[Federal Register Volume 60, Number 76 (Thursday, April 20, 1995)]
[Notices]
[Pages 19796-19801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9841]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21011; File No. 812-9272]


Montgomery Asset Management, L.P. et al.

April 14, 1995.
agency: Securities and Exchange Commission (``SEC'' or ``Commission'').

action: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``1940 Act'' or ``Act'').

-----------------------------------------------------------------------

applicants: Montgomery Asset Management, L.P. (``Montgomery'') and The 
Montgomery Funds III (the ``Fund'').

relevant 1940 act sections: Order requested under Section 6(c) for 
exemptions from Sections 9(a), 13(a), 15(a), and 15(b) and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder.

summary of application: Applicants seek an order of exemption to the 
extent necessary to permit shares of the Fund and shares of certain 
other investment companies for which Montgomery or an affiliate of 
Montgomery serves as investment adviser, administrator, manager, 
principal underwriter or sponsor (collectively with the Fund, the 
``Funds'') to be sold to and held by variable annuity and variable life 
insurance separate accounts of both affiliated and unaffiliated life 
insurance companies and qualified pension and retirement plans.

filing date: The application was filed on October 12, 1994.

hearing or notification of hearing: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests must be received by the SEC by 5:30 p.m. on May 9, 1995, and 
should be accompanied by proof of service on the Applicants, in the 
form of an affidavit or, for lawyers, a [[Page 19797]] certificate of 
service. Hearing requests should state the nature of writer's interest, 
the reason for the request, and the issues contested. Persons may 
request notification of the date of the hearing by writing to the SEC's 
Secretary.

addresses: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 600 Montgomery Street, San Francisco, California 94111.

for further information contact: Joyce Merrick Pickholz, Senior 
Counsel, on (202) 942-0670, Office of Insurance Products, Division of 
Investment Management.

supplementary Information: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the SEC.

