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Code · REGISTER · 2006-05-03 · Nuclear Regulatory Commission · Notices

Notices. Request for comment

19,118 words·~87 min read·/register/2006/05/03/06-4192

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 7555-01-P NUCLEAR REGULATORY COMMISSION Notice of Opportunity To Comment on Model Safety Evaluation and Model License Amendment Request on Technical Specification Improvement Regarding Use of the Improved Bank Position Withdrawal Sequence for General Electric Boiling Water Reactors Using the Consolidated Line Item Improvement Process AGENCY: Nuclear Regulatory Commission. ACTION: Request for comment. SUMMARY: Notice is hereby given that the staff of the U.S. Nuclear Regulatory Commission
(NRC)has prepared a model license amendment request (LAR), model safety evaluation (SE), and model proposed no significant hazards consideration
(NSHC)determination related to changes to Standard Technical Specification
(STS)3.1.6, “Rod Pattern Control,” and STS 3.3.2.1, “Control Rod Block Instrumentation” for NUREG-1433 and NUREG-1434. The proposed changes would revise the Bases for STS 3.1.6, “Rod Pattern Control,” and STS 3.3.2.1, “Control Rod Block Instrumentation” to allow licensees to use an improved control rod bank position withdrawal sequence
(BPWS)when performing a reactor shutdown. In addition, for NUREG-1434 licensees, the proposed changes would add a footnote to Table 3.3.2.1-1, “Control Rod Block Instrumentation.” The requirements for implementing the improved BPWS are described in General Electric Licensing Topical Report
(LTR)NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated July 2004. The General Electric Boiling Water Reactor Owners Group (BWROG) participants in the Technical Specifications Task Force
(TSTF)proposed these changes to the STS in TSTF-476, Revision 0, “Improved BPWS Control Rod Insertion Process (NEDO-33091).” The purpose of these models is to permit the NRC to efficiently process amendments to incorporate these changes into plant-specific Technical Specifications
(TS)for General Electric Boiling Water Reactors (BWRs). Licensees of nuclear power reactors to which the models apply can request amendments conforming to the models. In such a request, a licensee should confirm the applicability of the model LAR, model SE and NSHC determination to its plant. The NRC staff is requesting comments on the model LAR, model SE and NSHC determination before announcing their availability for referencing in license amendment applications. DATES: The comment period expires 30 days from the date of this publication. Comments received after this date will be considered if it is practical to do so, but the Commission is able to ensure consideration only for comments received on or before this date. ADDRESSES: Comments may be submitted either electronically or via U.S. mail. Submit written comments to: Chief, Rules and Directives Branch, Division of Administrative Services, Office of Administration, Mail Stop: T-6 D59, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001. Hand deliver comments to: 11545 Rockville Pike, Rockville, Maryland, between 7:45 a.m. and 4:15 p.m. on Federal workdays. Submit comments by electronic mail to: *CLIIP@nrc.gov.* Copies of comments received may be examined at the NRC's Public Document Room, One White Flint North, Public File Area O1-F21, 11555 Rockville Pike (first floor), Rockville, Maryland. FOR FURTHER INFORMATION CONTACT: Eric Thomas, Mail Stop: O-12H2, Division of Inspection and Regional Support, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone
(301)415-6772. SUPPLEMENTARY INFORMATION: Background Regulatory Issue Summary 2000-06, “Consolidated Line Item Improvement Process [CLIIP] for Adopting Standard Technical Specifications Changes for Power Reactors,” was issued on March 20, 2000. The CLIIP is intended to improve the efficiency and transparency of NRC licensing processes. This is accomplished by processing proposed changes to the STS in a manner that supports subsequent license amendment applications. The CLIIP includes an opportunity for the public to comment on proposed changes to the STS following a preliminary assessment by the NRC staff and finding that the change will likely be offered for adoption by licensees. This notice is soliciting comment on a proposed change to the STS that changes the Bases for sections 3.1.6 and 3.3.2.1 of the General Electric BWR STS, Revision 3 of NUREG-1433 and NUREG-1434, and Table 3.3.2.1-1 in the NUREG-1434 STS. The CLIIP directs the NRC staff to evaluate any comments received for a proposed change to the STS and to either reconsider the change or proceed with announcing the availability of the change for proposed adoption by licensees. Those licensees opting to apply for the subject change to TSs are responsible for reviewing the staff's evaluation, referencing the applicable technical justifications, and providing any necessary plant-specific information. Following the public comment period, the model LAR and model SE will be finalized, and posted on the NRC Web page. Each amendment application made in response to the notice of availability will be processed and noticed in accordance with applicable NRC rules and procedures. This notice involves implementation of an improved BPWS, which would allow licensees of General Electric BWRs to follow the improved BPWS when inserting control rods into the core during a reactor shutdown. By letter dated August 30, 2004, the BWROG proposed these changes for incorporation into the STS as TSTF-476, Revision 0. These changes are based on the NRC staff-approved LTR NEDO-33091-A, “Improved BPWS Control Rod Insertion Process,” dated July 2004, as approved by NRC in an SE dated June 16, 2004, accessible electronically from the Agency-wide Documents Access and Management System's (ADAMS) Public Electronic Reading Room on the Internet (ADAMS Accession No. ML041700479) at the NRC Web site *http://www.nrc.gov/reading-rm/adams.html.* Persons who do not have access to ADAMS or who encounter problems in accessing the documents located in ADAMS should contact the NRC Public Document Room Reference staff by telephone at 1-800-397-4209, 301-415-4737, or by e-mail to *pdr@nrc.gov.* Applicability These proposed changes will revise the Section 3.6.1 and Section 3.3.2.1 TS Bases for General Electric BWR/4 and BWR/6 plants, and TS Table 3.3.2.1-1 for BWR/6 plants. To efficiently process the incoming license amendment applications, the NRC staff requests that each licensee applying for the changes addressed by TSTF-476, Revision 0, using the CLIIP submit an LAR that adheres to the following model. Any variations from the model LAR should be explained in the licensee's submittal. Variations from the approach recommended in this notice may require additional review by the NRC staff, and may increase the time and resources needed for the review. Significant variations from the approach, or inclusion of additional changes to the license, will result in staff rejection of the submittal. Instead, licensees desiring significant variations and/or additional changes should submit a LAR that does not claim to adopt TSTF-476. Public Notices This notice requests comments from interested members of the public within 30 days of the date of this publication. Following the NRC staff's evaluation of comments received as a result of this notice, the NRC staff may reconsider the proposed change or may proceed with announcing the availability of the change in a subsequent notice (perhaps with some changes to the model LAR, model SE or model NSHC determination as a result of public comments). If the NRC staff announces the availability of the change, licensees wishing to adopt the change will submit an application in accordance with applicable rules and other regulatory requirements. The NRC staff will, in turn, issue for each application a notice of consideration of issuance of amendment to facility operating license(s), a proposed NSHC determination, and an opportunity for a hearing. A notice of issuance of an amendment to operating license(s) will also be issued to announce the revised requirements for each plant that applies for and receives the requested change. Dated at Rockville, Maryland this 7th day of April 2006. For the Nuclear Regulatory Commission. Thomas H. Boyce, Chief, Technical Specifications Branch, Division of Inspection and Regional Support, Office of Nuclear Reactor Regulation. Attachments—For Inclusion on the Technical Specification Web Page the Following Example of an Application Was Prepared by the NRC Staff to Facilitate the Adoption of Technical Specifications Task Force
(TSTF)Traveler TSTF-476, Revision 0 “Improved BPWS Control Rod Insertion Process (Nedo-33091).” The Model Provides the Expected Level Of Detail and Content for an Application to Adopt TSTF-476, Revision 0. Licensees Remain Responsible for Ensuring That Their Actual Application Fulfills Their Administrative Requirements as Well as NRC Regulations. U.S. Nuclear Regulatory Commission, Document Control Desk, Washington, DC 20555. Subject: Plant Name, Docket No. 50-[XXX,] Re: Application For Technical Specification Improvement To Adopt TSTF-476, Revision 0, “Improved BPWS Control ROD Insertion Process (NEDO-33091)”. Dear Sir or Madam: In accordance with the provisions of Section 50.90 of Title 10 of the Code of Federal Regulations (10 CFR), [LICENSEE] is submitting a request for an amendment to the technical specifications
(TS)for [PLANT NAME, UNIT NOS.]. The proposed changes would revise Sections 3.1.6, “Rod Pattern Control,” and 3.3.2.1, “Control Rod Block Instrumentation,” to allow [PLANT NAME] to reference a new Banked Position Withdrawal Sequence
(BPWS)shutdown sequence in the TS Bases. [(BWR/6 only), In addition, a footnote is added to Table 3.3.2.1-1, “Control Rod Block Instrumentation.”] The changes are consistent with NRC-approved Industry Technical Specification Task Force
(TSTF)Standard Technical Specification Change Traveler, TSTF-476, Revision 0, “Improved BPWS Control Rod Insertion Process (NEDO-33091).” The availability of this TS improvement was announced in the **Federal Register** on [DATE] ([ ]FR[ ]) as part of the consolidated line item improvement process (CLIIP). Enclosure 1 provides a description and assessment of the proposed changes, as well as confirmation of applicability. Enclosure 2 provides the existing TS pages and TS Bases marked-up to show the proposed changes. Enclosure 3 provides final TS pages and TS Bases pages. [LICENSEE] requests approval of the proposed license amendment by [DATE], with the amendment being implemented [BY DATE OR WITHIN X DAYS]. In accordance with 10 CFR 50.91, a copy of this application, with enclosures, is being provided to the designated [STATE] Official. I declare under penalty of perjury under the laws of the United States of America that I am authorized by [LICENSEE] to make this request and that the foregoing is true and correct. [Note that request may be notarized in lieu of using this oath or affirmation statement]. If you should have any questions regarding this submittal, please contact [ ]. Sincerely, Name, Title Enclosures: 1. Description and Assessment of Proposed Changes 2. Proposed Technical Specification Changes and Technical Specification Bases Changes 3. Final Technical Specification and Bases pages cc: NRR Project Manager, Regional Office, Resident Inspector, State Contact, ITSB Branch Chief. 1.0 Description This letter is a request to amend Operating License(s) [LICENSE NUMBER(S)] for [PLANT/UNIT NAME(S)]. The proposed changes would revise Technical Specification
(TS)3.1.6, “Rod Pattern Control”, and 3.3.2.1, “Control Rod Block Instrumentation,” [(BWR/6 only) along with TS Table 3.3.2.1-1, “Control Rod Block Instrumentation,”] to allow reference to an improved, optional Bank Position Withdrawal Sequence
(BPWS)in the TS Bases for use during reactor shutdown. The new BPWS is described in Topical Report NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated July 2004 (Reference 1), and approved by the NRC by Safety Evaluation
(SE)dated June 16, 2004 (ADAMS ML041700479) (Reference 2). Technical Specification Task Force
(TSTF)change traveler TSTF-476, Revision 0, “Improved BPWS Control Rod Insertion Process (NEDO-33091)” was announced for availability in the **Federal Register** on [DATE] as part of the consolidated line item improvement process (CLIIP). 2.0 Proposed Changes Consistent with NRC-approved TSTF-476, Revision 0, the proposed TS changes include: • Revised TS Section 3.6.1 Bases to allow use of an optional BPWS during plant shutdown. • Revised TS Section 3.3.2.1 Bases to allow reprogramming of the rod worth minimizer during the optional BPWS shutdown sequence. • [(BWR/6 only): Revised Table 3.3.2.1-1, “Control Rod Block Instrumentation,” which adds a footnote that allows operators to bypass the rod pattern controller if conditions for the optional BPWS shutdown process are satisfied.] 3.0 Background The background for this application is as stated in the model SE in NRC's Notice of Availability published on [DATE ]([ ] FR [ ]), the NRC Notice for Comment published on [DATE] ([ ] FR [ ]), and TSTF-476, Revision 0. 4.0 Technical Analysis [LICENSEE] has reviewed References 1 and 2, and the model SE published on [DATE] ([ ] FR [ ]) as part of the CLIIP Notice for Comment. [LICENSEE] has applied the methodology in Reference 1 to develop the proposed TS changes. [LICENSEE] has also concluded that the justifications presented in TSTF-476, Revision 0 and the model SE prepared by the NRC staff are applicable to [PLANT, UNIT NOS.], and justify this amendment for the incorporation of the changes to the [PLANT] TS. 5.0 Regulatory Analysis A description of this proposed change and its relationship to applicable regulatory requirements and guidance was provided in the NRC Notice of Availability published on [DATE] ([ ] FR [ ]), the NRC Notice for Comment published on [DATE] ([ ] FR [ ]), and TSTF-476, Revision 0. 5.1 Regulatory Commitments As discussed in the model SE published in the **Federal Register** on [DATE] ([ ] FR [ ]) for this technical specification improvement, the following plant-specific verifications/commitments were performed. In Reference 2 the NRC staff explained that the potential for the control rod drop accident
