SEC Division of Investment Management staff letter: Invesco Advisers, Inc.

Investment Company Act - Section 7(a) Invesco Advisers, Inc.

April 8, 2014

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 2014312113

Invesco Advisers, Inc.

Your letter dated March 20, 2014 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (“Commission”) under section 7(a) of the Investment Company Act of 1940 (“1940 Act”) against insurance company separate accounts (“Separate Accounts”) that offer and sell group annuity contracts (“Contracts”), as part of a generic stable value investment option managed by Invesco Advisers, Inc. (“Invesco Advisers”), if the sponsors of plans organized under section 403(b) of the Internal Revenue Code of 1986 (“Code”) invest in such Separate Accounts.

FACTS

You state the following:

Invesco Advisers is an investment adviser registered under the Investment Advisers Act of 1940. It provides discretionary advisory and asset management services to a variety of clients, including sponsors of 403(b) plans. In particular, Invesco Advisers would manage the 403(b) plan assets of 403(b) plan participants that designate assets to a generic stable value investment option (the “Invesco Option”). The targeted market for the Invesco Option will be 403(b) plans sponsored primarily by large institutions, such as universities and hospitals (“403(b) Plans”). The 403(b) Plans will offer their participants (“Participants”) multiple investment options, including the Invesco Option.

Under the Invesco Option, Invesco Advisers will allocate the 403(b) Plan assets it advises among certain investments, such as Contracts offered and sold by Separate Accounts. [1] The Contracts will be privately offered in reliance on section 4(a)(2) of the Securities Act of 1933 or Regulation D thereunder. The Contracts offer employees a bundled investment and insurance product. Invesco Advisers will negotiate the features of each Contract with each issuing insurance company, including the terms of any insurance protection or wrapper.

Assets deposited into a Separate Account generally are managed by an asset manager unaffiliated with Invesco Advisers. The Separate Accounts essentially serve as building blocks to help achieve the Invesco Option’s investment objective, and a Participant generally would not know that s/he is investing in any particular Separate Account. Other investments of the Invesco Option will likely include a money market fund that is an investment company registered under the 1940 Act. [2]

A 403(b) Plan is a tax-deferred retirement plan for employees of public schools, employees of certain tax-exempt organizations and certain ministers. [3] Many 403(b) Plans and their sponsors are not subject to the Employee Retirement Securities Act of 1974 (“ERISA”), including the ERISA fiduciary standard. [4] In addition, the vast majority of 403(b) Plans are not funded through trusts with trustees that either make investment decisions on behalf of the trust or select a menu of investment options for Participants. Instead, the employer that sponsors the 403(b) Plan, or a committee appointed by the sponsoring employer, serves as the 403(b) Plan’s fiduciary and designs the 403(b) Plan’s investment menu ( e.g. , a menu that could include the Invesco Option). Participants direct the investment of their 403(b) Plan balances in one or more of such investment options, and, if the Invesco Option was selected, the 403(b) Plan sponsor would invest the proceeds in one or more Separate Accounts.

You represent that each 403(b) Plan sponsor will be subject to the Prudent Man fiduciary standard of ERISA (as defined below) when selecting investment options and managers available under a 403(b) Plan through which assets would be invested in a Separate Account, including the Invesco Option and its manager, Invesco Advisers. In particular, the Prudent Man fiduciary standard requires a fiduciary to discharge its duties with respect to a plan solely in the interest of the participants and beneficiaries and “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims” (“Prudent Man fiduciary standard”). [5] Accordingly, either the 403(b) Plans will indicate that their sponsors are subject to the Prudent Man fiduciary standard or the 403(b) Plan sponsors will contractually agree to be subject to the Prudent Man fiduciary standard. [6] To the extent that Invesco Advisers manages 403(b) Plan assets that are subject to ERISA, you represent that it will comply with the provisions of ERISA and the rules and interpretations thereunder.

You also represent that a Participant’s investment discretion will be limited to allocating his or her account among the investment options available in the 403(b) Plan, including the ability to choose the Invesco Option. No representation will be made to Participants that any specific portion of their contributions to or account balances in the 403(b) Plan, or any specific portion of the Invesco Option, will be invested in any particular Separate Account. The Participants would generally not know that they are investing in a Separate Account. If the 403(b) Plan delivers any information to its Participants that mentions an investment in a particular Separate Account, it will be accompanied by a disclaimer to the effect that no assurances can be given that the Invesco Option will continue to invest its assets, or the same portion of its assets, in the Separate Account.

