, that derived more than 15% of its gross formula described above as nearly as interest, dividend income and capital revenues in its most recent fiscal year practicable. Applicant represents that gains of Applicant are not taxable to from securities related activities, the only time any deviation from the Applicant, and are not currently taxable provided that, among other things, formula would be permitted would be to Ohio National Life or to contract immediately after any such acquisition where circumstances were such that the owners, when left to accumulate within the acquiring company has invested not investments of a particular portfolio a variable annuity contract. more than 5% of the value of its total would fail to be ‘‘adequately 12. Section 817(h) of the Code assets in the securities of the issuer. diversified’’ under the Section 817(h) provides that in order for a variable Each of Applicant’s portfolios diversification requirements, and would contract that is based on a segregated undertakes to comply with all of the thus cause the annuity contracts to fail asset account to qualify as an annuity requirements of Rule 12d3–1, except the to qualify as annuity contracts under the contract under the Code, the condition in subparagraph (b)(3) Code. Applicant states that the investments made by that account must prohibiting an investment company likelihood of this exception arising is be ‘‘adequately diversified in from investing more than 5% of the extremely remote. In such a situation, accordance with Treasury regulations. value of its total assets in securities of Applicant submits that it must be 13. Each portfolio must comply with a securities related issuer. permitted to deviate from the the Section 817(h) diversification 2. Section 6(c) of the Act provides that investment strategy in order to meet the requirements. Therefore, the Adviser the SEC, by order upon application, may Section 817(h) diversification and First Trust may depart from the conditionally or unconditionally requirements and then only to the portfolio investment strategy, if exempt any person, security, or extent necessary to do so. Applicant necessary, in order to satisfy the Section transaction, or any class or classes asserts that this limited discretion does 817(h) diversification requirements. thereof, from any provision of the Act or not give rise to the potential conflicts of Under all circumstances, except in order any rule or regulation thereunder, if and interest or to the possible reciprocal to meet Section 817(h) diversification to the extent that the exemption is practices between investment requirements, the common stocks necessary or appropriate in the public companies and securities related purchased for each portfolio are chosen interest and consistent with the businesses that Section 12(d)(3) is solely according to the formula protection of and the purposes designed to prevent. described above and are not based on fairly intended by the policy and 6. Applicant states that the liquidity the research opinions or buy or sell provisions of the Act. of a portfolio is not a concern here since recommendations of the Adviser or First 3. Applicant states that Section each common stock selected is a Trust. Neither the Adviser nor First 12(d)(3) was intended: (a) to prevent component of the Dow, listed on the Trust has any discretion as to which investment companies from exposing New York , and among common stocks are purchased. their assets to the entrepreneurial risks the most actively traded securities in the Securities purchased for each portfolio of securities related businesses; (b) to United States. may include securities of issuers in the prevent potential conflicts of interest; 7. In addition, Applicant submits that Dow that derived more than 15% of (c) to eliminate certain reciprocal the effect of a portfolio’s purchase of the their gross revenues in their most recent practices between investment stock of parents of broker-dealers would fiscal year from securities related companies and securities related be de minimis. Applicant states that the activities. businesses; and (d) to ensure that common stocks of securities related 14. The existing order permits investment companies maintain issuers represented in the Dow are Applicant’s Dow Target 10 Portfolios to adequate liquidity in their portfolios. widely held with active markets and Federal Register / Vol. 64, No. 157 / Monday, August 16, 1999 / Notices 44565 that potential purchases by a portfolio administrative expenses and SECURITIES AND EXCHANGE represent an insignificant amount of the maximizing efficient use of resources. COMMISSION outstanding common stock and trading Also, eliminating the delay and the [Release No. IC±23936, 812±11738] volume of any of these issuers. expenses of repeatedly seeking Therefore, Applicant argues that it is exemptive relief would enhance the The First Commonwealth Fund, Inc.; almost inconceivable that these ability of Future Funds to effectively Notice of Application purchases would have any significant take advantage of business opportunities effect on the market value of any of as such opportunities arise. August 9, 1999. these securities related issuers. AGENCY: Securities and Exchange Applicant’s Conditions 8. Another possible conflict of interest Commission. is where a broker-dealer may be Applicant agrees that any order ACTION: Notice of an application for an influenced to recommend certain granting the requested relief from order under section 6(c) of the investment company funds which Section 12(d)(3) of the Act shall be Investment Company Act of 1940 (the invest in the stock of the broker-dealer subject to the following