(CRDA)will be eliminated by the following changes to the operational procedures, which [PLANT NAME] [has made/will commit to make prior to implementation]: 1. Before reducing power to the low power setpoint (LPSP), operators shall confirm control rod coupling integrity for all rods that are fully withdrawn. Control rods that have not been confirmed coupled and are in intermediate positions must be fully inserted prior to power reduction to the LPSP. No action is required for fully-inserted control rods. If a shutdown is required and all rods, which are not confirmed coupled, cannot be fully inserted prior to the power dropping below the LPSP, then the original/standard BPWS must be adhered to. 2. After reactor power drops below the LPSP, rods may be inserted from notch position 48 to notch position 00 without stopping at the intermediate positions. However, GE Nuclear Energy recommends that, to the maximum extent possible, operators insert rods in the same order as specified for the original/standard BPWS. If a plant is in the process of shutting down following improved BPWS with the power below the LPSP, no control rod shall be withdrawn unless the control rod pattern is in compliance with standard BPWS requirements. In addition to the procedure changes specified above, the staff previously concluded, based on its review of NEDO-33091-A, that no single failure of the boiling water reactor CRD mechanical or hydraulic system can cause a control rod to drop completely out of the reactor core during the shutdown process. Therefore, the proper use of the improved BPWS will prevent a CRDA from occurring while power is below the LPSP. [LICENSEE] has verified, in accordance with NEDO-33091-A, Revision 2, that no single failure of the boiling water reactor CRD mechanical or hydraulic system can cause a control rod to drop completely out of the reactor core during the shutdown process. 6.0 No Significant Hazards Consideration [LICENSEE] has reviewed the proposed no significant hazards consideration determination published in the **Federal Register** on [DATE] ([ ] FR [ ]) as part of the CLIIP. [LICENSEE] has concluded that the proposed determination presented in the notice is applicable to [PLANT] and the determination is hereby incorporated by reference to satisfy the requirements of 10 CFR 50.91(a). 7.0 Environmental Evaluation [LICENSEE] has reviewed the environmental consideration included in the model SE published in the **Federal Register** on [DATE] ([ ] FR [ ]) as part of the CLIIP. [LICENSEE] has concluded that the staff's findings presented therein are applicable to [PLANT] and the determination is hereby incorporated by reference for this application. 8.0 References 1. Topical Report NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated July 2004. 2. NRC Safety Evaluation
(SE)approving Topical Report NEDO-33091, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated June 16, 2004. 3. **Federal Register** Notices: Notice for Comment published on [DATE] ([ ] FR [ ]) Notice of Availability published on [DATE] ([ ] FR [ ]) Model Safety Evaluation—U.S. Nuclear Regulatory Commission Office of Nuclear Reactor Regulation—“Technical Specification Task Force TSTF-476, Revision 0—“Improved BPWS Control Rod Insertion Process (NEDO-33091) 1.0 Introduction By letter dated [___, 20_], [LICENSEE] (the licensee) proposed changes to the technical specifications
(TS)for [PLANT NAME]. The requested changes are the adoption of TSTF-476, Revision 0, “Improved BPWS Control Rod Insertion Process (NEDO-33091-A),” to the Boiling Water Reactor
(BWR)Standard Technical Specifications (STS), which was proposed by the Technical Specifications Task Force
(TSTF)by letter on August 30, 2004. This TSTF involves changes to NUREG-1433 and NUREG-1434 Section 3.1.6 “Rod Pattern Control,” Section 3.3.2.1 “Control Rod Block Instrumentation,” and Table 3.3.2.1-1 (NUREG-1434 only). The proposed TSTF would allow the use of the improved bank position withdrawal sequence
(BPWS)during normal shutdowns if the conditions of NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated July 2004, have been satisfied. 2.0 Regulatory Evaluation The control rod drop accident
(CRDA)is the design basis accident for the subject TS changes. In order to minimize the impact of a CRDA, the BPWS process was developed to minimize control rod reactivity worth for BWR plants. The proposed improved BPWS further simplifies the control rod insertion process, and in order to evaluate it, the staff followed the guidelines of Standard Review Plan Section 15.4.9, and referred to General Design Criterion
(GDC)28 of Appendix A to 10 CFR Part 50 as its regulatory requirement. GDC 28 states that the reactivity control systems shall be designed with appropriate limits on the potential amount and rate of reactivity increase to assure that the effects of postulated reactivity accidents can neither
(1)result in damage to the reactor coolant pressure boundary greater than limited local yielding nor
(2)sufficiently disturb the core, its support structures or other reactor pressure vessel internals to impair significantly the capability to cool the core. 3.0 Technical Evaluation In its safety evaluation for Licensing Topical Report NEDO-33091-A, “Improved BPWS Control Rod Insertion Process,” dated June 16, 2004, (ADAMS ML041700479) the staff determined that the methodology described in TSTF-476, Revision 0, to incorporate the improved BPWS into the STS, is acceptable. TSTF-476, Revision 0, states that the improved BPWS provides the following benefits:
(1)Allows the plant to reach the all-rods-in condition prior to significant reactor cool down, which reduces the potential for re-criticality as the reactor cools down;
(2)reduces the potential for an operator reactivity control error by reducing the total number of control rod manipulations;
(3)minimizes the need for manual scrams during plant shutdowns, resulting in less wear on control rod drive
(CRD)system components and CRD mechanisms; and,
(4)eliminates unnecessary control rod manipulations at low power, resulting in less wear on reactor manual control and CRD system components. [PLANT NAME] has been approved to use the improved BPWS, and the potential for a CRDA with power below the low power setpoint
(LPSP)has been eliminated. The safety evaluation for NEDO-33091-A explained that the potential for the CRDA will be eliminated by the following changes to operational procedures, which [PLANT NAME] [has made/will commit to make prior to implementation]: 1. Before reducing power to the LPSP, operators shall confirm control rod coupling integrity for all rods that are fully withdrawn. Control rods that have not been confirmed coupled and are in intermediate positions must be fully inserted prior to power reduction to the LPSP. No action is required for fully-inserted control rods. If a shutdown is required and all rods that are not confirmed coupled cannot be fully inserted prior to power dropping below the LPSP, then the original/standard BPWS must be adhered to. 2. After reactor power drops below the LPSP, rods may be inserted from notch position 48 to notch position 00 without stopping at the intermediate positions. However, GE Nuclear Energy recommends that, to the maximum extent possible, operators insert rods in the same order as specified for the original/standard BPWS. If a plant is in the process of shutting down following improved BPWS with the power below the LPSP, no control rod shall be withdrawn unless the control rod pattern is in compliance with standard BPWS requirements. In addition to the procedure changes specified above, the staff previously verified during its review of NEDO-33091-A, Revision 2, that no single failure of the boiling water reactor CRD mechanical or hydraulic system can cause a control rod to drop completely out of the reactor core during the shutdown process. Therefore, the proper use of the improved BPWS will prevent a CRDA from occurring while power is below the LPSP. The staff finds the proposed Technical Specification changes in [PLANT NAME's] amendment request properly incorporate the improved BPWS procedure into the STS, and that [PLANT NAME] accurately adopted TSTF-476 and the requisite procedural changes. Therefore, the staff approves the [PLANT NAME] license amendment request to adopt TSTF-476, Revision 0. 4.0 State Consultation In accordance with the Commission's regulations, the [___] State official was notified of the proposed issuance of the amendment. The State official had [(1) no comments or
(2)the following comments—with subsequent disposition by the staff]. 5.0 Environmental Consideration The amendment[s] change[s] a requirement with respect to the installation or use of a facility component located within the restricted area as defined in 10 CFR part 20 or surveillance requirements. The NRC staff has determined that the amendment involves no significant increase in the amounts, and no significant change in the types, of any effluents that may be released offsite, and that there is no significant increase in individual or cumulative occupational radiation exposure. The Commission has previously issued a proposed finding that the amendment involves no significant hazards consideration and there has been no public comment on such finding published [DATE] ([ ] FR [ ]). Accordingly, the amendment meets the eligibility criteria for categorical exclusion set forth in 10 CFR 51.22(c)(9). Pursuant to 10 CFR 51.22(b), no environmental impact statement or environmental assessment need be prepared in connection with the issuance of the amendment. 6.0 Conclusion The Commission has concluded, based on the considerations discussed above, that
(1)there is reasonable assurance that the health and safety of the public will not be endangered by operation in the proposed manner,
(2)such activities will be conducted in compliance with the Commission's regulations, and
(3)the issuance of the amendment will not be inimical to the common defense and security or to the health and safety of the public. Proposed No Significant Hazards Consideration Determination *Description of Amendment Request:* [Plant name] requests adoption of an approved change to the standard technical specifications
(STS)for Boiling Water Reactor
(BWR)Plants (NUREG-1433 & NUREG-1434) and plant specific technical specifications (TS), to allow the use of the improved bank position withdrawal sequence
(BPWS)during normal shutdowns in accordance with NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” dated July 2004. The changes are consistent with NRC approved Industry/Technical Specification Task Force
(TSTF)Standard Technical Specification Change Traveler, TSTF-476. *Basis for proposed no-significant-hazards-consideration determination:* As required by 10 CFR 50.91(a), an analysis of the issue of no-significant-hazards-consideration is presented below: *Criterion 1* —The Proposed Change Does Not Involve a Significant Increase in the Probability or Consequences of an Accident Previously Evaluated. The proposed changes modify the TS to allow the use of the improved bank position withdrawal sequence
(BPWS)during normal shutdowns if the conditions of NEDO-33091-A, Revision 2, “Improved BPWS Control Rod Insertion Process,” July 2004, have been satisfied. The staff finds that the licensee's justifications to support the specific TS changes are consistent with the approved topical report and TSTF-476. Since the change only involves changes in control rod sequencing, the probability of an accident previously evaluated is not significantly increased, if at all. The consequences of an accident after adopting TSTF-476 are no different than the consequences of an accident prior to adopting TSTF-476. Therefore, the consequences of an accident previously evaluated are not significantly affected by this change. Therefore, this change does not involve a significant increase in the probability or consequences of an accident previously evaluated. *Criterion 2* —The Proposed Change Does Not Create the Possibility of a New or Different Kind of Accident from any Previously Evaluated. The proposed change will not introduce new failure modes or effects and will not, in the absence of other unrelated failures, lead to an accident whose consequences exceed the consequences of accidents previously evaluated. The control rod drop accident
(CRDA)is the design basis accident for the subject TS changes. This change does not create the possibility of a new or different kind of accident from an accident previously evaluated. *Criterion 3* —The Proposed Change Does Not Involve a Significant Reduction in the Margin of Safety. The proposed change, TSTF-476, incorporates the improved BPWS, previously approved in NEDO-33091-A, into the improved TS. Control rod drop accident
(CRDA)is the design basis accident for the subject TS changes. In order to minimize the impact of a CRDA, the BPWS process was developed to minimize control rod reactivity worth for BWR plants. The proposed improved BPWS further simplifies the control rod insertion process and, in order to evaluate it, the staff followed the guidelines of Standard Review Plan Section 15.4.9, and referred to General Design Criterion 28 of Appendix A to 10 CFR part 50 as its regulatory requirement. The TSTF stated the improved BPWS provides the following benefits:
(1)Allows the plant to reach the all-rods-in condition prior to significant reactor cool down, which reduces the potential for re-criticality as the reactor cools down;
(2)reduces the potential for an operator reactivity control error by reducing the total number of control rod manipulations;
(3)minimizes the need for manual scrams during plant shutdowns, resulting in less wear on control rod drive
(CRD)system components and CRD mechanisms; and,
(4)eliminates unnecessary control rod manipulations at low power, resulting in less wear on reactor manual control and CRD system components. The addition of procedural requirements and verifications specified in NEDO-33091-A, along with the proper use of the BPWS will prevent a control rod drop accident