You state that Invesco Advisers would like to offer the Invesco Option to 403(b) Plan sponsors, which would require the 403(b) Plan sponsors to purchase the Contracts on behalf of the Participants that are invested in the Separate Account. Invesco Advisers are concerned, however, that Participants will not be able to invest in the Separate Account because they generally will not be “qualified purchasers” under section 2(a)(51) of the 1940 Act. You ask us to conclude, analogous to our position in H.E.B. Investment and Retirement Plan (“H.E.B.”), [7] discussed below, that a fund relying on the exclusion from the definition of investment company in section 3(c)(7) of the 1940 Act ( i.e. , a Separate Account) in which the Invesco Option invests may treat the 403(b) Plan, and is not required to treat each Participant, as a qualified purchaser for section 3(c)(7) purposes, if the 403(b) Plan sponsor is subject to the Prudent Man fiduciary standard of ERISA when selecting investment options and managers available under a 403(b) Plan through which assets would be invested in a Separate Account, such as the Invesco Option.

ANALYSIS

Section 7(a) of the 1940 Act prohibits an investment company organized or otherwise created under the laws of the United States or of a state and having a board of directors from, among other things, offering or selling any security (or engaging in certain other activities) by use of the mails or any means or instrumentality of interstate commerce unless the company is registered under the 1940 Act. Section 3(c)(7) of the 1940 Act excludes from the definition of investment company any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition of the securities, are qualified purchasers, and which is not making and does not propose to make a public offering of its securities. [8]

Section 2(a)(51)(A)(iv) of the 1940 Act defines “qualified purchaser” to include “any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments.” [9] You represent that any 403(b) Plan investing in the Separate Accounts will meet the definition of “qualified purchaser”, as defined in section 2(a)(51)(iv) because the 403(b) Plan will own and invest on a discretionary basis not less than $25 million in investments and will be acting for its own account. You state that most of the Participants will not meet the “qualified purchaser” definition.

You argue that the proposed arrangement is structured and operated in a manner substantially similar to H.E.B. In that letter, we provided no-action assurances under section 7(a) of the 1940 Act to 3(c)(7) funds if a 401(k) plan subject to ERISA invested in 3(c)(7) funds. In particular, the 401(k) plan participants were not qualified purchasers, but the 401(k) plan’s trustees were subject to the fiduciary provisions of ERISA. [10] These no-action assurances to H.E.B. were provided under conditions designed to ensure that (1) plan participants are not permitted to decide whether or how much to invest in particular investment alternatives, and (2) the decision to invest in a 3(c)(7) fund is made by the plan trustee or other plan fiduciary that makes investment decisions for the plan.

You contend that your proposed arrangement is consistent with our prior no-action assurances. In particular, each Participant’s investment discretion will be limited to allocating his or her account among a number of investment options, including the Invesco Option. In addition, the decision to invest the assets of the Invesco Option in a Separate Account relying on section 3(c)(7)’s exclusion from the definition of investment company is the sole responsibility of the 403(b) Plan sponsor, without direction from or consultation with any Participant other than the 403(b) Plan sponsors acting in their capacity as 403(b) Plan sponsors. You acknowledge that many 403(b) Plans are not subject to ERISA, and thus the 403(b) Plan sponsors are not required to be fiduciaries by operation of ERISA. You represent that either each such 403(b) Plan sponsor will indicate that it is subject to the Prudent Man fiduciary standard or the 403(b) Plan sponsor will contractually agree to be subject to the Prudent Man fiduciary standard. You believe that these representations, together with certain others, are consistent with Congress’s recognition that financially sophisticated investors are in a position to appreciate the risks associated with certain investment pools and do not need the protections of the 1940 Act.

Consistent with our no-action assurances/position in H.E.B. and our previous positions, [11] we believe that a participant-directed plan, including a 403(b) Plan, that offers its Participants generic investment options that, in turn, may invest a portion of their assets in a 3(c)(7) fund such as a Separate Account, could be treated as a qualified purchaser in certain circumstances. In particular, the 403(b) Plan sponsor that is subject to the Prudent Man fiduciary standard makes the decision to include the Invesco Option (which in turn invests a portion of its assets in a Separate Account) as an investment option under the 403(b) Plan. This approach, consistent with the Commission’s approach in the context of a defined benefit plan, ensures that the person or persons making the investment decision would be in a position to appreciate the risks of investing in the Separate Account. We believe it is appropriate to apply a similar approach here.