Applicants' Representations

    1. The Fund, a Delaware trust, is a registered open-end management 
investment company with two separately managed series. Additional 
series may be added in the future. The Fund's registration statement on 
Form N-1A (File No. 33-84450) was filed on September 27, 1994 and is 
incorporated by reference into the application.
    2. Montgomery, a California limited partnership, is an investment 
adviser registered under the Investment Advisers Act of 1940. 
Montgomery serves as the investment advisor and manager of the Fund.
    3. Shares of each series of the Fund(s) may be offered to insurance 
company separate accounts that fund variable annuity or variable life 
insurance contracts (``Contracts''), regardless of whether such 
insurance companies are affiliated with each other (``Participating 
Insurance Companies''). Each Participating Insurance Company will have 
the legal obligation of satisfying all applicable requirements under 
state and federal law. Applicants anticipate that, in connection with 
their scheduled premium and flexible premium variable life insurance 
contracts, Participating Insurance Companies will rely on Rule 6e-2 or 
Rule 6e-3(T) under the 1940 Act, although some may rely on individual 
exemptive orders as well. The role of the Funds, so far as the federal 
securities laws are applicable, will be limited to that of offering 
their shares to separate accounts of various insurance companies, and 
Qualified Plans, and fulfilling any conditions that the Commission may 
impose upon granting the order requested in the application.
    4. Shares of the Funds may also be offered to qualified pension and 
retirement plans outside of the separate account context (``Qualified 
Plans'' or ``Plan''). Qualified Plans may choose any of the Funds as 
the sole investment under the Plan or as one of several investments. 
Plan participants may or may not be given an investment choice 
depending on the Plan itself. Shares of any of the Funds sold to 
Qualified Plans would be held by the trustee(s) of said Plans as 
mandated by Section 403(a) of the Employee Retirement Income Security 
Act (``ERISA''). Montgomery will not act as investment adviser to any 
of the Qualified Plans that will purchase shares of any of the Funds. 
There will be no pass-through voting to the participants in Qualified 
Plans.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust (``UIT''), Rule 6e-
2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a) 
and 15(b) of the Act. The relief provided by Rule 6e-2(b)(15) is 
available to a separate account's investment advisor, principal 
underwriter and sponsor or depositor. The exemptions granted by Rule 
6e-2(b)(15) are available only where the management investment company 
underlying the UIT offers its shares ``exclusively to variable life 
insurance separate accounts of the life insurer, or of any affiliated 
life insurance company.'' The use of a common management investment 
company as the underlying investment medium for both variable annuity 
and variable life insurance separate accounts of a single insurance 
company (or of two or more affiliated insurance companies) is commonly 
referred to as ``mixed funding.'' The use of a common management 
investment company as the underlying investment medium for variable 
annuity and variable life insurance separate accounts of unaffiliated 
insurance companies is commonly referred to as ``shared funding.'' 
``Mixed and shared funding'' denotes the use of a common management 
investment company to fund the variable annuity and variable life 
insurance separate accounts of affiliated and unaffiliated insurance 
companies. Rule 6e-2(b)(15) precludes mixed as well as shared funding.
    2. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from 
Sections 9(a), 13(a), 15(a) and 15(b) of the Act. The exemptions 
granted to a separate account by Rule 6e-3(T)(b)(15) are available only 
where all of the assets of the separate account consist of the shares 
of one or more registered management investment companies which offer 
their shares ``exclusively to separate accounts of the life insurer, or 
of any affiliated life insurance company, offering either scheduled of 
flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company.'' Thus, Rule 6e-3(T)(b)(15) permits 
mixed funding but precludes shared funding.
    3. According to the Applicants, the relief granted by Rule 6e-
2(b)(15) and Rule 6e-3(T)(b)(15) is in no way affected by the purchase 
of shares of the Funds by Qualified Plans. However, because the relief 
under these Rules is available only where shares are offered 
exclusively to separate accounts of insurance companies, additional 
exemptive relief is necessary if shares of the Funds are also to be 
sold to Qualified Plans. Section 9(a) of the 1940 Act provides that it 
is unlawful for any company to serve as investment adviser or principal 
underwriter of any registered open-end investment company if an 
affiliated person of that company is subject to a disqualification 
enumerated in Section 9(a)(1) or (2). However, Rules 6e-2(b)(15)(i) and 
(ii) and 6e-3(T)(b)(15)(i) and (ii) provide partial exemptions from 
Section 9(a) under certain circumstances, subject to the limitations on 
mixed and shared funding. These exemptions limit the disqualification 
to affiliated individuals or companies that directly participate in the 
management or administration of the underlying investment company.