(CRDA)from occurring while power is below the low power setpoint (LPSP). The net change to the margin of safety is insignificant. Therefore, this change does not involve a significant reduction in a margin of safety. Based upon the reasoning presented above and the previous discussion of the amendment request, the requested change does not involve a significant hazards consideration. Dated at Rockville, Maryland, this __ day of ______, 2006. For the Nuclear Regulatory Commission. *Project Manager, Plant Licensing Branch [ ], Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation.* [FR Doc. E6-6678 Filed 5-2-06; 8:45 am] BILLING CODE 7590-01-P SECURITIES AND EXCHANGE COMMISSION [Rel. No. IC-27306; File No. 812-13188] The Variable Annuity Life Insurance Company, et al., Notice of Application April 27, 2006. AGENCY: Securities and Exchange Commission (the “Commission”). ACTION: Notice of application for an order of approval pursuant to Section 26(c) of the Investment Company Act of 1940, as amended (the “Act”), and an order of exemption pursuant to Section 17(b) of the Act from Section 17(a) of the Act. *Applicants:* The Variable Annuity Life Insurance Company (“VALIC”), VALIC Separate Account A (“Separate Account A” and, collectively with VALIC, the “Applicants”), and VALIC Company I (“VALIC I” and, collectively with VALIC and Separate Account A, the “Section 17 Applicants”). *Summary of Application:* Applicants seek an order approving the proposed substitution of shares of Evergreen Fundamental Large Cap Fund with Large Cap Core Fund; Evergreen Equity Income Fund with Broad Cap Value Fund; American Century Ultra Fund with VALIC Ultra Fund; AIM Large Cap Growth Fund, Janus Fund and Putnam New Opportunities Fund with Large Capital Growth Fund; MSIF Mid Cap Growth Fund, Putnam OTC & Emerging Growth Fund and SIT Mid Cap Growth Fund with Mid Cap Strategic Growth Fund; Evergreen Special Values Fund with Small Cap Special Values Fund; SIT Small Cap Growth Fund and Evergreen Special Equity Fund with Small Cap Strategic Growth Fund; Credit Suisse Small Cap Growth Fund with Small Cap Aggressive Growth Fund; Janus Adviser Worldwide Fund and Putnam Global Equity Fund with Global Equity Fund; Templeton Global Asset Allocation Fund with Global Strategy Fund; Templeton Foreign Fund with Foreign Value Fund; and Dreyfus Basic U.S. Mortgage Securities Fund with Capital Conservation Fund (the “Substitution”). Section 17 Applicants seek an order pursuant to Section 17(b) of the Act to permit certain in-kind transactions in connection with the Substitution. *Filing Date:* The application was originally filed on May 6, 2005, and an amended and restated application was filed on April 26, 2006. *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 May 22, 2006, and should 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 who wish to be notified of a hearing may request notification by writing to the Secretary of the Commission. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants, 2929 Allen Parkway, Houston, Texas 77019. FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel, or Joyce M. Pickholz, Branch Chief, Office of Insurance Products, Division of Investment Management, at
(202)551-6795. 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, 100 F Street, NE., Washington, DC 20549 (202-551-8090). Applicants' and Section 17 Applicants' Representations 1. VALIC is a stock life insurance company originally organized in 1955 under the laws of Washington, DC and reorganized in Texas in 1968. VALIC is an indirect wholly-owned subsidiary of American International Group, Inc., a United States based international insurance and financial services organization. 2. Separate Account A was established in 1979. Separate Account A is registered under the Act as a unit investment trust (File No. 811-3240) and is used to fund variable annuity contracts (the “Contracts”) (File No. 33-75292) issued by VALIC. 3. VALIC I was incorporated in Maryland on December 7, 1984 and is registered under the Act as an open-end management investment company (File Nos. 811-3738 and 002-83631). 4. Purchase payments under the Contracts may be allocated to one or more divisions (“Divisions”) of Separate Account A. Income, gains and losses, whether or not realized, from assets allocated to Separate Account A are, as provided in the Contracts, credited to or charged against Separate Account A without regard to other income, gains or losses of VALIC. The assets maintained in Separate Account A will not be charged with any liabilities arising out of any other business conducted by VALIC. Nevertheless, all obligations arising under the Contracts, including the commitment to make annuity payments or death benefit payments, are general corporate obligations of VALIC. Accordingly, Applicants represent that all of VALIC's assets are available to meet its obligations under the Contracts. 5. The Contracts permit allocations of account value to available Divisions that invest in specific investment portfolios of underlying registered investment companies (a “Fund” and, collectively, the “Mutual Funds”). VALIC I is one of the available Mutual Funds and each of the following is a series of VALIC I: Large Cap Core Fund, Broad Cap Value Fund, VALIC Ultra Fund, Large Capital Growth Fund, Mid Cap Strategic Growth Fund, Small Cap Special Values Fund, Small Cap Strategic Growth Fund, Small Cap Aggressive Growth Fund, Global Equity Fund, Global Strategy Fund, Foreign Value Fund, and Capital Conservation Fund (collectively, the “Replacement Funds”). The other Funds involved in this application (collectively, the “Replaced Funds”) are all registered under the Act as open-end management investment companies and include the following: AIM Large Cap Growth Fund, American Century Ultra Fund, Credit Suisse Small Cap Growth Fund, Dreyfus BASIC U.S. Mortgage Securities Fund, Evergreen Equity Income, Evergreen Fundamental Large Cap Fund, Evergreen Special Equity, Evergreen Special Values Funds, Janus Adviser Worldwide Funds, Janus Fund, MSIF Mid Cap Growth Portfolio, Putnam Global Equity Fund, Putnam New Opportunities Fund, Putnam OTC & Emerging Growth Fund, Sit Mid Cap Growth Fund, Sit Small Cap Growth Fund, Templeton Foreign Fund, and Templeton Global Asset Allocation Fund. 6. The Contracts permit transfers of accumulation value from one Division to another Division at any time prior to annuitization, subject to certain restrictions. No sales charge applies to such a transfer of accumulation value among Divisions. 7. The Contracts reserve the right, upon notice to contract owners (the “Contract Owners”), to substitute shares of another mutual fund for shares of a Fund held by a Division. 8. The Replaced Funds involved in the Substitution include 18 separate portfolios representing ten investment company complexes. After the Substitution, there will be 12 portfolios, all of which will be portfolios of VALIC I. Applicants represent that the investment objective and policies of each Replacement Fund will be the same as or substantially similar to the investment objective and policies of the corresponding Replaced Fund. Applicants state that the Substitution is being proposed to reduce the number of overlapping portfolio offerings in certain classes and eliminate certain portfolios whose performance levels in the recent years have not maintained the level of performance that was the basis of their inclusion as variable account options. Applicants represent that relieving Separate Account A of the administrative burdens of interfacing with ten unaffiliated investment company complexes is expected to simplify compliance, accounting and auditing and, generally, to allow VALIC to administer the Contracts more efficiently. Applicants state that VALIC will serve as the investment adviser for each Replacement Fund, and many of the Replacement Funds will retain as sub-adviser the investment adviser of the Replaced Fund. Applicants state that, because VALIC I has “manager of managers” exemptive relief, VALIC, as investment adviser, will be able to act more quickly and efficiently, subject to Board of Directors approval, to protect Contract Owners' interests if the performance of one or more of the sub-advisers does not meet expectations. 1 1 Investment Company Act Release Nos. 23386 (Aug. 12, 1998) (Notice) and 23429 (Sept. 9, 1998) (Order). 9. Applicants propose the following substitutions of shares: Substitution Replaced portfolio Replacement portfolio A Evergreen Fundamental Large Cap Fund Large Cap Core Fund. B Evergreen Equity Income Fund Broad Cap Value Fund. C American Century Ultra Fund VALIC Ultra Fund. D AIM Large Cap Growth Large Capital Growth Fund. E Janus Fund F Putnam New Opportunities Fund G MSIF Mid Cap Growth Fund Mid Cap Strategic Growth Fund. H Putnam OTC & Emerging Growth Fund I SIT Mid Cap Growth Fund J Evergreen Special Values Fund Small Cap Special Values Fund. K SIT Small Cap Growth Fund Small Cap Strategic Growth Fund. L Evergreen Special Equity Fund M Credit Suisse Small Cap Growth Fund Small Cap Aggressive Growth Fund. N Janus Adviser Worldwide Fund Global Equity Fund. O Putnam Global Equity Fund P Templeton Global Asset Allocation Fund Global Strategy Fund. Q Templeton Foreign Fund Foreign Value Fund. R Dreyfus Basic U.S. Mortgage Securities Fund Capital Conservation Fund. 10. *Substitution A:* Applicants describe the investment objective for the Evergreen Fundamental Large Cap Fund and the Large Cap Core Fund identically. Each Fund invests, under normal conditions, at least 80% of its assets in the common stock of large U.S. companies. Each Fund's stock selection is based on a diversified style of equity management that allows it to invest in both value and growth oriented equity securities. Applicants represent that both the Replaced Fund and the Replacement Fund have similar investment strategies and have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.61%, 12b-1 Fees of 0.30%, and Other Expenses of 0.59%. 2 Charges for the Replacement Fund include: Management Fees of 0.70% and Other Expenses of 0.15%; it does not charge a 12b-1 Fee. Respectively, the Replaced Fund's total gross and net operating expenses are 1.50% and 1.39% (reflecting a 0.11% fee reduction arrangement). Both total gross and net annual operating expenses for the Replacement Fund equal 0.85%. Under the Contracts, both Funds' Separate Account fee is the same. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the two Funds are nearly identical; and
(2)the Replacement Fund assets will be managed by the same investment adviser (using the same management style and strategy) as the Replaced Fund. 2 For the descriptions of charges involved in the Substitution, all percentages for the Management Fees, 12b-1 Fees, Other Expenses, Fee Reductions, Total Gross and Net Annual Operating Expenses, and Separate Account Fees represent a percentage of average annual assets. 11. *Substitution B:* Applicants state that the Evergreen Equity Income Fund seeks current income and capital growth by investing primarily in equity securities across all market capitalizations that on the purchase date pay a higher yield than the average yield of companies included in the Russell 1000 Value Index. Applicants represent that the Broad Cap Value Fund seeks total return through capital appreciation with income as a secondary consideration. The Replacement Fund invests primarily in large capitalization companies whose stocks are considered to be undervalued. The Replacement Fund may also invest in companies with mid-sized or small market capitalizations and may invest up to 20% in foreign securities. Applicants state that the investment strategies of the funds differ such that the Replaced Fund invests in “growth” and “value” securities whereas the Replacement Fund invests in what it determines are “value” securities. However, Applicants also represent that notwithstanding these differences, the risk profile of the two funds is very similar. Charges for the Replaced Fund include Management Fees of 0.59%, 12b-1 Fees of 0.30%, and Other Expenses of 0.34%. Charges for the Replacement Fund include Management Fees of 0.70%, and Other Expenses of 0.15%. The Replacement Fund does not charge a 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. The total gross annual operating expenses for the Replaced and Replacement Funds are 1.23% and 0.85%, respectively. Under the Contracts, the Separate Account fee is the same for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective (current income and capital growth) and policies of the two Funds are substantially similar;
(2)the income yield of the Replacement Fund has been comparable to the Replaced Fund for the past five years, and
(3)the Replacement Fund's overall risk profile is very similar to that of the Replaced Fund. 13. *Substitution C:* Applicants state that the Replaced Fund seeks long-term capital growth through investments primarily in common stocks that are considered to have a greater-than-average chance to increase in value over time. Applicants represent that the Replacement Fund seeks long term capital growth by investing primarily in common stocks of growing companies using a strategy that looks for companies with earnings and revenues that are growing at a successively faster or accelerating pace. Applicants represent that the Replaced and Replacement Funds have no significant risk disparities and have nearly identical investment strategies. Charges for the Replaced Fund include only a Management Fees of 0.99%; there are no 12b-1 Fees or Other Expenses. The Replacement Fund charges Management Fees of 0.80% and Other Expenses of 0.15%; there are no 12b-1 Fees. There is no fee reduction arrangement applicable to the Replaced or the Replacement Fund. The total gross annual operating expenses are for the Replaced and Replacement Funds are 0.99% and 0.95%, respectively. Under the Contracts, the Separate Account fee is 1.04% for the Replace Fund and 1.00% for the Replacement Fund. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the two Funds are nearly identical; and
(2)the Replacement Fund assets will be managed by the same investment adviser (using the same management style and strategy) as the Replaced Fund. 14. *Substitution D:* Applicants state that both Replaced and Replacement Funds seek long-term capital growth through investment in large-capitalization companies within the range of the Russell 1000 Index. Applicants also represent that
(1)the Replaced and Replacement Funds have no significant risk disparities;
(2)AIM serves as adviser to both funds (though as a co-subadviser for the Replacement Fund); and
(3)the Funds have very similar investment strategies. Charges for the Replaced Fund include Management Fees of 0.75%, 12b-1 Fees of 0.25%, and Other Expenses of 0.45%. As of January 18, 2006, charges for the Replacement Fund include a new reduced Management Fee of 0.64% and Other Expenses of 0.15%; it has no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.45% and 1.37% (reflecting a 0.08% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 0.79%. Under the Contracts, both Funds' Separate Account fee is identical. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the two Funds are substantially similar;