Accordingly, based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission under section 7(a) of the 1940 Act against the Separate Accounts that offer and sell Contracts, as part of the Invesco Option, if the 403(b) Plan sponsors invest in such Separate Accounts. In particular, we rely upon the following representations:

The 403(b) Plan will own and invest on a discretionary basis not less than $25 million in investments and was not formed for the specific purpose of acquiring the securities offered by any Separate Account relying on section 3(c)(7)’s exclusion from the definition of investment company; [12]

The 403(b) Plan sponsors will be subject to the Prudent Man fiduciary standard, either contractually or pursuant to the provisions of the 403(b) Plan, with respect to: (a) all of the 403(b) Plan assets invested in the Separate Accounts including the Invesco Option (which in turn invests a portion of its assets in a Separate Account); and (b) selecting a manager, such as Invesco Advisers, that manages an option through which assets would be invested in a Separate Account, each without direction from or consultation with any Participant other than the 403(b) Plan sponsors acting in their capacity as 403(b) Plan sponsors;

The Invesco Option will not be used to facilitate the individual investment decisions of Participants into any Separate Account;

A Participant’s investment discretion will be limited to allocating his or her account among a number of investment options, including the Invesco Option, which has an identified generic investment objective;

The Invesco Option may invest in the securities of multiple Separate Accounts, provided that, immediately following the purchase by the Invesco Option of a Separate Account’s securities, no more than 50% of the Invesco Option’s assets will consist of securities of any one particular Separate Account; and

No representation will be made to Participants that any specific portion of their contributions to or account balances under the 403(b) Plan, or any specific portion of the relevant Invesco Option, will be invested in a particular Separate Account. If the 403(b) Plan delivers any information to Participants that mentions an investment in a particular Separate Account, it will be accompanied by a disclaimer to the effect that no assurances can be given that the Invesco Option will continue to invest its assets, or the same portion of its assets, in the Separate Account.

Because our position is based on all of the facts and representations made in your letter, you should note that any different facts or circumstances might require a different conclusion.

Holly Hunter-Ceci Senior Counsel

[1] Before allocating 403(b) Plan assets to a Separate Account, Invesco Advisers will consult with the 403(b) Plan sponsor and recommend Separate Accounts in which the Invesco Option would invest. Ultimately, the decision to invest the assets of the Invesco Option in a Separate Account is the sole responsibility of the 403(b) Plan sponsor, without direction from or consultation with any Participant other than the 403(b) Plan sponsor acting in its capacity as a 403(b) Plan sponsor.

[2] You state that the purchase of mutual fund shares will require the creation of a custodial arrangement pursuant to section 403(b)(7) of the Code.

[3]

See generally section 403(b)(1)(A) of the Code; Field Assistance Bulletin No. 2007-02 issued by the Department of Labor’s Employee Benefits Security Administration (July 24, 2007) (“2007-02 Bulletin”). Under a 403(b) plan, employers may purchase for their eligible employees annuity contracts or establish custodial accounts invested only in mutual funds for the purpose of providing retirement income. See sections 403(b)(1)(A) and 403(b)(7) of the Code; 2007-02 Bulletin (indicating that “[a]lthough not subject to the qualification requirements of section 401 of the Code, some of the requirements that apply to qualified plans also apply, with modifications, to 403(b) plans.”).

[4] The ERISA fiduciary standard generally requires that a fiduciary discharge his or her duties with respect to a plan solely in the interest of the participants and beneficiaries and (1) for the exclusive purpose of “providing benefits to participants and their beneficiaries” and “defraying reasonable expenses of administering the plan,” (2) “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims,” (3) “by diversifying the investment of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so,” and (4) “in accordance with the documents and instruments governing the plan ….” See section 404(a)(1) of ERISA.

[5] Section 404(a)(1)(B) of ERISA.

[6] The selection of investment options by these 403(b) Plan sponsors also may be subject to state law fiduciary standards. In addition, Invesco Advisers serves in a fiduciary capacity with respect to the 403(b) Plan assets that it allocates to the various Contracts pursuant to its advisory agreement with the applicable 403(b) Plan sponsor.