    4. Applicants argue that the exemptions contained in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) recognize that is it unnecessary to apply 
Section 9(a) to the thousands of individuals who may be involved in a 
large insurance company but would have no connection with the 
investment company funding the separate accounts. Applicants believe 
that it is unnecessary to limit the applicability of the rules merely 
because shares of the Funds may be sold in connection with mixed and 
shared funding. Applicants submit that the Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Funds and, therefore, applying the restrictions 
of Section 9(a) serves no regulatory purpose. Applicants state that 
applying such restrictions would increase the monitoring costs incurred 
by the Participating Insurance [[Page 19798]] Companies and, therefore, 
would reduce the net rates of return realized by Contract owners. 
Applicants also state that the requested relief will in no way be 
affected by the proposed sale of shares of the Funds to Qualified 
Plans. The insulation of the Fund from those individuals who are 
disqualified under the Act remains in place. Since the Qualified Plans 
are not investment companies and will not be deemed to be affiliated 
solely by virtue of their shareholdings, no additional relief is 
necessary.
    5. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume that 
Contract owners are entitled to pass-through voting privileges with 
respect to investment company shares held by a related separate 
account. Both Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) 
provide that an insurance company may disregard the voting instructions 
of its Contract owners with respect to the investments of an underlying 
investment company or any contract between an investment company and 
its investment adviser, when an insurance regulatory authority 
requires. Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide 
that the insurance company may disregard contract owners' voting 
instructions with regard to changes initiated by the contract holders 
in the investment company's investment policies, principal underwriter 
or investment adviser. Under the rules, voting instructions with 
respect to a change in investment policies may be disregarded only if 
the insurance company makes a good faith determination that such change 
would: (1) violate state law; (2) result in investments that were not 
consistent with the investment objectives of the separate account; or 
(3) result in investments that would vary from the general quality and 
nature of investments and investment techniques used by other separate 
accounts of the company or of an affiliated life insurance company with 
similar investment objectives. Voting instructions with respect to a 
change in an investment adviser may be disregarded only if the 
insurance company makes a good faith determination that: (1) the 
adviser's fee would exceed the maximum rate that may be charged against 
the separate account's assets; (2) the proposed adviser may be expected 
to employ investment techniques that vary from the general techniques 
used by the current adviser; or (3) the proposed adviser may be 
expected to manage the investment company's investments in a manner 
that would be inconsistent with its investment objectives or in a 
manner that would result in investments that vary from certain 
standards.
    6. Rule 6e-2 recognizes that variable life insurance contracts have 
important elements unique to insurance contracts and are subject to 
extensive state regulation of insurance. Thus, Applicants assert that 
in adopting Rule 6e-2, the Commission expressly recognized that 
exemptions from pass-through voting requirements were necessary to 
assure the solvency of the life insurer and the performance of its 
contractual obligations by enabling an insurance regulatory authority 
or the life insurer to act when certain proposals reasonably could be 
expected to increase the risks undertaken by the life insurer. 
Applicants argue that flexible premium variable life insurance 
contracts and variable annuity contracts are subject to substantially 
the same state insurance regulatory authority, and therefore, the 
corresponding provisions of Rule 6e-3(T) presumably were adopted in 
recognition of the same considerations as the Commission applied in 
adopting Rule 6e-2.
    According to the Applicants, these considerations are no less 
important or necessary when an insurance company funds its separate 
accounts in connection with shared and mixed funding. Such funding does 
not compromise the goals of the insurance regulatory authorities or of 
the Commission. While the Commission may have wished to reserve wide 
latitude with respect to the once unfamiliar variable annuity product, 
that product is now familiar and there appears to be no reason for the 
maintenance of prohibitions against mixed and shared funding 
arrangements. Indeed, permitting such arrangements, eliminates needless 
duplication of start-up and administrative expenses and potentially 
increases an investment company's assets, thereby making effective 
portfolio management strategies easier to implement and promoting other 
economies of scale.
    7. Applicants submit that the Funds' sale of shares to Qualified 
Plans will not have any impact on the relief requested. Shares of the 
Funds sold to such Plans would be held by the trustees of said Plans as 