(2)the investment advisor of the Replaced Fund, AIM Advisors, will continue to serve as one of the two sub-advisers of the Replacement Fund; and
(3)in subadvising the Replacement Fund, AIM Advisors will continue using the same style and strategy as is used in managing the Replaced Fund. 15. *Substitution E:* Applicants state that the Replaced Fund seeks long-term growth of capital consistent with preservation of capital through investment in common stocks of larger, more established companies selected for their growth potential. The Replacement Fund seeks long-term growth of capital through investment in common stocks of well-established, high-quality growth companies no smaller than the smallest capitalized company included in the Russell 1000 Index. Applicants represent that the Replaced and Replacement Funds have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.64%, Other Expenses of 0.25%, and no 12b-1 Fee. As of January 18, 2006, charges for the Replacement Fund include a new reduced Management Fee of 0.64%, Other Expenses of 0.15%, and no 12b-1 Fee. Neither Replaced nor Replacement Fund has a fee reduction arrangement. Total gross annual operating expenses for Replaced and Replacement Funds are 0.89% and 0.79%, respectively. Under the Contracts, Separate Account fees for both Funds are identical. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective (long-term capital growth) and policies of the two Funds are substantially similar; and
(2)both the Replaced and Replacement Fund have similar risk profiles. 16. *Substitution F:* Applicants state that the Replaced Fund seeks long-term capital appreciation by investing mainly in common stocks of U.S. companies, focusing on growth stocks in sectors of the economy the adviser believes have high growth potential. The Replacement Fund seeks long-term growth of capital through investment in common stocks of well-established, high-quality growth companies no smaller than the smallest capitalized company included in the Russell 1000 Index. Applicants represent that
(1)the Replaced Fund is more likely to be subject to small and mid-cap risks than the Replacement Fund;
(2)the active trading risk associated with the Replacement Fund is anticipated as a principal risk only for the Fund's first year of operations; and
(3)both Funds may invest in derivatives, convertible securities and foreign securities. Charges for the Replaced Fund include Management Fees of 0.52%, 12b-1 Fees of 0.25%, and Other Expenses of 0.35%. As of January 18, 2006, charges for the Replacement Fund include a new reduced Management Fee of 0.64%, Other Expenses of 0.15%, and no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 1.12% and 0.79%, respectively. Under the Contracts, Separate Account fees for both Funds are identical. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective (long-term growth of capital) and policies of both Replaced and Replacement Funds are substantially similar; and
(2)both the Replaced and Replacement Fund have similar risk profiles. 17. *Substitution G:* Applicants state that the Replaced and Replacement Funds each seek long-term capital growth by investing primarily in growth-oriented equity securities of U.S. mid-cap companies and, to a limited extent, foreign companies. Applicants represent that for the Replaced Fund, the market capitalization of Mid-cap companies is generally less than $35 billion. Applicants represent that the Replacement Fund identifies a company as a mid cap company if, at the time of purchase, its capitalization is
(1)within the range of companies represented in the Russell Mid Cap Growth Index, or
(2)between $1 billion and $12 billion. Applicants represent that
(1)the Replaced Fund invests up to 10% of its assets in REITs compared to the Replacement Fund which typically invests only up to 5% in REITs;
(2)the active trading risk associated with the Replacement Fund is anticipated as a principal risk only for the Fund's first year of operations; and
(3)both Funds may invest in derivatives and initial public offerings (“IPOs”). Charges for the Replaced Fund include Management Fees of 0.50%, 12b-1 Fees of 0.25%, and Other Expenses of 0.13%. Charges for the Replacement Fund include Management Fees of 0.70%, Other Expenses of 0.15%, and no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 0.88% and 0.85%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of both Replaced and Replacement Funds are substantially similar;
(2)the investment adviser of the Replaced Fund, Morgan Stanley Investment Management (“MSIM”), will continue to serve as one of two sub-advisers of the Replacement Fund; and
(3)MSIM will continue using the same style and strategy as is used in managing the Replaced Fund. 18. *Substitution H:* Applicants state that the Replaced Funds seeks capital appreciation by investing mainly in common stocks of U.S. companies traded in the over-the-counter market and “emerging growth” companies listed on securities exchanges, with a focus on growth stocks. Applicants state that the Replacement Fund seeks long-term capital growth by investing primarily in growth-oriented equity securities of U.S. mid-cap companies and, to a limited extent, foreign companies. Applicants represent that
(1)the Replaced Fund may invest more of its assets in small-cap companies than the Replacement Fund;
(2)the active trading risk associated with the Replacement Fund is anticipated as a principal risk only for that Fund's first year of operations; and
(3)both Funds' overall risk profile is very similar. Charges for the Replaced Fund include Management Fees of 0.62%, 12b-1 Fees of 0.25%, and Other Expenses of 0.54%. Charges for the Replacement Fund include Management Fees of 0.70%, Other Expenses of 0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.41% and 1.40% (reflecting a 0.01% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 0.85%. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective (long-term capital growth) and policies of both Funds are substantially similar; and
(2)both Replaced and Replacement Funds have similar risk profiles. 19. *Substitution I:* Applicants state that the Replaced Funds seeks long-term capital appreciation by investing in the common stocks of companies with capitalizations of $2 billion to $15 billion at the time of purchase. Applicants state that the Replacement Fund seeks long-term capital growth by investing primarily in growth-oriented equity securities of U.S. and, to a limited extent, foreign, mid-cap companies with market capitalization at the time of purchase is between $1 billion and $12 billion or within the range of companies represented in the Russell Mid Cap Growth Index. Applicants represent that there are no significant risk disparities between the Replaced and Replacement Funds. The Replaced Fund carries a Management Fee of 1.25%, and has no 12b-1 Fees or Other Expenses. Charges for the Replacement Fund include Management Fees of 0.70%, Other Expenses of 0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.25% and 1.15% (reflecting a 0.10% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 0.85%. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of both Replaced and Replacement Funds are substantially similar;
(2)although the Replaced and Replacement Funds define “mid-cap companies” slightly differently, the investment objective of both Funds is to seek long-term capital growth; and
(3)both the Replaced and Replacement Fund have similar risk profiles. 20. *Substitution J:* Applicants state that the investment objective of both the Replaced and Replacement Funds is to produce capital growth by investing primarily in common stocks of small U.S. Companies. The capitalization range is identical for both Funds. Applicants represent that Replaced and Replacement Funds have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.78%, 12b-1 Fees of 0.25%, and Other Expenses of 0.34%. Charges for the Replacement Fund include Management Fees of 0.75%, Other Expenses of 0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.37% and 1.32% (reflecting a 0.05% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 0.90%. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the Replaced and Replacement Funds are substantially similar;
(2)the investment adviser of the Replaced Fund, Evergreen Investment Management (“EIM”), will continue to serve as one of two sub-advisers of the Replacement Fund; and
(3)EIM will continue using the same style and strategy as is used in managing the Replaced Fund. 21. *Substitution K:* Applicants state that the investment objective of the Replaced Fund is to maximize long-term capital appreciation by investing in common stocks of companies with capitalizations of $2.5 billion or less at the time of purchase. Applicants state that the Replacement Fund seeks capital growth by investing primarily in common stocks of small U.S. companies whose market capitalization at purchase is within the range tracked by the Russell 2000 Index. Noting that only the Replacement Fund may invest in emerging market securities and IPOs, Applicants represent that the Funds have similar investment strategies and overall risk profiles. The Replaced Fund carries a Management Fee of 1.50%, and has no 12b-1 Fees or Other Expenses. Charges for the Replacement Fund include Management Fees of 0.85%, Other Expenses of 0.15%, and no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 1.50% and 1.00%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of both Funds are substantially similar;
(2)although the Replaced and Replacement Funds define “small companies” slightly differently, the investment objective of both Funds is to seek capital growth by investing in small companies; and
(3)both the Replaced and Replacement Fund have similar risk profiles. 22. *Substitution L:* Applicants state that the investment objective of both the Replaced and Replacement Funds is to produce capital growth by investing primarily in common stocks of small U.S. companies. The capitalization range is identical for both Funds. Applicants represent that the Replaced and Replacement Funds have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.89%, 12b-1 Fees of 0.30%, and Other Expenses of 0.36%. Charges for the Replacement Fund include Management Fees of 0.85%, Other Expenses of 0.15%, and no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 1.55% and 1.00%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of both Funds are nearly identical; and
(2)the Replacement Fund will be managed by the same portfolio manager (using the same management style and strategy) as the Replaced Fund. 23. *Substitution M:* Applicants state that both Replaced and Replacement Funds seek capital growth through investment in securities of small U.S. companies. Applicants describe the capitalization range for both Funds identically and represent that the Replaced and Replacement Funds are managed by the same portfolio managers and have similar investment strategies. Charges for the Replaced Fund include Management Fees of 1.00%, 12b-1 Fees of 0.25%, and Other Expenses of 0.74%. Charges for the Replacement Fund include Management Fees of 0.85%, Other Expenses of 0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.99% and 1.40% (reflecting a 0.59% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 1.00%. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of both Funds are nearly identical; and
(2)the Replacement Fund will be managed by the same portfolio manager (using the same management style and strategy) as the Replaced Fund. 24. *Substitution N:* Applicants state that Replaced Fund seeks long-term growth of capital in a manner consistent with the preservation of capital by investing in common stocks of companies of any size located throughout the world. Applicants state that the Replacement Fund seeks capital appreciation by investing primarily in common stocks of mid-sized and large companies worldwide. Applicants represent that the Replacement Fund will invest mainly in developed countries but also may invest in developing markets. Applicants state that both Funds may invest in companies of any size. Charges for the Replaced Fund include Management Fees of 0.60%, 12b-1 Fees of 0.25%, and Other Expenses of 0.31%. Charges for the Replacement Fund include Management Fees of 0.79%, Other Expenses of 0.30%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 1.16% and 1.15% (reflecting a 0.01% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 1.09%. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective (capital appreciation by investing in common stocks of companies worldwide) and policies of both Funds are substantially similar; and
(2)the Replaced and Replacement Funds have similar risk profiles. 25. *Substitution O:* Applicants state that both Replaced and Replacement Funds seek capital appreciation by investing principally in common stocks of companies worldwide and employ a strategy of investing primarily in mid-sized and large companies in developed countries. Applicants state that each Fund may invest in companies of any size and companies located in developing markets. Applicants represent that the Funds have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.67%, 12b-1 Fees of 0.25%, and Other Expenses of 0.37%. Charges for the Replacement Fund include Management Fees of 0.79%, Other Expenses of 0.30%, and no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 1.29% and 1.00%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the Replacement Fund are nearly identical to those of the Replaced Fund; and
(2)the Replacement Fund will be managed by the same portfolio manager (using the same management style and strategy) as the Replaced Fund. 26. *Substitution P:* Applicants state that the Replaced Fund seeks high total return by normally investing in equity securities of companies of any country, debt securities of companies and governments of any country, and money market instruments. Applicants state that the Replacement Fund seeks high total return by investing in equity securities of companies in any country, fixed income