[7]

See H.E.B. Investment and Retirement Plan, H.E. Butt Grocery Company, SEC Staff No-Action Letter (May 18, 2001).

[8] The exclusion provided by section 3(c)(7) reflects Congress’ recognition that financially sophisticated investors are in a position to appreciate the risks associated with certain investment pools and do not need the protection of the 1940 Act. S. Rep. No. 293, 104th Cong., 2d Sess. 10 (1996) (“Generally, these investors can evaluate on their own behalf matters such as the level of a fund’s management fees, governance provisions, transactions with affiliates, investment risk, leverage, and redemption rights.”).

[9] Section 2(a)(51)(A) of the 1940 Act also generally defines “qualified purchaser” to include: (1) any natural person who owns not less than $5 million in investments; (2) certain family-owned companies that own not less than $5 million in investments; and (3) any trust that does not meet the definition of family-owned company in section 2(a)(51)(A)(ii) and that was not formed for the specific purpose of acquiring the securities offered by the Section 3(c)(7) Fund, and the trustees and settlors of which are qualified purchasers.

[10]

See H.E.B. Investment and Retirement Plan, supra note 7.

[11]

See Standish, Ayer & Wood, Inc. Stable Value Group Trust, SEC Staff No-Action Letter (Dec. 28, 1995) (regarding a participant-directed plan that invested a portion of its assets in a section 3(c)(1) fund) and The PanAgora Group Trust, SEC Staff No-Action Letter (Apr. 29, 1994) (for purposes of the one hundred-person limit of section 3(c)(1) of the 1940 Act, a partnership will constitute only one beneficial owner (provided that the attribution provision of section 3(c)(1)(A) does not apply) when the partnership is managed as a common investment vehicle, rather than as a device for facilitating individual investment decisions). See

also Cornish & Carey Commercial, Inc., SEC Staff No-Action Letter (June 26, 1996) (under certain circumstances, the partners of a partnership that invests in a 3(c)(1) fund may be the beneficial owners of the securities that are held by the partnership because the partnership’s assets are the property of its partners).

[12] Among other things, rule 2a51-3 under the 1940 Act provides that a company shall not be deemed to be a qualified purchaser under section 2(a)(51)(A)(iv) of the 1940 Act if the company was formed for the specific purpose of acquiring the securities offered by a 3(c)(7) fund.

Incoming Letter

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/investment/noaction/2014/invesco-advisers-040814-403b.htm

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Stradley Ronon Stevens & Young, LLP STRADLEY 1250 Connecticut Avenue, N.W., Suite 500 Washington, DC 20036-2652 =IRONON Telephone 202.822.9611 Fax 202.822.0140 ~~ATTORNEYS AT LA\Y/ www.stradley.com 1940 Act/SectiGn 7(a) March 20,2014 Mr. Douglas Scheidt, Esq.

Associate Director and Chief Counsel

Division of Investment Management
United States Securities and Exchange Commission

1 00 F Street, NE

Washington, DC 20549-2736
Re: Invesco Advisers, Inc.
Dear Mr. Scheidt:
The purpose of this letter is to request assurance that the Staff of the Division of Investment Management (the "Staff') would not recommend enforcement action to the U.S. Securities and Exchange Commission (the "SEC") under section 7(a) of the Investment Company Act of 1940 (the "1940 Act") against insurance company separate accounts (the "Separate Accounts") that offer and sell group annuity contracts (the "Contracts"), as part of generic stable value investment option managed by Invesco Advisers, Inc. (as described in more detail below), if the sponsors of plans organized under section 403(b) of the Internal Revenue Code of 1986 (the "403(b) Plans") invest in such Separate Accounts (the "Proposed Arrangement"). The Proposed Arrangement will be structured and operated in a manner substantially similar to the one in H.E.B. Investment & Retirement Plan, et al. (pub. avail. May 18, 2001) (the "H.E.B. Letter"). That said, unlike in the H.E.B. Letter, the Contracts will not be offered and sold solely to qualified plans under section 40l(a) of the Internal Revenue Code of 1986 (the "Code") that are subject to the provisions of the Employee Retirement Income Security Act of 1974 (the "Qualified Plans"). Instead, the Contracts would be offered and sold primarily to sponsors of 403(b) Plans that are not Qualified Plans and that offer multiple investment options. In addition, unlike Qualified Plans, the 403(b) Plans would not be funded through trusts. As more fully discussed below, however, we believe that the 403(b) Plans will be substantially similar to the Qualified Plans in the H.E.B. Letter because (1) a fiduciary, rather than the participants in the 403(b) Plan (the "Participants"), would be responsible for selecting the available 403(b) Plan investment options, and (2) the 403(b) Plan sponsor, rather than the Participants, would purchase the Contracts. As more fully explained below, the Participants would generally not know that they are investing in any particular Separate Account. Consequently, we believe that the Staff should grant the requested relief.