mandated by Section 403(a) of ERISA. Section 403(a) also provides that 
the trustee(s) must have exclusive authority and discretion to manage 
and control the plan with two exceptions: (1) when the plan expressly 
provides that the trustee(s) are subject to the direction of a named 
fiduciary who is not a trustee, in which case the trustees are subject 
to proper directions made in accordance with the terms of the plan and 
not contrary to ERISA, and (2) when the authority to manage, acquire or 
dispose of assets of the plan is delegated to one or more investment 
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, plan trustees have the 
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary appoints an investment manager, the investment manager 
has the responsibility to vote the shares held unless the right to vote 
such shares is reserved to the trustees or the named fiduciary. In any 
event, there is no pass-through voting to the participants in such 
plans. Accordingly, unlike the case with insurance company separate 
accounts, the issue of the resolution of material irreconcilable 
conflicts with respect to voting is not present with Qualified Plans.
    8. Applicants assert that no increased conflicts of interest would 
be present if the Commission grants the requested exemptive relief. 
Shared funding does not present any issues that do not already exist 
where a single insurance company is licensed to do business in several 
states. For example, when different Participating Insurance Companies 
are domiciled in different states, it is possible that the state 
insurance regulatory body in a state in which one Participating 
Insurance Company is domiciled could require action that is 
inconsistent with the requirements of insurance regulators in one or 
more other states in which other Participating Insurance Companies are 
domiciled. That possibility, however, is no different and no greater 
than exists when a single insurer and its affiliates offer their 
insurance products in several states, as currently is permitted.
    9. Applicants argue that affiliations do not reduce the potential, 
if any exists, for differences in state regulatory requirements. In any 
event, the conditions discussed below (which are adapted from the 
conditions included in Rule 6e-3(T)(b)(15)) are designed to safeguard 
against any adverse effects that differences among state regulatory 
requirements may produce. If a particular state insurance regulator's 
decision conflicts with the majority of other state regulators, the 
affected insurer may be required to withdraw its separate account's 
investment in the relevant Funds. Similarly, affiliation does not 
eliminate the potential, if any exists, for divergent judgments as to 
when a Participating Insurance Company could disregard Contract owner 
voting instructions. The potential for disagreement is limited by the 
requirement that disregarding voting [[Page 19799]] instructions be 
reasonable and based on specified good faith determinations. However, 
if a Participating Insurance Company's decision to disregard Contract 
owner voting instructions represents a minority position or would 
preclude a majority vote approving a particular change, such 
Participating Insurance Company may be required, at the election of the 
relevant Fund, to withdraw its separate account's investment in that 
fund and no charge or penalty will be imposed as a result of such 
withdrawal.
    10. Applicants assert that there is no reason why the investment 
policies of a Fund with mixed funding would or should be materially 
different from what they would or should be if such investment company 
or series thereof funded only variable annuity or only variable life 
insurance contracts. Hence, there is no reason to believe that 
conflicts of interest would result from mixed funding. Moreover, the 
Funds will not be managed to favor or disfavor any particular insurer 
or type of Contract.
    11. According to the Applicants, on March 2, 1989, the Treasury 
Department issued Regulations (Treas. Reg. 1.817-5), which established 
diversification requirements for the investment portfolios underlying 
variable annuity and variable life contracts (``Regulations''). The 
Regulations provide that, in order to meet the diversification 
requirements, all of the beneficial interests in the investment company 
must be held by the segregated asset accounts of one or more insurance 
companies. However, the Regulations also contain certain exceptions to 
this requirement, one of which allows shares in an investment company 
to be held by the trustee of a qualified pension or retirement plan 
without adversely affecting the ability of shares in the same 
investment company to also be held by the separate accounts of 
insurance companies in connection with their variable annuity and 
variable life contracts (Treas. Reg. 1.817-5(f)(3)(iii)). The 
Applicants state that the promulgation of Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) preceded the issuance of the Treasury Regulations. Thus, 
the sale of shares of the same investment company to separate accounts 
and Qualified Plans could not have been envisioned at the time of the 
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15), given the then-
current tax law.
    12. According to the Applicants, Section 817(h) of the Internal 
Revenue Code of 1986 (``Code'') is the only section in the Code where 