(debt)securities of companies and governments of any country, and in money market instruments. Applicants also represent that the Funds have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.61% and Other Expenses of 0.24%; it has no 12b-1 Fee. Charges for the Replacement Fund include Management Fees of 0.50% and Other Expenses of 0.30%; it also has no 12b-1 Fee. Respectively, the Replaced Funds' total gross and net annual operating expenses are 0.85% and 0.84% (reflecting a 0.01% fee reduction arrangement). The Replacement Fund has no fee reduction arrangement; its total gross and net annual operating expenses are 0.80%. Under the Contracts, the Separate Account fee is 1.25% for the Replace Fund and 1.00% for the Replacement Fund. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the Replaced and Replacement Funds are nearly identical; and
(2)the Replacement Fund will be managed by the same portfolio manager (using the same management style and strategy) as the Replaced Fund. 27. *Substitution Q:* Applicants state that both the Replaced and Replacement Funds seek long-term capital growth by investing mainly in equity securities of companies located outside the U.S., including emerging markets. Applicants further represent that both Funds may invest in companies of any market capitalization, and they have no significant risk disparities. Charges for the Replaced Fund include Management Fees of 0.61%, 12b-1 Fees of 0.25%, and Other Expenses of 0.37%. Charges for the Replacement Fund include Management Fees of 0.70% and Other Expenses of 0.30%; it has no 12b-1 Fee. There is no fee reduction arrangement applicable to either Fund. Total gross annual operating expenses for Replaced and Replacement Funds are 1.23% and 1.00%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the Replaced and Replacement Funds are nearly identical; and
(2)the Replacement Fund will be managed by the same portfolio manager (using the same management style and strategy) as the Replaced Fund. 28. *Substitution R:* Applicants state that the Replaced Fund seeks as high a level of current income as is consistent with the preservation of capital and invests in mortgage-related securities issued or guaranteed by the U.S. government, its agencies or instrumentalities to achieve this objective. Applicants represent that the Replacement Fund seeks the highest possible total return consistent with the preservation of capital through current income and capital gains on investments in intermediate and long-term debt instruments and other income producing securities. Applicants state that the Replaced Fund invests more significantly in mortgage-related securities than the Replacement Fund and that the Replacement Fund may invest a larger portion of its assets in foreign securities such as U.S. dollar denominated emerging market debt. Charges for the Replaced Fund include Management Fees of 0.60% and Other Expenses of 0.21%. Charges for the Replacement Fund include Management Fees of 0.50% and Other Expenses of 0.20%. Neither Fund has a 12b-1 Fee or a fee reduction arrangement. Total gross operating annual expenses for Replaced and Replacement Funds are 0.81% and 0.70%, respectively. Under the Contracts, the Separate Account fee is identical for both Funds. Applicants represent that the Replacement Fund is an appropriate substitute for the Replaced Fund because:
(1)The investment objective and policies of the Replacement Fund are substantially similar to those of the Replaced Fund;
(2)both Funds invest in fixed-income securities with a focus on current income;
(3)the Replaced and Replacement Funds have similar risk profiles and similar long-term performance; and
(4)considering all of VALIC's currently offered investment options, the Applicants believe that the Replacement Fund is the most appropriate substitute for the Replaced Fund because of its similarities in terms of its investment objectives, policies, media and risk. 29. Applicants represent that the Substitution will take place at the Funds' relative net asset values determined on the date of the Substitution in accordance with Section 22 of the Act and Rule 22c-1 thereunder with no change in the amount of any Contract Owner's account value or death benefit or in the dollar value of his or her investment in any of the Divisions. Applicants represent that there will be no financial impact on any Contract Owner. Applicants assert that the Substitution will generally be effected by having each of the Divisions that invests in the Replaced Funds redeem its shares at the net asset value calculated on the date of the Substitution and purchase shares of the respective Replacement Funds at the net asset value calculated on the same date. 30. Applicants represent that, in the alternative, should a Replaced Fund determine that a cash redemption would adversely affect its shareholders, it may redeem the interest “in-kind.” Applicants represent that in such a case, the Substitution will be effected by the Division contributing all the securities it receives from the Replaced Fund for an amount of Replacement Fund shares equal to the fair market value of the securities contributed. Applicants assert that all in-kind redemptions from a Replaced Fund of which any of the Applicants is an affiliated person will be effected in accordance with the conditions set forth in the Commission's no-action letter issued to *Signature Financial Group, Inc.* (available December 28, 1999). 31. Applicants state that the Substitution was described in a supplement to the prospectuses for the Contracts (“Supplements”) dated and filed with the Commission on March 1, 2006 and mailed to Contract Owners. Applicants represent that the Supplements provided Contract Owners with notice of the Substitution and described the reasons for engaging in the Substitution. Applicants further represent that the Supplements informed Contract Owners with assets allocated to a Division investing in the Replaced Funds that the Replaced Funds will not be an available investment option after the date of the Substitution and that Contract Owners will have the opportunity to reallocate account value: • Prior to the Substitution, from the Divisions investing in the Replaced Funds, and • For 30 days after the Substitution, from the Divisions investing in the Replacement Funds to Divisions investing in other Funds available under the respective Contracts, without diminishing the number of free transfers that may be made in a given contract year and without the imposition of any transfer charge or limitation, other than any applicable limitations in place to deter potentially harmful excessive trading. 32. Applicants represent that the prospectuses for the Contracts will contain the substance of the information contained in the Supplements concerning the Substitution. Applicants represent that each Contract Owner will be provided with a prospectus for the Replacement Funds before the Substitution and that within five days after the Substitution, VALIC will send affected Contract Owners written confirmation that the Substitution has occurred and notice that Contract Owners will have the opportunity to reallocate account value for 30 days after the Substitution, from the Divisions investing in the Replacement Funds to Divisions investing in other Funds available under the respective Contracts, without diminishing the number of free transfers that may be made in a given contract year and without the imposition of any transfer charge or limitation, other than any applicable limitations in place to deter potentially harmful excessive trading. 33. Applicants state that VALIC will pay all direct and indirect expenses and transaction costs of the Substitution, including all legal, accounting and brokerage expenses relating to the Substitution, and no costs will be borne by Contract Owners. Further, Applicants represent that affected Contract Owners will not incur any fees or charges as a result of the Substitution, nor will their rights or the obligations of the Applicants under the Contracts be altered in any way. Applicants represent that
(1)the Substitution will not cause the fees and charges under the Contracts currently being paid by Contract Owners, including Separate Account Fees, to be greater after the Substitution than before the Substitution;
(2)the Substitution will have no adverse tax consequences to Contract Owners; and
(3)the Substitution will in no way alter the tax benefits to Contract Owners. 34. Applicants believe that their request satisfies the standards for relief pursuant to Section 26(c) of the Act, as set forth below, because the affected Contract Owners will have:
(1)Account values allocated to a Division invested in a Replacement Fund with an investment objective and policies substantially similar to the investment objective and policies of the Replaced Fund; and
(2)Replacement Funds whose current total annual expenses are equal to or lower than those of the Replaced Funds for their 2005 fiscal years. In addition, VALIC has agreed that, for a period of 24 months following the Substitution, it will reimburse affected Contract Owners to the extent the expenses of a Replacement Fund exceed those of the Replaced Fund for the 2005 fiscal years. Applicants' Section 26(c) Legal Analysis 1. Section 26(c) of the Act makes it unlawful for any depositor or trustee of a registered unit investment trust holding the security of a single issuer to substitute another security for such security unless the Commission approves the substitution. The Commission may approve such a substitution if the evidence establishes that it is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 2. Applicants assert that the purposes, terms and conditions of the Substitution are consistent with the principles and purposes of Section 26(c) and do not entail any of the abuses that Section 26(c) is designed to prevent. Applicants have reserved the right to make such a substitution under the Contracts and represent that this reserved right is disclosed in the prospectus for the Contracts. 3. Applicants represent that for all 18 Substitutions, the investment objectives and policies of the Replacement Funds are sufficiently similar to those of the corresponding Replaced Funds that Contract Owners will have reasonable continuity in investment expectations. Accordingly, Applicants believe the Replacement Funds are appropriate investment vehicles for those Contract Owners who have account values allocated to the Replaced Funds. 4. For each of the 18 Substitutions, Applicants represent that the Replacement Funds' current annual expenses are lower than the annual expenses of the corresponding Replaced Funds for their 2005 fiscal years. Applicants represent that for the 24 month period following the date of the Substitution, VALIC agrees that if, on the last day of each fiscal quarter during the 24 month period, the total operating expenses of a Replacement Fund (taking into account any expense waiver or reimbursement) exceed on an annualized basis the net expense level of the corresponding Replaced Fund for the 2005 fiscal year, it will, for each Contract outstanding on the date of the Substitution, make a corresponding reimbursement of Separate Account expenses as of the last day of such fiscal quarter, such that the amount of the Replacement Fund's net expenses, together with those of the corresponding Separate Account will, on an annualized basis, be no greater than the sum of the net expenses of the corresponding Replaced Fund and the expenses of the Separate Account for the 2005 fiscal year. Applicants also represent that VALIC agrees that, notwithstanding any higher maximum permitted Separate Account Fee disclosed in a prospectus and set forth in a variable annuity contract, the net Separate Account Fee charged in the future to a Contract Owner on a Division that invests in a Replacement Fund will be no higher than the net Separate Account Fee charged in the most recent fiscal year to that Contract Owner on the Division that invests in the corresponding Replaced Fund. In addition, Applicants represent that for 24 months following the Substitution, VALIC will not increase contractual asset-based fees or charges for Contracts outstanding on the day of the Substitution. 5. VALIC represents that the Substitution and the selection of the Replacement Funds were not motivated by any financial consideration paid or to be paid by the Replacement Funds, their advisors or underwriters, or their respective affiliates. 6. Applicants represent that the Substitution will not result in the type of costly forced redemption that Section 26(c) was intended to guard against and represent that the Substitution is consistent with the protection of investors and the purposes fairly intended by the Act because:
(1)Each of the Replacement Funds is an appropriate fund to which to move Contract Owners with account values allocated to the Replaced Funds because the new funds have substantially similar investment objectives and policies.
(2)The direct and indirect costs of the Substitution, including any brokerage costs, will be borne by VALIC and will not be borne by Contract Owners. No charges will be assessed to effect the Substitution.
(3)The Substitution will be at the net asset values of the respective shares without the imposition of any transfer or similar charge and with no change in the amount of any Contract Owner's account value.
(4)The Substitution will not cause the fees and charges under the Contracts currently being paid by Contract Owners, including Separate Account Fees, to be greater after the Substitution than before the Substitution and will result in Contract Owners' account values being moved to a Fund with the same or lower current total annual expenses.
(5)All Contract Owners will be given notice of the Substitution prior to the Substitution and will have an opportunity beginning after such notice and until 30 days after the Substitution to reallocate account value among other available Divisions without the reallocation being counted as one of the Contract Owner's free transfers in a contract year and without the imposition of any transfer charge or limitation, other than any applicable limitations in place to deter potentially harmful excessive trading.
(6)Within five days after the Substitution, VALIC will send to its affected Contract Owners written confirmation that the Substitution has occurred.
(7)The Substitution will in no way alter the insurance benefits to Contract Owners or the contractual obligations of VALIC.
(8)The Substitution will have no adverse tax consequences to Contract Owners and will in no way alter the tax benefits to Contract Owners.