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Background
Invesco Advisers, Inc.
Invesco Advisers, Inc. ("Invesco Advisers") is an investment adviser registered under the Investment Advisers Act of 1940 (the "Advisers Act"). It provides discretionary advisory and asset management services to a variety of clients, including the sponsors of 403(b) Plans. As more fully discussed below, Invesco Advisers would manage the 403(b) Plan assets designated by Participants to a generic stable value investment option (the "Invesco Option"). Separate Accounts and the Interests Therein The Separate Accounts are separate accounts of unaffiliated insurance companies that issue the Contracts, which will be privately offered in reliance on section 4(a)(2) ofthe Securities Act of 1933 (the "1933 Act") or Regulation D thereunder. A group annuity is typically sold to an employer under one master policy to fund retirement plan benefits for multiple employee participants in the plan. The Contract offers the employees a bundled investment and insurance product. Invesco Advisers will negotiate the features of each Contract with each issuing insurance company, including the terms of any insurance protection or wrapper. Assets deposited into a Separate Account are generally managed by an asset manager unaffiliated with Invesco Advisers. 403(b) Retirement Plans Generally A 403(b) plan is a tax-deferred retirement plan for employees of public schools, employees of certain tax-exempt organizations and certain ministers.' Under a 403(b) plan, employers may purchase for their eligible employees annuity contracts or establish custodial accounts invested only in mutual funds for the purpose of providing retirement income. 2 403(b) plans are not qualified under section 401(a) ofthe Code.3 They and their sponsors also may not be subject to the Employee Retirement Securities Act of 1974 ("ERISA"), including the ERISA fiduciary standard.4 403(b) plans sponsored by public schools, churches See generally section 403(b)(l)(A) of the Code; Field Assistance Bulletin No. 2007-02 issued by the Department of Labor's Employee Benefits Security Administration ("EBSA") (pub. avail. Jul. 24,
2007) (the "2007-02 Bulletin").
2 See sections 403(b)(l)(A) and 403(b)(7) ofthe Code; 2007-02 Bulletin.
See 2007-02 Bulletin (indicating that "[a]lthough not subject to the qualification requirements of
section 401 of the Code, some of the requirements that apply to qualified plans also apply, with
modifications, to 403(b) plans.").
4 The ERISA fiduciary standard generally requires that a fiduciary discharge his or her duties with respect to a plan solely in the interest of the participants and beneficiaries and ( 1) for the exclusive purpose of"providing benefits to participants and their beneficiaries" and "defraying reasonable expenses of administering the plan," (2) "with the care, skill, prudence, and diligence under the 2