separate accounts are discussed. Section 817(h) imposes certain 
diversification standards on the underlying assets of variable annuity 
contracts and variable life contracts held in the portfolios of 
management investment companies. Treasury Regulation 1.817-
5(f)(3)(iii), which established diversification requirements for such 
portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company. Therefore, neither the Code, 
the Treasury Regulations nor Revenue Rulings thereunder present any 
inherent conflicts of interest if Qualified Plans, variable annuity 
separate accounts and variable life separate accounts all invest in the 
same management investment company.
    13. Applicants submit that while there are differences in the 
manner in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Qualified Plans, the tax 
consequences do not raise any conflicts of interest. When distributions 
are to be made, and the separate account or the Qualified Plan cannot 
net purchase payments to make the distributions, the separate account 
or the Plan will redeem shares of the Fund at their net asset value. 
The Qualified Plan will then make distributions in accordance with the 
terms of the Plan. The life insurance company will surrender values 
from the separate account into the general account to make 
distributions in accordance with the terms of the variable contract.
    14. Applicants state that the ability of the Funds to sell their 
respective shares directly to Qualified Plans does not create a 
``senior security,'' as such term is defined under Section 18(g) of the 
1940 Act, with respect to any Contract owner as opposed to a 
participant under a Qualified Plan. Regardless of the rights and 
benefits of participants under the Qualified Plans, or Contract owners 
under Contracts, the Qualified Plans and the separate accounts have 
rights only with respect to their respective shares of the Fund. They 
can only redeem such shares at their net asset value. No shareholder of 
any of the Funds has any preference over any other shareholder with 
respect to distribution of assets or payment of dividends.
    15. Applicants submit that there are no conflicts between the 
Contract owners of the separate accounts and the participants under the 
Qualified Plans with respect to the state insurance commissioners' veto 
powers (direct with respect to variable life and indirect with respect 
to variable annuities) over investment objectives. The basic premise of 
shareholder voting is that not all shareholders may agree that there 
are any inherent conflicts of interest between shareholders. The state 
insurance commissioners have been given the veto power in recognition 
of the fact that insurance companies cannot simply redeem their 
separate accounts out of one fund and invest in another. Time-
consuming, complex transactions must be undertaken to accomplish such 
redemptions and transfers. On the other hand, trustees of Qualified 
Plans can make the decision quickly and implement the redemption of 
their shares from a Fund and reinvest in another funding vehicle 
without the same regulatory impediments or, as is the case with most 
Plans, even hold cash pending suitable investment. Based on the 
foregoing, Applicants assert that even if there should arise issues 
where the interests of Contract owners and the interest of Qualified 
Plans are in conflict, the issues can be almost immediately resolved 
because the trustees of the Qualified Plans can, on their own, redeem 
the shares out of the Fund.
    16. According to the Applicants, various factors have kept more 
insurance companies from offering variable annuity and variable life 
insurance contracts than currently do so. These factors include the 
costs of organizing and operating a funding medium, the lack of 
expertise with respect to investment management (principally with 
respect to stock and money market investments) and the lack of public 
name recognition as investment experts. In particular, some smaller 
life insurance companies may not find it economically feasible, or 
within their investment or administrative expertise, to enter the 
Contract business on their own. The Applicants submit that use of the 
Funds as common investment media for Contracts would ameliorate these 
concerns.
    17. Applicants assert the Participating Insurance Companies would 
benefit not only from the investment advisory and administrative 
expertise of Montgomery, but also from the cost efficiencies and 
investment flexibility afforded by a large pool of funds. Therefore, 
making the Funds available for mixed and shared funding will encourage 
more insurance companies to offer Contracts. This should result in 
increased competition with respect to both Contract design and pricing, 
which can be expected to result in more product variation and lower 
charges. Applicants also assert that Contract owners would benefit 
because mixed and shared funding eliminates a significant portion of 
the costs of establishing and administering separate funds. Moreover, 
sale of the shares of [[Page 19800]] Funds to Qualified Plans should 
result in an increased amount of assets available for investment by 
such Funds. This, in turn, should inure to the benefit of Contract 
owners by promoting economies of scale, by permitting greater safety 
through greater diversification, and by making the addition of new 
portfolios to the Fund more feasible.