(9)No Replacement Fund will rely on the previously granted “manager of managers” exemptive relief unless such action is approved by a majority of the Replacement Fund's shareholders at a meeting whose record date is after the Substitution has been effected. Section 17 Applicants' Legal Analysis 1. Section 17(a)(1) of the Act, in relevant part, prohibits any affiliated person of a registered investment company, or any affiliated person of such person, acting as principal, from knowingly selling any security or other property to that company. Section 17(a)(2) of the Act generally prohibits the persons described above, acting as principal, from knowingly purchasing any security or other property from the registered company. 2. Because shares held by Separate Account A are legally owned by VALIC, VALIC will own of record substantially all of the shares of the Replacement Funds. In addition, as investment adviser to each Replacement Fund, VALIC could be deemed to control each Replacement Fund. Therefore, each Replacement Fund could be deemed to be an affiliate of VALIC and, to the extent Separate Account A uses assets received in-kind to purchase shares of a Replacement Fund, the Substitution may be deemed to involve one or more purchases or sales of securities or property between persons who are affiliates of affiliates. Accordingly, the Section 17 Applicants are seeking relief to the extent necessary from Section 17(a) for the in-kind purchases and sales of Replacement Fund Shares. 3. Section 17(b) of the Act provides that the Commission may, upon application, grant an order exempting any transaction from the prohibitions of Section 17(a) if the evidence establishes that: The terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned; the proposed transaction is consistent with the policy of each registered investment company concerned, as recited in its registration statement and records filed under the Act; and the proposed transaction is consistent with the general purposes of the Act. 4. The Section 17 Applicants represent that the terms of the proposed in-kind purchases of shares of the Replacement Funds by Separate Account A, including the consideration to be paid and received by each Fund involved are reasonable, fair and do not involve overreaching on the part of any person concerned. The Section 17 Applicants also represent that the proposed in-kind purchases by Separate Account A are consistent with the policies of VALIC I and the individual Replacement Funds. Finally, the Section 17 Applicants submit that the proposed substitutions are consistent with the general purposes of the Act. 5. To the extent that Separate Account A's in-kind purchases of Replacement Fund shares are deemed to involve principal transactions between entities which are affiliates of affiliates, Applicants assert that the procedures described herein should be sufficient to assure that the terms of the proposed transactions are reasonable and fair to all participants because
(1)the proposed transactions will take place at relative net asset value in conformity with the requirements of Section 22(c) of the Act and Rule 22c-1 thereunder with no change in the amount of any Contract Owner's account value or death benefit or in the dollar value of his or her investment in any Division;
(2)Contract Owners will not suffer any adverse tax consequences as a result of the substitutions; and
(3)the fees and charges under the Contracts will not increase because of the substitutions. 6. Even though they may not rely on Rule 17a-7, the Section 17 Applicants represent that they will carry out the proposed in-kind purchases in conformity with all of the conditions of Rule 17a-7 and each Fund's procedures thereunder, except that:
(1)The consideration paid for the securities being purchased or sold may not be entirely cash, and
(2)the Board of Directors of VALIC I will not separately review each portfolio security purchased by the Replacement Funds. Section 17 Applicants assert that the circumstances surrounding the proposed substitutions will offer the same degree of protection to each Replacement Fund from overreaching that Rule 17a-7 provides to them generally in connection with their purchase and sale of securities under that Rule in the ordinary course of their business. In particular, Section 17 Applicants assert that VALIC (or any of its affiliates) cannot effect the proposed transactions at a price that is disadvantageous to any of the Replacement Funds. Section 17 Applicants represent that although the transactions may not be entirely for cash, each will be effected based upon
(1)the independent market price of the portfolio securities valued as specified in paragraph
(b)of Rule 17a-7, and
(2)the net asset value per share of each Fund involved valued in accordance with the procedures disclosed in its registration statement and as required by Rule 22c-1 under the Act. Further, Section 17 Applicants represent that no brokerage commission, fee (except for customary transfer fees), or other remuneration will be paid to any party in connection with the proposed transactions. 7. The Section 17 Applicants assert that the sale of shares of Replacement Funds for investment securities, as contemplated by the proposed in-kind transactions, is consistent with the investment policy and restrictions of the Replacement Funds because
(1)the shares are sold at their net asset value, and
(2)the portfolio securities are of the type and quality that the Replacement Funds would each have acquired with the proceeds from share sales had the shares been sold for cash. To assure that the second of these conditions is met, Section 17 Applicants represent that each sub-adviser will examine the portfolio securities being offered to each Replacement Fund and accept only those securities as consideration for shares that it would have acquired for each such fund in a cash transaction. 8. Section 17 Applicants assert that the proposed in-kind transactions
(1)are consistent with the general purposes of the Act as stated in the Findings and Declaration of Policy in Section I of the Act;
(2)do not present any of the conditions or abuses that the Act was designed to prevent; and
(3)the abuses described in Sections l(b)(2) and
(3)of the Act will not occur in connection with the proposed in-kind purchases. Conclusions 1. Applicants submit that for the reasons and upon the facts set forth in their application, the requested order meets the standards set forth in Section 26(c) and should, therefore, be granted. 2. Section 17 Applicants represent that the proposed in-kind transactions meet all of the requirements of Section 17(b) of the Act and that an exemption should be granted, to the extent necessary, from the provisions of Section 17(a). For the Commission, by the Division of Investment Management, pursuant to delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6-6660 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27304; 812-13113] Forum Funds, et al.; Notice of Application April 26, 2006. AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from section 15(a) of the Act and rule 18f-2 under the Act, as well as from certain disclosure requirements. *Summary of the Application:* Applicants request an order that would permit them to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements. *Applicants:* Forum Funds (“Trust”), and Brown Investment Advisory Incorporated (“Advisor”). *Filing Dates:* The application was filed on July 29, 2004, and amended on February 13, 2006 and April 25, 2006. *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 Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on May 22, 2006 and should 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 writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants: Anthony C.J. Nuland, Seward & Kissel LLP, 1200 G Street, NW., Washington, DC 20005. FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, at
(202)551-6990, or Janet M. Grossnickle, Branch Chief, at
(202)551-6821 (Office of Investment Company Regulation, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 20549-0104 (telephone
(202)551-8090). Applicants' Representations 1. The Trust, a Delaware statutory trust, is registered under the Act as an open-end management investment company. The Trust currently is comprised of twenty-eight series (“Funds”), each with a separate investment objective, policy, and restrictions. 1 The Advisor, a Maryland corporation, is registered as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”) and serves as investment adviser to nine of the existing Funds (“Series”) pursuant to investment advisory agreements (“Advisory Agreements”). Each Advisory Agreement has been approved by the Trust's board of trustees (the “Board”), 2 including a majority of the trustees who are not “interested persons,” as defined in section 2(a)(19) of the Act, of the Trust or the Advisor (“Independent Trustees”), as well as by the shareholders of each Series. 1 Applicants also request relief with respect to future series of the Trust and any other existing or future registered open-end management investment company or series thereof that:
(a)Is advised by the Advisor or an entity controlling, controlled by, or under common control with the Advisor;
(b)uses the multi-manager structure as described in the application; and
(c)complies with the terms and conditions of the application (included in the term “Series”). The only existing registered open-end management investment company that currently intends to rely on the requested order is named as an applicant. All references to the term “Advisor” herein include
(a)the Advisor or its successor in interest (limited to any entity resulting from a reorganization of the Advisor into another jurisdiction or a change in the type of business organization), and
(b)an entity controlling, controlled by, or under common control with the Advisor. If the name of any Series contains the name of a Subadvisor (as defined below), the name of the Advisor will precede the name of the Subadvisor. 2 With respect to a Series not part of the Trust, the term “Board” refers to the board of directors/trustees of the relevant Series. 2. Applicants propose to establish a program in which the Advisor, in its capacity as investment adviser to each Series, oversees the portfolio management of a Series by its subadvisers (each, a “Subadvisor”). The Advisor would provide overall investment management services to each Series, including Subadvisor monitoring and evaluation and would be responsible for recommending the hiring, termination and replacement of Subadvisors to the Board. All subadvisory agreements (“Subadvisory Agreements”) will be approved by the Board, including a majority of the Independent Trustees. Under each Subadvisory Agreement, the Subadvisor would determine which securities will be purchased and sold for a Series' investment portfolio or for a portion of the portfolio. Each Subadvisor will be registered under the Advisers Act and paid by the Advisor out of the fee it receives from the Series under its Advisory Agreement. Applicants request an order to permit the Advisor, subject to Board approval, to enter into and materially amend Subadvisory Agreements without obtaining shareholder approval. The requested relief will not extend to any Subadvisor that is an affiliated person, as defined in section 2(a)(3) of the Act, of a Series or of the Advisor, other than by reason of serving as a Subadvisor to one or more of the Series (“Affiliated Subadvisor”). 3. Applicants also request an exemption from the various disclosure provisions described below that may require a Series to disclose fees paid by the Advisor to each Subadvisor. An exemption is requested to permit each Series, in the event that a Series has more than one Subadvisor, to disclose (both as a dollar amount and as a percentage of a Series' net assets):
(a)The aggregate fees paid to the Advisor and Affiliated Subadvisors; and
(b)aggregate fees paid to Subadvisors other than Affiliated Subadvisors (“Aggregate Fee Disclosure”). For any Series that employs an Affiliated Subadvisor, the Series will provide separate disclosure of any fees paid to such Affiliated Subadvisor. Applicants' Legal Analysis 1. Section 15(a) of the Act provides, in relevant part, that it is unlawful for any person to act as an investment adviser to a registered investment company except under a written contract that has been approved by the vote of a majority of the company's outstanding voting securities. Rule 18f-2 under the Act provides that each series or class of stock in a series company affected by a matter must approve such matter if the Act requires shareholder approval. 2. Form N-1A is the registration statement used by open-end investment companies. Item 14(a)(3) of Form N-1A requires disclosure of the method and amount of the investment adviser's compensation. 3. Rule 20a-1 under the Act requires proxies solicited with respect to an investment company to comply with Schedule 14A under the Securities Exchange Act of 1934 (“1934 Act”). Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, require a proxy statement for a shareholder meeting at which the advisory contract will be voted upon to include the “rate of compensation of the investment adviser,” the “aggregate amount of the investment adviser's fees,” a description of the “terms of the contract to be acted upon,” and, if a change in the advisory fee is proposed, the existing and proposed fees and the difference between the two fees. 4. Form N-SAR is the semi-annual report filed with the Commission by registered investment companies. Item 48 of Form N-SAR requires investment companies to disclose the rate schedule for fees paid to their investment advisers, including the subadvisers. 5. Regulation S-X sets forth the requirements for financial statements required to be included as part of investment company registration statements and shareholder reports filed with the Commission. Sections 6-07(2)(a), (b), and