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and ministers are excluded from coverage under Title I ofERISA by statute. 5 403(b) plans sponsored by other tax-exempt organizations, however, cannot avail themselves of a statutory exclusion from Title I of ERISA. 6 In addition, the vast majority of 403(b) plans are not funded through trusts with trustees that either make investment decisions on behalf ofthe trust or select a menu ofinvestment options for plan participants. Instead, the employer that sponsors the plan typically would establish a limited investment menu of available investment options for the plan, subject to a fiduciary standard (e.g., under ERISA, state law or by contract), and participants direct the investment oftheir 403(b) plan balances in one or more of such investment options. Proposed Arrangement The 403(b) Plans will offer their Participants multiple investment options, including the Invesco Option. Invesco Advisers would serve as the investment adviser to sponsors of 403(b) Plans that have assets designated by the Participants to the Invesco Option.7 As further explained below, a Participant's investment discretion will be limited to allocating his or her account among a number ofinvestment options available in the 403(b) Plan, including the Invesco Option, which has an identified generic investment objective. The Participant would generally not know that s/he is investing in a Separate Account. Invesco Advisers will allocate the 403(b) Plan assets it advises among certain investments, such as the Contracts issued by the Separate Accounts.8 The Separate Accounts essentially serve as building blocks to help achieve the Invesco Option's investment objective. circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims," (3) "by diversifying the investments ofthe plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so," and (4) "in accordance with the documents and instruments governing the plan ...." See section 404(a)(l) of ERISA. Sections 4(b)(1) and (2) of ERISA (statutory exclusions for governmental and church plans from coverage under Title I ofERISA); 2007-02 Bulletin n. 1. 6 Field Assistance Bulletin No. 2009-02 issued by EBSA (pub. avail. Jul. 20, 2009) (stating that a "403(b) plan established or maintained by a tax-exempt organization ... would be covered by Title I pursuant to section 4(a) of ERISA."). That said, 403(b) plans sponsored by a tax-exempt organizations may qualify for a safe harbor that would effectively remove a qualifying plan from coverage under Title I of ERISA. See 2007-02 (reaffirming availability of safe harbor in light of new regulations adopted, and interpretive guidance issued, by the Department ofTreasury/Internal Revenue Service). 7 In the future, Invesco Advisers may serve as the investment adviser to other generic investment options offered by the
Plans. 8 Other investments ofthe Option will likely include a rule 2a-7 money market fund registered under the 1940 Act. The purchase of mutual fund shares will require the creation of a custodial arrangement pursuant to section 403(b)(7) ofthe Code. See note 2 supra and accompany text. 3

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Before allocating 403(b) Plan assets to a Separate Account, however, Invesco Advisers would consult with the 403(b) Plan sponsor and recommend Separate Accounts in which the Invesco Option would invest. Ultimately, the decision to invest the assets of the Invesco Option in a Separate Account relying on section 3(c)(7)'s exclusion from the definition ofinvestment company (such exclusion explained in greater detail below) is the sole responsibility ofthe 403(b) Plan sponsor, without direction from or consultation with any Participant other than the 403(b) Plan sponsor acting in its capacity as a 403(b) Plan sponsor. 9 The targeted market for the Invesco Option will be 403(b) plans sponsored by large institutions, such as universities and hospitals, and other 403(b) Plans that are not Qualified Plans. These Plans are generally not organized as trusts and do not have trustees that either make the investment decisions on behalf ofthe trust or select investment options for Participants. Instead, typically the sponsoring employer ofthe 403(b) Plan, or a committee appointed by the sponsoring employer, serves as the Plan's fiduciary and designs the Plan's investment menu (e.g., a menu that could include the Invesco Option), subject to a fiduciary standard. In addition, in lieu ofthe trust structure employed by Qualified Plans in which that Plan's trust is the purchaser ofthe particular investment, the sponsor to the 403(b) Plan would purchase the Contract. Issue Presented
Section 7(a) ofthe 1940 Act prohibits an investment company organized or otherwise
created under the laws ofthe United States or of a state and having a board of directors from, among other things, offering or selling any security (or engaging in certain other activities) by use ofthe mails or any means or instrumentality ofinterstate commerce unless the company is registered under the 1940 Act. Section 3( c )(7) ofthe 1940 Act excludes from the definition of "investment company" any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition ofthe securities, are qualified purchasers, and which is not making and does not propose to make a public offering ofits securities (i.e., a 3(c)(7) Fund).
Section 2(a)(51)(A)(iv) ofthe 1940 Act defines "qualified purchaser" to include, among
others, "any person, acting for its own account or the accounts ofother qualified purchasers, who in the aggregate owns and invests, on a discretionary basis, not less than $25,000,000 in investments." In the H.E.B. Letter, the Staffindicated that it would not recommend enforcement action to the SEC under section 7(a) ofthe 1940 Act against 3(c)(7) Funds in which a 401(k) plan invests a portion ofits assets ifthe 3(c)(7) Funds treats the 401(k) plan as a qualified purchaser under section 2( a)( 51 )(A)(iv). In granting its enforcement-only reliefin the H. E.B. Letter, the Staffindicated that it was relying on the representation, among others, that the 401 (k) plan, which is subject to the provisions ofERISA, and the trustees to the 401(k) plan, who are 9 Participants direct the investment oftheir 403(b) Plan balances in one or more of the menu's investment options, and, ifthe Invesco Option were selected, the 403(b) Plan sponsor would invest the proceeds in one or more Separate Accounts. 4