Applicants' Conditions

    Applicants have consented to the following conditions if the 
requested order is granted.
    1. A majority of the Trustees or Board of Directors (each, a 
``Board'') of each Fund will consist of persons who are not 
``interested persons'' thereof, as defined by Section 2(a)(19) of the 
Act and the Rules thereunder and as modified by any applicable orders 
of the Commission, except that if this condition is not met by reason 
of the death, disqualification, or bona fide resignation of any trustee 
or director, then the operation of this condition shall be suspended 
(a) for a period of 45 days if the vacancy or vacancies may be filled 
by the Board; (b) for a period of 60 days if a vote of shareholders is 
required to fill the vacancy or vacancies; or (c) for such longer 
period as the Commission may prescribe by order upon application.
    2. Each Board will monitor its respective Fund for the existence of 
any material irreconcilable conflict between the interests of the 
Contract owners of all separate accounts investing in the Fund. An 
irreconcilable material conflict may arise for a variety of reasons, 
including: (a) an action by any state insurance regulatory authority; 
(b) a change in applicable federal or state insurance, tax, or 
securities laws or regulations, or a public ruling, private letter 
ruling, no action or interpretive letter, or any similar action by 
insurance, tax, or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Fund are being managed; (e) a 
difference in voting instructions given by variable annuity Contract 
owners and variable life insurance Contract owners; or (f) a decision 
by a Participating Insurance Company to disregard the voting 
instructions of Contract owners.
    3. Participating Insurance Companies and Montgomery and its 
affiliated advisers will report any potential or existing conflicts to 
the Board of any relevant Fund. Participating Insurance Companies will 
be responsible for assisting the appropriate Board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This includes, but is not limited to, an obligation by a 
Participating Insurance Company to inform the Board whenever it has 
determined to disregard Contract owner voting instructions. The 
responsibility to report such information and conflicts and to assist 
the Boards will be contractual obligations of all Participating 
Insurance Companies under their agreements governing participation in 
the Funds, and these responsibilities will be carried out with a view 
only to the interests of Contract owners.
    4. If it is determined by a majority of the Board of a Fund, or by 
a majority of its disinterested trustees or directors, that a material 
irreconcilable conflict exists, the relevant Participating Insurance 
Companies will, at their expense and to the extent reasonably 
practicable (as determined by a majority of the disinterested trustees 
or directors), take whatever steps are necessary to remedy or eliminate 
the irreconcilable material conflict, which steps could include: (a) 
withdrawing the assets allocable to some or all of the accounts from 
the Fund or any series and reinvesting such assets in a different 
investment medium, which may include another series of a Fund or 
another Fund, or submitting the question of whether such segregation 
should be implemented to a vote of all affected Contract owners and, as 
appropriate, segregating the assets of any appropriate group (i.e., 
variable annuity Contract owners or variable life insurance Contract 
owners of one or more Participating Insurance Companies) that votes in 
favor of such segregation, or offering to the affected Contract owners 
the option of making such a change; and (b) establishing a new 
registered management investment company or managed separate account. 
If a material irreconcilable conflict arises because of a Participating 
Insurance Company's decision is to disregard Contract owner voting 
instructions and that decision represents a minority position or would 
preclude a majority vote, the Participating Insurance Company may be 
required, at the election of the Fund, to withdraw its account's 
investment in such Fund, and no charge or penalty will be imposed as a 
result of such withdrawal. The responsibility of taking remedial action 
in the event of a Board determination of an irreconcilable material 
conflict and bearing the cost of such remedial action will be a 
contractual obligation of all Participating Insurance Companies under 
their agreements governing participating in the Funds and these 
responsibilities will be carried out with a view only to the interests 
of Contract owners.
    For purposes of this condition 4, a majority of the disinterested 
members of the applicable Board will determine whether or not any 
proposed action adequately remedies any irreconcilable material 
conflict, but in no event will the Fund be required to establish a new 
funding medium for any Contract. No Participating Insurance Company 
shall be required by this condition 4 to establish a new funding medium 
for any Contract if an offer to do so has been declined by vote of a 
majority of Contract owners materially and adversely affected by the 
irreconcilable material conflict.
    5. Any Board's determination of the existence of an irreconcilable 
material conflict and its implications will be made known promptly and 
in writing to all Participating Insurance Companies.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Contract owners so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
variable contract owners. Accordingly, the Participating Insurance 
Companies will vote shares of the Funds held in their accounts in a 
manner consistent with voting instructions timely received from 
Contract owners. Participating Insurance Companies will be responsible 
for assuring that each of their accounts participating in a Fund 
calculates voting privileges in a manner consistent with other 
Participating Insurance Companies. The obligation to calculate voting 
privileges in a manner consistent with all other accounts investing in 
the Fund will be a contractual obligation of all Participating 
Insurance Companies under the agreements governing participation in the 
Fund. Each Participating Insurance Company will vote shares for which 
it has not received voting instructions as well as shares attributable 
to it in the same proportion as it votes shares for which it has 
received instructions.
    7. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participating Insurance Companies of a conflict, 
and determining whether any proposed action adequately remedies a 
conflict, will be properly recorded in the minutes of the appropriate 
Board or other appropriate records, and such minutes or other records 
shall be made [[Page 19801]] available to the Commission upon request.
    8. Each Fund will notify all Participating Insurance Companies that 
separate account prospectus disclosure regarding potential risks of 
mixed and shared funding may be appropriate. Each Fund will disclose in 
its prospectus that: (a) Shares of the Fund are offered to insurance 
company separate accounts to fund both variable annuity and variable 
life insurance contracts and to Qualified Plans, (b) due to differences 
of tax treatment and other considerations, the interests of various 
Contract owners participating in the Funds and the interests of 
Qualified Plans investing in the funds may conflict, and (c) the Board 
of such fund will monitor for the existence of any material conflicts 
and determine what action, if any, should be taken.
    9. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which for these purposes, shall be 
the persons having voting interests in the shares of the Funds), and, 
in particular, each Fund will either provide for annual meetings 
(except to the extent that the Commission may interpret Section 16 of 
the 1940 Act not to require such meetings) or comply with Section 16(c) 
of the 1940 Act, as well as Section 16(a), and if applicable, Section 
16(b) of the 1940 Act. Further each Fund will act in accordance with 
the Commission's interpretation of the requirements of Section 16(a) 
with respect to periodic elections of directors and with whatever rules 
the Commission may promulgate with respect thereto.
    10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive 
relief from any provisions of the 1940 Act or the rules thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by the 
Applicants, then the Funds and the Participating Insurance Companies, 
as appropriate, shall take such steps as may be necessary to comply 
with Rules 6e-2 and 6e-3(T) as amended, and Rule 6e-3, as adopted, to 
the extent applicable.
    11. No less than annually, the Participating Insurance Companies, 
and/or Montgomery and/or its affiliated advisors shall submit to each 
Board such reports, materials or data as such Board may reasonably 
request so that the Board may carry out fully the obligations imposed 
upon it by the conditions contained in the application. Such reports, 
materials and data shall be submitted more frequently if deemed 
appropriate by the applicable Board. The obligations of Participating 
Insurance Companies to provide these reports, materials and data shall 
be a contractual obligation of all Participating Insurance Companies 
under the agreements governing their participation in the Funds.
    12. In the event that a Qualified Plan should ever become an owner 
of 10% or more of the assets of a Fund, such Qualified Plan will 
execute a fund participation agreement with such Fund. A Qualified Plan 
shareholder will execute an application containing an acknowledgment of 
this condition at the time of its initial purchase of shares of the 
Fund.

Conclusion

    For the reasons and upon the facts stated above, Applicants believe 
that the requested exemptions are appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-9841 Filed 4-19-95; 8:45 am]
BILLING CODE 8010-01-M