(c)of Regulation S-X require that investment companies include in their financial statements information about investment advisory fees. 6. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities, or transactions from any provisions of the Act, or from any rule thereunder, if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants state that their requested relief meets this standard for the reasons discussed below. 7. Applicants assert that by investing in a Series, shareholders are in effect hiring the Advisor to manage the Series' assets through monitoring and evaluation of Subadvisors rather than by hiring the Advisor's own employees to directly manage assets, and that shareholders will expect that the Advisor will oversee its Subadvisors and recommend whether to hire, terminate or replace such Subadvisors when deemed appropriate. Applicants believe that permitting the Advisor to hire Subadvisors without incurring the unnecessary delay and expense of obtaining shareholder approval of each Subadvisory Agreement is appropriate in the interest of the Series' shareholders and will allow each Series to potentially operate more efficiently. Applicants note that the Advisory Agreements will continue to be subject to section 15(a) of the Act and rule 18f-2 under the Act. 8. Applicants assert that, because the Advisor compensates the Subadvisors out of the fee it receives from each Series for advisory services, disclosure of the individual fees that the Advisor would pay to each Subadvisor in a co-subadvisory or multi-subadvisory situation does not serve any meaningful purpose. Applicants further assert that some Subadvisors use a “posted” rate schedule to set their fees. Applicants state that while Subadvisors are willing to negotiate fees that are lower than those posted on the schedule, they are reluctant to do so where the fees are disclosed to other prospective and existing customers. Applicants submit that the requested relief will encourage potential Subadvisors to negotiate lower subadvisory fees with the Advisor, the benefits of which may be passed on to Series shareholders. Applicants' Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The Advisor will provide general investment management services to each Series, including overall supervisory responsibility for the general management and investment of the Series' assets and, subject to review and approval of the Board, will:
(i)Set the Series' overall investment strategies;
(ii)evaluate, select and recommend Subadvisors to manage all or a portion of a Series' assets;
(iii)allocate and, when appropriate, reallocate a Series' assets among multiple Subadvisors;
(iv)monitor and evaluate Subadvisor performance; and
(v)implement procedures reasonably designed to ensure that Subadvisors comply with the relevant Series' investment objective, policies and restrictions. 2. Before a Series may rely on the order requested herein, the operation of the Series in the manner described in this application will be approved by a majority of the Series' outstanding voting securities as defined in the Act, or, in the case of a Series whose public shareholders purchase shares on the basis of a prospectus containing the disclosure contemplated by condition 3 below, by the initial shareholder before such Series' shares are offered to the public. 3. The prospectus for each Series will disclose the existence, substance and effect of any order granted pursuant to this application. In addition, each Series will hold itself out to the public as employing the manager of managers structure described in this application. The prospectus will prominently disclose that the Advisor has ultimate responsibility, subject to oversight by the Board, to oversee the Subadvisors and recommend their hiring, termination, and replacement. 4. Within 90 days of the hiring of any new Subadvisor, the shareholders of the relevant Series will be furnished all information about the new Subadvisor that would be included in a proxy statement, except as modified to permit Aggregate Fee Disclosure. This information will include Aggregate Fee Disclosure and any change in such disclosure caused by the addition of a new Subadvisor. To meet this obligation, the Advisor will provide shareholders of the applicable Series, within 90 days of the hiring of a new Subadvisor, with an information statement meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the 1934 Act, except as modified by the order to permit Aggregate Fee Disclosure. 5. No trustee or officer of the Trust or a Series or director or officer of the Advisor will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by such person) any interest in a Subadvisor except for:
(i)ownership of interests in the Advisor or any entity that controls, is controlled by, or is under common control with the Advisor; or
(ii)ownership of less than 1% of the outstanding securities of any class of equity or debt of a publicly traded company that is either a Subadvisor or an entity that controls, is controlled by or is under common control with a Subadvisor. 6. At all times, at least a majority of the Board will be independent Trustees, and the nomination of new or additional Independent Trustees will be placed within the discretion of the then-existing Independent Trustees. The Board also will satisfy the fund governance standards defined in rule 0-1(a)(7) under the Act. 7. Whenever a Subadvisor change is proposed for a Series with an Affiliated Subadvisor, the Series' Board, including a majority of the Independent Trustees, will make a separate finding, reflected in the applicable Board minutes, that such change is in the best interests of the Series and its shareholders and does not involve a conflict of interest from which the Advisor or the Affiliated Subadvisor derives an inappropriate advantage. 8. Each Series in its registration statement will disclose the Aggregate Fee Disclosure. 9. Independent legal counsel, as defined in rule 0-1(a)(6) under the Act, will be engaged to represent the Independent Trustees. The selection of such counsel will be within the discretion of the then-existing Independent Trustees. 10. The Advisor will provide the Board, no less frequently than quarterly, with information about the Advisor's profitability on a per Series basis. This information will reflect the impact on profitability of the hiring or termination of any Subadvisor during the applicable quarter. 11. Whenever a Subadvisor is hired or terminated, the Advisor will provide the Board with information showing the expected impact on the Advisor's profitability. 12. The Advisor will not enter into a Subadvisory Agreement with any Affiliated Subadvisor, without such agreement, including the compensation to be paid thereunder, being approved by the shareholders of the applicable Series. 13. The requested order will expire on the effective date of rule 15a-5 under the Act, if adopted. For the Commission, by the Division of Investment Management, under delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6-6638 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release Nos. 33-8681; 34-53737/April 28, 2006] Order Making Fiscal Year 2007 Annual Adjustments to the Fee Rates Applicable Under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), 31(b), and 31(c) of the Securities Exchange Act of 1934 I. Background The Commission collects fees under various provisions of the securities laws. Section 6(b) of the Securities Act of 1933 (“Securities Act”) requires the Commission to collect fees from issuers on the registration of securities. 1 Section 13(e) of the Securities Exchange Act of 1934 (“Exchange Act”) requires the Commission to collect fees on specified repurchases of securities. 2 Section 14(g) of the Exchange Act requires the Commission to collect fees on proxy solicitations and statements in corporate control transactions. 3 Finally, Sections 31(b) and
(c)of the Exchange Act require national securities exchanges and national securities associations, respectively, to pay fees to the Commission on transactions in specified securities. 4 1 15 U.S.C. 77f(b). 2 15 U.S.C. 78m(e). 3 15 U.S.C. 78n(g). 4 15 U.S.C. 78ee(b) and (c). In addition, Section 31(d) of the Exchange Act requires the Commission to collect assessments from national securities exchanges and national securities associations for round turn transactions on security futures. 15 U.S.C. 78ee(d). The Investor and Capital Markets Fee Relief Act (“Fee Relief Act”) 5 amended Section 6(b) of the Securities Act and Sections 13(e), 14(g), and 31 of the Exchange Act to require the Commission to make annual adjustments to the fee rates applicable under these sections for each of the fiscal years 2003 through 2011, and one final adjustment to fix the fee rates under these sections for fiscal year 2012 and beyond. 6 5 Pub. L. 107-123, 115 Stat. 2390 (2002). 6 *See* 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5), 78m(e)(6), 78n(g)(5), 78n(g)(6), 78ee(j)(1), and 78ee(j)(3). Section 31(j)(2) of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the Commission, in specified circumstances, to make a mid-year adjustment to the fee rates under Sections 31(b) and
(c)of the Exchange Act in fiscal years 2002 through 2011. II. Fiscal Year 2007 Annual Adjustment to the Fee Rates Applicable Under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act Section 6(b)(5) of the Securities Act requires the Commission to make an annual adjustment to the fee rate applicable under Section 6(b) of the Securities Act in each of the fiscal years 2003 through 2011. 7 In those same fiscal years, Sections 13(e)(5) and 14(g)(5) of the Exchange Act require the Commission to adjust the fee rates under Sections 13(e) and 14(g) to a rate that is equal to the rate that is applicable under Section 6(b). In other words, the annual adjustment to the fee rate under Section 6(b) of the Securities Act also sets the annual adjustment to the fee rates under Sections 13(e) and 14(g) of the Exchange Act. 7 The annual adjustments are designed to adjust the fee rate in a given fiscal year so that, when applied to the aggregate maximum offering price at which securities are proposed to be offered for the fiscal year, it is reasonably likely to produce total fee collections under Section 6(b) equal to the “target offsetting collection amount” specified in Section 6(b)(11)(A) for that fiscal year. Section 6(b)(5) sets forth the method for determining the annual adjustment to the fee rate under Section 6(b) for fiscal year 2007. Specifically, the Commission must adjust the fee rate under Section 6(b) to a “rate that, when applied to the baseline estimate of the aggregate maximum offering prices for [fiscal year 2007], is reasonably likely to produce aggregate fee collections under [Section 6(b)] that are equal to the target offsetting collection amount for [fiscal year 2007].” That is, the adjusted rate is determined by dividing the “target offsetting collection amount” for fiscal year 2007 by the “baseline estimate of the aggregate maximum offering prices” for fiscal year 2007. Section 6(b)(11)(A) specifies that the “target offsetting collection amount” for fiscal year 2007 is $214,000,000. 8 Section 6(b)(11)(B) defines the “baseline estimate of the aggregate maximum offering price” for fiscal year 2007 as “the baseline estimate of the aggregate maximum offering price at which securities are proposed to be offered pursuant to registration statements filed with the Commission during [fiscal year 2007] as determined by the Commission, after consultation with the Congressional Budget Office and the Office of Management and Budget * * *.” 8 Congress determined the target offsetting collection amounts by applying reduced fee rates to the CBO's January 2001 projections of the aggregate maximum offering prices for fiscal years 2002 through 2011. In any fiscal year through fiscal year 2011, the annual adjustment mechanism will result in additional fee rate reductions if the CBO's January 2001 projection of the aggregate maximum offering prices for the fiscal year proves to be too low, and fee rate increases if the CBO's January 2001 projection of the aggregate maximum offering prices for the fiscal year proves to be too high. To make the baseline estimate of the aggregate maximum offering price for fiscal year 2007, the Commission is using the same methodology it developed in consultation with the Congressional Budget Office (“CBO”) and Office of Management and Budget (“OMB”) to project aggregate offering price for purposes of the fiscal year 2006 annual adjustment. Using this methodology, the Commission determines the “baseline estimate of the aggregate maximum offering price” for fiscal year 2007 to be $6,974,885,248,909. 9 Based on this estimate, the Commission calculates the annual adjustment for fiscal 2007 to be $30.70 per million. This adjusted fee rate applies to Section 6(b) of the Securities Act, as well as to Sections 13(e) and 14(g) of the Exchange Act. 9 Appendix A explains how we determined the “baseline estimate of the aggregate maximum offering price” for fiscal year 2007 using our methodology, and then shows the purely arithmetical process of calculating the fiscal year 2007 annual adjustment based on that estimate. The appendix includes the data used by the Commission in making its “baseline estimate of the aggregate maximum offering price” for fiscal year 2007. III. Fiscal Year 2007 Annual Adjustment to the Fee Rates Applicable Under Sections 31(b) and
(c)of the Exchange Act Section 31(b) of the Exchange Act requires each national securities exchange to pay the Commission a fee at a rate, as adjusted by our order pursuant to Section 31(j)(2), 10 which currently is $30.70 per million of the aggregate dollar amount of sales of specified securities transacted on the exchange. Similarly, Section 31(c) requires each national securities association to pay the Commission a fee at the same adjusted rate on the aggregate dollar amount of sales of specified securities transacted by or through any member of the association otherwise than on an exchange. Section 31(j)(1) requires the Commission to make annual adjustments to the fee rates applicable under Sections 31(b) and
(c)for each of the fiscal years 2003 through 2011. 11 10 Order Making Fiscal Year 2006 Annual Adjustments to the Fee Rates Applicable under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), 31(b) and 31(c) of the Securities Exchange Act of 1934, Rel. No. 33-8572 (April 28, 2005), 70 FR 23271 (May 4, 2005). 11 The annual adjustments, as well as the mid-year adjustments required in specified circumstances under Section 31(j)(2) in fiscal years 2002 through 2011, are designed to adjust the fee rates in a given fiscal year so that, when applied to the aggregate dollar volume of sales for the fiscal year, they are reasonably likely to produce total fee collections under Section 31 equal to the “target offsetting collection amount” specified in Section 31( *l* )(1) for that fiscal year. Section 31(j)(1) specifies the method for determining the annual adjustment for fiscal year 2007. Specifically, the Commission must adjust the rates under Sections 31(b) and