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fiduciaries subject to the fiduciary provisions ofERISA, make all ofthe investment decisions for the Plan. The Proposed Arrangement will be structured and operated in a manner substantially similar to the one in the H.E.B. Letter. That said, unlike in the H.E.B. Letter, the Contracts will not be offered and sold solely to Qualified Plans. Instead, the Contracts would be offered and sold primarily to the sponsors of403(b) Plans that are not Qualified Plans and that offer multiple investment options. In addition, unlike Qualified Plans, the 403(b) Plans would not be funded through trusts. We believe, however, that the 403(b) Plans will be substantially similar to the Qualified Plans in the H.E.B. Letter because (1) a fiduciary, rather than Participants, would be responsible for selecting the available 403(b) Plan investment options, including the Invesco Option, and (2) the 403(b) Plan sponsor, rather than the Participants, would purchase the Contracts. As a result, we believe that a fund relying on the exclusion from the definition of investment company in section 3(c)(7) ofthe 1940 Act (i.e., a Separate Account) in which the Invesco Option invests may treat the 403(b) Plan, and should not be required to treat each Participant, as a qualified purchaser for section 3( c)(7) purposes. Analysis The 403(b) Plan sponsors create the menu ofinvestment options available to the Participants, including the Invesco Option. A Participant's investment discretion will be limited to allocating his or her account among a number ofinvestment options, including, possibly, the Invesco Option. 10 No representation will be made to the Participants that any specific portion of their contributions to or account balances in the 403(b) Plan, or any specific portion ofthe Invesco Option, will be invested in any particular Separate Account. The Participants would generally not know that they are investing in a Separate Account. Ifthe 403(b) Plan delivers any information to its Participants that mentions an investment in a particular Separate Account, it will be accompanied by a disclaimer to the effect that no assurances can be given that the Invesco Option will continue to invest its assets, or the same portion of its assets, in the Separate Account. Further, each 403(b) Plan sponsor will be subject to a fiduciary standard (i.e., the Prudent Man Standard (as defined below)) when selecting investment options and managers available under a Plan through which assets would be invested in a 3(c)(7) Fund, including the Invesco Option (which in tum invests a portion ofits assets in a Separate Account) and its manager, Invesco Advisers, without direction from or consultation with any Participant other than the 403(b) Plan sponsor acting in its capacity as a 403(b) Plan sponsor." The 403(b) Plan sponsors 1 ° Further, the Invesco Option will not be used to facilitate the individual investment decisions of Participants into any Separate Account. 11 The Invesco Option may invest in
the securities of multiple Separate Accounts, provided that, immediately following the purchase by the Invesco Option of a Separate Account's securities, no more than 50% of the Invesco Option's assets will consist of securities of any one particular Separate Account. 5

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will either state that they are subject to the Prudent Man Standard 12 or contractually agree to be subject to the Prudent Man Standard. The selection of investment options by these Plan sponsors also may be subject to state law fiduciary standards. In addition, Invesco Advisers, an investment adviser registered under the Advisers Act, serves in a fiduciary capacity with respect to the 403(b) Plan assets that it allocates to the various Contracts pursuant to its advisory agreement with the applicable Plan sponsor. 13 After the Staff issued the H.E. Letter, it indicated in The Goldman Sachs Group Inc. (pub. avail. Mar. 8, 2005) (the "Goldman Letter") that it would not recommend enforcement action to the SEC under section 7(a) ofthe 1940 Act against 3(c)(l) and 3(c)(7) funds ifthese funds do not treat the participants of a deferred compensation plan, which is exempt from many ofthe provisions ofERISA (e.g., the fiduciary standards of ERISA described above), as the beneficial owners and owners oftheir securities, respectively, for purposes ofsections 3(c)(l) and 3(c)(7) ofthe 1940 Act. The Staffbased this position upon, in part, the representation that the plan sponsor will act, or cause the committee administering the plan to act, in accordance with the "prudent man" standard set forth in section 404(a)(l)(B) of ERISA (the "Prudent Man Standard"), which is one component ofthe ERISA fiduciary standard (as described above). 14 The Goldman Letter suggests that whether the selection process of available retirement plan investment options is subject to the ERISA fiduciary standard is less important than whether an entity, independent of the plan's participants, is selecting the plan's investment options subject to a fiduciary standard (i.e., the Prudent Man Standard). Here, the 403(b) Plan sponsors, and not the Participants, will select the Invesco Option as an available Plan investment (and Invesco Advisers as a manager ofthe Option). Further, ifthe sponsor is not already subject to the ERISA fiduciary standard, the sponsors' selection of investment options will be subject to, through plan documents or contractually, the Prudent Man Standard, plus any applicable state law fiduciary standards. In addition, Invesco Advisers serves in a fiduciary capacity with respect to the assets that it allocates to the various Contracts. As mentioned previously, the 403(b) Plans will not be funded through trusts like the Qualified Plans in the H.E.B. Letter for a variety ofreasons. 403(b) Plans are not required to be organized as trusts. 15 In addition, tax and federal securities laws essentially prohibit these Plans 12 For example, the 403(b) Plan documents may state that the sponsor is subject to the Prudent Man Standard. 13 To the extent that Invesco Advisers manages 403(b) Plan assets that are subject to ERISA, it will comply with the provisions of ERISA and the rules and interpretations thereunder (e.g., general ban on prohibited transactions under section 406 of
ERISA). 14 Section 404(a)(l)(B) ofERISA requires a fiduciary to discharge its duties with respect to a plan solely in the interest of the participants and beneficiaries and "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." 15 See note 2 supra. See also 403(b)(l) of ERISA (excluding from the trust requirement of 403(a) of ERISA the "assets of a plan which consist of insurance contracts or policies issued by an insurance 6