conditions: ‘‘Act’’) for an exemption from section or any of its affiliates. Applicant states 1. The common stock is included in 19(b) of the Act and rule 19b–1 under that because of the large market the Dow as of the Stock Selection Date; the Act. capitalization of the Dow issuers and 2. With respect to Dow Target 10 the small portion of these issuers’ SUMMARY OF APPLICATION: The First Portfolios, the common stock represents common stock and trading volume that Commonwealth Fund, Inc., requests an one of the ten companies in the Dow are purchased by a portfolio, it is order to permit it to make up to twelve that have the highest dividend yield as extremely unlikely that any advice distributions of net -term capital of the close of business on the Stock offered by a broker-dealer to a customer gains in any one taxable year, so long as Selection Date; as to which investment company to it maintains in effect a distribution plan invest in would be influenced by the 3. With respect to Dow Target 5 with respect to its common stock calling possibility that a portfolio is invested in Portfolios, the common stock represents for monthly distributions of a fixed the broker-dealer or a parent thereof. one of the five companies with the percentage of its . lowest dollar per share stock price out 9. Finally, another potential conflict FILING DATES: The application was filed of the ten companies in the Dow that of interest could occur if any investment on August 5, 1999. have the highest dividend yield as of the company directed brokerage to an HEARING OR NOTIFICATION OF HEARING: An affiliated broker-dealer in which the close of business on the Stock Selection Date; order granting the application will be company has invested to enhance the issued unless the SEC orders a hearing. 4. With respect to Dow Target 10 broker-dealer’s profitability or to assist Interested persons may request a Portfolios, as of close of business on the it during financial difficulty, even hearing by writing to the SEC’s Stock Selection Date, the value of the though the broker-dealer may not offer Secretary and serving applicant with a the best price and execution. To common stock of each securities related copy of the requests, personally or by preclude this type of conflict, Applicant issuer represents approximately 10% of mail. Hearing requests should be agrees, as a condition of this the value of any portfolio’s total assets, received by the SEC by 5:30 p.m. on application, that no company whose but in no event more than 10.5% of the September 2, 1999, and should be stock is held in any portfolio, nor any value of the portfolio’s total assets; accompanied by proof of service on the affiliate of such a company, will act as 5. With respect to Dow Target 5 applicant, in the form of an affidavit or, broker or dealer for any portfolio in the Portfolios, as of close of business on the for lawyers, a certificate of service. purchase or sale of any security. Stock Selection Date, the value of the 10. Applicant seeks relief not only Hearing requests should state the nature common stock of each securities related of the writer’s interest, the reason for the with respect to the Dow Target 10 issuer represents approximately 20% of Portfolios and the Dow Target 5 request, and the issues contested. the value of any portfolio’s total assets, Persons who wish to be notified of a Portfolios, but also with respect to but in no event more than 20.5% of the Future Funds. Applicant states that hearing may request notification by value of the portfolio’s total assets; and writing to the SEC’s Secretary. without the requested class relief, 6. No company whose stock is held in exemptive relief for any Future Fund ADDRESSES: Secretary, SEC, 450 Fifth any portfolio, nor any affiliate thereof, Street, NW., Washington, DC 20549– would have to be requested and will act as broker or dealer for any obtained separately. Applicant asserts 0609. Applicant, 800 Scudders Mill portfolio in the purchase or sale of any Road, Plainsboro, New Jersey 08536. that these additional requests for security for that portfolio. exemptive relief would present no FOR FURTHER INFORMATION CONTACT: issues under the Act not already Conclusion Nadya Roytblat, Assistant Director at (202) 942–0564 (Division of Investment addressed in the application. Further, if For the reasons summarized above, Future Funds were to repeatedly seek Management, Office of Investment Applicant asserts that the order exemptive relief with respect to the Company Regulation). requested is appropriate in the public same issues, investors would receive no interest and consistent with the SUPPLEMENTARY INFORMATION: The additional protection or benefit, and protection of investors and the purposes following is a summary of the investors could be disadvantaged by fairly intended by the policy and application. The complete application increased costs from preparing the provisions of the Act. may be obtained for a fee at the SEC’s additional requests for relief. Applicant Public Reference Branch, 450 Fifth argues that class relief is appropriate in For the SEC, by the Division of Investment Street, NW., Washington, DC 20549– the public interest because the relief Management, pursuant to delegated 0102 (tel. 202–942–8090). will promote competitiveness in the authority. variable insurance products market by Margaret H. McFarland, Applicant’s Representations eliminating the need for Future Funds Deputy Secretary. 1. The applicant is organized as a to file redundant exemptive [FR Doc. 99–21091 Filed 8–13–99; 8:45 am] Maryland corporation and registered applications, thereby reducing BILLING CODE 8010±01±M under the Act as a closed-end, non-