(c)to a “uniform adjusted rate that, when applied to the baseline estimate of the aggregate dollar amount of sales for [fiscal year 2007], is reasonably likely to produce aggregate fee collections under [Section 31] (including assessments collected under [Section 31(d)]) that are equal to the target offsetting collection amount for [fiscal year 2007].” Section 31 ( *l* )(1) specifies that the “target offsetting collection amount” for fiscal year 2007 is $881,000,000. 12 Section 31( *l* )(2) defines the “baseline estimate of the aggregate dollar amount of sales” as “the baseline estimate of the aggregate dollar amount of sales of securities * * * to be transacted on each national securities exchange and by or through any member of each national securities association (otherwise than on a national securities exchange) during [fiscal year 2007] as determined by the Commission, after consultation with the Congressional Budget Office and the Office of Management and Budget * * *.” 12 Congress determined the target offsetting collection amounts by applying reduced fee rates to the CBO's January 2001 projections of dollar volume for fiscal years 2002 through 2011. In any fiscal year through fiscal year 2011, the annual and, in specified circumstances, mid-year adjustment mechanisms will result in additional fee rate reductions if the CBO's January 2001 projection of dollar volume for the fiscal year proves to be too low, and fee rate increases if the CBO's January 2001 projection of dollar volume for the fiscal year proves to be too high. To make the baseline estimate of the aggregate dollar amount of sales for fiscal year 2007, the Commission is using the same methodology it developed in consultation with the CBO and OMB to project dollar volume for purposes of prior fee adjustments. 13 Using this methodology, the Commission calculates the baseline estimate of the aggregate dollar amount of sales for fiscal year 2007 to be $53,460,711,153,955. Based on this estimate, and an estimated collection of $51,489 in assessments on security futures transactions under Section 31(d) in fiscal year 2007, the uniform adjusted rate is $15.30 per million. 14 13 Appendix B explains how we determined the “baseline estimate of the aggregate dollar amount of sales” for fiscal year 2007 using our methodology, and then shows the purely arithmetical process of calculating the fiscal year 2007 annual adjustment based on that estimate. The appendix also includes the data used by the Commission in making its “baseline estimate of the aggregate dollar amount of sales” for fiscal year 2007. 14 The calculation of the adjusted fee rate assumes that the current fee rate of $30.70 per million will apply through October 31, 2006, due to the operation of the effective date provision contained in Section 31(j)(4)(A) of the Exchange Act. IV. Effective Dates of the Annual Adjustments Section 6(b)(8)(A) of the Securities Act provides that the fiscal year 2007 annual adjustment to the fee rate applicable under Section 6(b) of the Securities Act shall take effect on the later of October 1, 2006, or five days after the date on which a regular appropriation to the Commission for fiscal year 2007 is enacted. 15 Section 13(e)(8)(A) and 14(g)(8)(A) of the Exchange Act provide for the same effective date for the annual adjustments to the fee rates applicable under Sections 13(e) and 14(g) of the Exchange Act. 16 15 15 U.S.C. 77f(b)(8)(A). 16 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A). Section 31(j)(4)(A) of the Exchange Act provides that the fiscal year 2007 annual adjustments to the fee rates applicable under Sections 31(b) and
(c)of the Exchange Act shall take effect on the later of October 1, 2006, or 30 days after the date on which a regular appropriation to the Commission for fiscal year 2007 is enacted. V. Conclusion Accordingly, pursuant to Section 6(b) of the Securities Act and Sections 13(e), 14(g), and 31 of the Exchange Act, 17 17 15 U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j). *It is hereby ordered* that the fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall be $30.70 per million effective on the later of October 1, 2006, or five days after the date on which a regular appropriation to the Commission for fiscal year 2007 is enacted; and *It is further ordered* that the fee rates applicable under Sections 31(b) and
(c)of the Exchange Act shall be $15.30 per million effective on the later of October 1, 2006, or 30 days after the date on which a regular appropriation to the Commission for fiscal year 2007 is enacted. By the Commission. Nancy M. Morris, Secretary. Appendix A With the passage of the Investor and Capital Markets Relief Act, Congress has, among other things, established a target amount of monies to be collected from fees charged to issuers based on the value of their registrations. This appendix provides the formula for determining such fees, which the Commission adjusts annually. Congress has mandated that the Commission determine these fees based on the “aggregate maximum offering prices,” which measures the aggregate dollar amount of securities registered with the Commission over the course of the year. In order to maximize the likelihood that the amount of monies targeted by Congress will be collected, the fee rate must be set to reflect projected aggregate maximum offering prices. As a percentage, the fee rate equals the ratio of the target amounts of monies to the projected aggregate maximum offering prices. For 2007, the Commission has estimated the aggregate maximum offering prices by projecting forward the trend established in the previous decade. More specifically, an ARIMA model was used to forecast the value of the aggregate maximum offering prices for months subsequent to March 2006, the last month for which the Commission has data on the aggregate maximum offering prices. The following sections describe this process in detail. A. Baseline Estimate of the Aggregate Maximum Offering Prices for Fiscal Year 2007 First, calculate the aggregate maximum offering prices
(AMOP)for each month in the sample (March 1996-March 2006). Next, calculate the percentage change in the AMOP from month to month. Model the monthly percentage change in AMOP as a first order moving average process. The moving average approach allows one to model the effect that an exceptionally high (or low) observation of AMOP tends to be followed by a more “typical” value of AMOP. Use the estimated moving average model to forecast the monthly percent change in AMOP. These percent changes can then be applied to obtain forecasts of the total dollar value of registrations. The following is a more formal (mathematical) description of the procedure: 1. Begin with the monthly data for AMOP. The sample spans ten years, from March 1996 to March 2006. 2. Divide each month's AMOP (column C) by the number of trading days in that month (column B) to obtain the average daily AMOP (AAMOP, column D). 3. For each month t, the natural logarithm of AAMOP is reported in column E. 4. Calculate the change in log(AAMOP) from the previous month as Δ <sup>t</sup> = log (AAMOP <sup>t</sup> ) − log(AAMOP <sup>t−1</sup> ). This approximates the percentage change. 5. Estimate the first order moving average model Δ; <sup>t</sup> = α + βe <sup>t−1</sup> + e <sup>t</sup> , where e <sup>t</sup> denotes the forecast error for month t. The forecast error is simply the difference between the one-month ahead forecast and the actual realization of Δ <sup>t</sup> . The forecast error is expressed as e <sup>t</sup> = Δ <sup>t</sup> − α − βe <sup>t−1</sup> . The model can be estimated using standard commercially available software such as SAS or Eviews. Using least squares, the estimated parameter values are α = 0.01095 and β = −0.78845. 6. For the month of April 2006, forecast Δ <sup>t = 4/06</sup> = α + βe <sup>t = 3/06</sup> . For all subsequent months, forecast Δ <sup>t</sup> = α. 7. Calculate forecasts of log(AAMOP). For example, the forecast of log(AAMOP) for June 2006 is given by FLAAMOP <sup>t = 6/06</sup> = log(AAMOP <sup>t = 3/06</sup> ) + Δ <sup>t = 4/06</sup> + Δ <sup>t = 5/06</sup> + Δ <sup>t = 6/06</sup> . 8. Under the assumption that e <sup>t</sup> is normally distributed, the n-step ahead forecast of AAMOP is given by exp(FLAAMOP <sup>t</sup> + σ <sup>n</sup> 2 /2), where σ <sup>n</sup> denotes the standard error of the n-step ahead forecast. 9. For June 2007, this gives a forecast AAMOP of $24.4 billion (Column I), and a forecast AMOP of $537.2 billion (Column J). 10. Iterate this process through September 2007 to obtain a baseline estimate of the aggregate maximum offering prices for fiscal year 2007 of $6,974,885,248,909. B. Using the Forecasts From A To Calculate the New Fee Rate 1. Using the data from Table A, estimate the aggregate maximum offering prices between 10/1/06 and 9/30/07 to be $6,974,885,248,909. 2. The rate necessary to collect the target $214,000,000 in fee revenues set by Congress is then calculated as: $214,000,000 ÷ $6,974,885,248,909 = 0.00003068 (or $30.70 per million). BILLING CODE 8010-01-P EN03MY06.008 EN03MY06.009 EN03MY06.010 EN03MY06.011 EN03MY06.012 EN03MY06.013 BILLING CODE 8010-01-C Appendix B With the passage of the Investor and Capital Markets Relief Act, Congress has, among other things, established a target amount of monies to be collected from fees charged to investors based on the value of their transactions. This appendix provides the formula for determining such fees, which the Commission adjusts annually, and may adjust semi-annually. 18 In order to maximize the likelihood that the amount of monies targeted by Congress will be collected, the fee rate must be set to reflect projected dollar transaction volume on the securities exchanges and certain over-the-counter markets over the course of the year. As a percentage, the fee rate equals the ratio of the target amounts of monies to the projected dollar transaction volume. 18 Congress requires that the Commission make a mid-year adjustment to the fee rate if four months into the fiscal year it determines that its forecasts of aggregate dollar volume are reasonably likely to be off by 10% or more. For 2007, the Commission has estimated dollar transaction volume by projecting forward the trend established in the previous decade. More specifically, dollar transaction volume was forecasted for months subsequent to March 2006, the last month for which the Commission has data on transaction volume. The following sections describe this process in detail. A. Baseline Estimate of the Aggregate Dollar Amount of Sales for Fiscal Year 2007 First, calculate the average daily dollar amount of sales
(ADS)for each month in the sample (March 1996-March 2006). The monthly aggregate dollar amount of sales (exchange plus certain over-the-counter markets) is presented in column C of Table B. Next, calculate the change in the natural logarithm of ADS from month to month. The average monthly percentage growth of ADS over the entire sample is 0.013 and the standard deviation 0.117. Assuming the monthly percentage change in ADS follows a random walk, calculating the expected monthly percentage growth rate for the full sample is straightforward. The expected monthly percentage growth rate of ADS is 2.0%. Now, use the expected monthly percentage growth rate to forecast total dollar volume. For example, one can use the ADS for March 2006 ($165,519,031,905) to forecast ADS for April 2006 ($168,860,299,166 = $165,519,031,905 × 1.020). 19 Multiply by the number of trading days in April 2006
(19)to obtain a forecast of the total dollar volume for the month ($3,208,345,684,147). Repeat the method to generate forecasts for subsequent months. 19 The value 1.020 has been rounded. All computations are done with the unrounded value. The forecasts for total dollar volume are in column G of Table B. The following is a more formal (mathematical) description of the procedure: 1. Divide each month's total dollar volume (column C) by the number of trading days in that month (column B) to obtain the average daily dollar volume (ADS, column D). 2. For each month t, calculate the change in ADS from the previous month as Δ <sup>t</sup> = log (ADS <sup>t</sup> / ADS <sup>t−1</sup> ), where log
(x)denotes the natural logarithm of x. 3. Calculate the mean and standard deviation of the series {Δ <sup>1</sup> , Δ <sup>2</sup> , . . . , Δ <sup>120</sup> }. These are given by μ = 0.013 and σ = 0.117, respectively. 4. Assume that the natural logarithm of ADS follows a random walk, so that Δ <sup>s</sup> and Δ <sup>t</sup> are statistically independent for any two months s and t. 5. Under the assumption that Δ <sup>t</sup> is normally distributed, the expected value of ADS <sup>t</sup> /ADS <sup>t−1</sup> is given by exp (μ + σ 2 /2), or on average ADS <sup>t</sup> = 1.020 × ADS <sup>t−1</sup> . 6. For April 2006, this gives a forecast ADS of 1.020 × $165,519,031,905 = $168,860,299,166. Multiply this figure by the 19 trading days in April 2006 to obtain a total dollar volume forecast of $3,208,345,684,147. 7. For May 2006, multiply the April 2006 ADS forecast by 1.020 to obtain a forecast ADS of $172,269,015,268. Multiply this figure by the 22 trading days in May 2006 to obtain a total dollar volume forecast of $3,789,918,335,894. 8. Repeat this procedure for subsequent months. B. Using the Forecasts From A to Calculate the New Fee Rate 1. Use Table B to estimate fees collected for the period 10/1/06 through 10/31/06. The projected aggregate dollar amount of sales for this period is $4,188,205,050,118. Projected fee collections at the current fee rate of 0.0000307 are $128,577,895. 2. Estimate the amount of assessments on securities futures products collected during 10/1/06 and 9/30/07 to be $51,489 by projecting a 2.0% monthly increase from a base of $3,342 in March 2006. 3. Subtract the amounts $128,577,895 and $51,489 from the target offsetting collection amount set by Congress of $881,000,000 leaving $752,370,487 to be collected on dollar volume for the period 11/1/06 through 9/30/07. 4. Use Table B to estimate dollar volume for the period 11/1/06 through 9/30/07. The estimate is $49,272,506,103,837. Finally, compute the fee rate required to produce the additional $752,370,487 in revenue. This rate is $752,370,487 divided by $49,272,506,103,837 or 0.0000152696. 5. Round the result to the seventh decimal point, yielding a rate of .0000153 (or $15.30 per million). BILLING CODE 8010-01-P EN03MY06.014 EN03MY06.015 EN03MY06.016 EN03MY06.017 [FR Doc. 06-4192 Filed 5-1-06; 11:23 am]
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  • 10 CFR 50
  • 10 CFR 20
  • Pub. L. 107-123
  • 115 Stat. 2390
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