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from combining their assets and forming a collective trust through which the Plans could invest in the Separate Accounts. A group trust's inclusion of 403(b) plan assets that invest in an annuity could jeopardize the trust's tax-advantaged status. 16 Further, a group trust that includes 403(b) plan assets that invest in an annuity, such as a Contract, would not be able to rely on the exclusion from the definition of an investment company that collective trusts typically rely on -
section 3( c )(11) of the 1940 Act. This section excludes from the definition of an investment
company a collective trust fund consisting solely of assets of government plans (as defined in
section 3(a)(2)(C) of the 1933 Act), but section 3(a)(2)(C) does not include a "plan funded by an
annuity contract described in Section 403(b) of the Code." The SEC's Division ofTrading and Markets has implicitly recognized that not all retirement plans lend themselves to a trust format and has presumably not recommended enforcement action, in part, on that basis. 17 Notwithstanding the fact that the 403(b) Plans will not be funded through trusts that would purchase the Contracts, the sponsors ofthe Plans would purchase the Contracts instead on behalf ofthe Participants. Each 403(b) Plan sponsor would be a qualified purchaser under
section 2(a)(51)(A)(iv) of the 1940 Act and would not have been formed for the specific purpose
of acquiring securities offered by a 3(c)(7) Fund. 18 * For the reasons set forth above, we respectfully request that the Staff confirm that it will not recommend enforcement action to the SEC under section 7(a) ofthe 1940 Act against the Separate Accounts that offer and sell the Contracts, as part of the Invesco Option, if the 403(b) Plan sponsors invest in such Separate Accounts. company ...");David Pratt, To (B) or not to (B): Is that the Question? Twenty-First Century Schizoid Plans under Section 403(B) ofthe Internal Revenue Code, 73.1 Alb. L. Rev. 139 (2010) nn. 255-57 and accompanying text. 16 See Internal Revenue Service Revenue Ruling 2011-1 (Jan. 2011) (extending eligibility for group trust participation to certain 403(b) plans but not those that invest in annuities). 17 See, e.g., Charles Schwab & Co., Inc. (pub. avail. Jul. 16, 1998) (not recommending enforcement action under rule 1 Ob-1 0 under the Securities Exchange Act of 1934 against Charles Schwab & Co. Inc. if it were to deliver confirmations to an unaffiliated custodian of 403(b) accounts rather than the beneficial owners of the 403(b) accounts"). 18 Each 403(b) Plan will own and invest on a discretionary basis not less than $25 million in investments and will be acting for its own account. Most of the Patiicipants will not meet the "qualified purchaser" definition. 7

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Should you require additional factual information or further analysis, please contact either Larry P. Stadulis at (202) 419-8407 or John L. Sullivan at (202) 292-4524. Ifthe staff is unable to confirm that it will not seek enforcement action based on this letter, we would appreciate it if you would contact either ofus to discuss possible revisions or additional submissions. Thank you for your consideration of this matter. Sincerely, Lq_/ / J'f~~~/_fl s Lawrence P. Stadulis e-£~.· John L. Sullivan 8

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