[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35979-35984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16997]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21183; Filed No. 812-9384]


American Skandia Trust, et al.

July 3, 1995.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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applicants: American Skandia Trust (the ``Trust'') and American Skandia 
Investment Services, Incorporated (``ASISI'').

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

summary of application: Applicants seek an order rescinding and 
replacing an order that granted exemptions from the Act (the ``Original 
Order'').\1\ The 

[[Page 35980]]
proposed order would grant exemptions to the extent necessary to permit 
shares of any current or future series of the Trust and shares of any 
other investment company that is designed to fund insurance products 
and for which ASISI, or any of its affiliates may in the future serve 
as investment adviser, administrator, manager, principal underwriter or 
sponsor (the Trust and such other investment company are hereinafter 
referred to collectively as the ``Funds'') to be sold to and held by 
(i) variable annuity and variable life insurance company separate 
accounts of both affiliated and unaffiliated life insurance companies 
(``Participating Insurance Companies'') and (ii) qualified pension and 
retirement plans outside the separate account context (``Plans'').

    \1\ Investment Company Act Release Nos. 17607 (July 19, 1990) 
(Order) and 17548 (June 22, 1990) (Notice).
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filing date: The Application was filed on December 23, 1994 and amended 
on March 29, 1995 and June 28, 1995.

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 should be received by the SEC by 5:30 p.m. on July 28, 1995, 
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 SEC's 
Secretary.

ADDRESSES: SEC, Secretary, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, American Skandia Trust, c/o Mary Ellen O'Leary, 
Corporate Secretary, One Corporate Drive, Shelton, CT 06484.

FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy Friedlander, Deputy 
Chief, at (202) 942-0670, Office of Insurance Products, Division of 
Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application. The complete Application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Trust was organized in October 1988 as a Massachusetts 
business trust. The Trust is an open-end management investment company 
and is registered with the SEC under the Act. Prior to 1992, the Trust 
was known as Henderson International Growth Fund and consisted of only 
one series. The Trust currently consists of nineteen separately managed 
series to which additional series may be added in the future.
    2. ASISI serves as investment manager for each of the Trust's 
series. ASISI is wholly-owned by American Skandia Investment Holding 
Corporation which is an indirect wholly-owned subsidiary of Skandia 
Insurance Company Ltd., a Swedish corporation. ASISI is registered 
under the Investment Advisers Act of 1940. Prior to 1992, the Trust's 
investment adviser was Henderson International, Inc.
    3. Currently the Trust only offers its shares to variable annuity 
separate accounts established by American Skandia Life Assurance 
Company (``ASLAC''). The Funds propose to offer shares of one or more 
of their series to insurance company separate accounts that fund 
variable annuity and variable life insurance contracts, established by 
insurance companies that are not affiliated with ASLAC, as well as 
separate accounts established by ASLAC itself or its affiliated 
insurance companies.
    4. The Funds also intend to offer shares of each series directly to 
Plans outside of the separate account context. The Plans may choose 
from one of several series of 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 the right to select among Funds, depending on the 
Plans. Plan participants include not only those participants of 
qualified pension or retirement plans as set forth in Treasury 
Regulation 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also 
include the holders of annuity contracts described in Sections 403(b) 
of the Code, including Section 403(b)(7); holders of individual 
retirement accounts described in Section 408(b) of the Code; and 
holders of any other trust, account, contract or annuity that is 
determined to be within the scope of Regulation 1.817-5(f)(3)(iii).
    5. Applicants seek to rescind and replace the Original Order 
because ASISI has replaced Henderson International, Inc. as the 
investment adviser to the Trust and ASISI was not a party to the 
application for the Original Order. Applicants also seek to permit 
shares of the Funds to be offered to 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 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 is available to a separate 
account's investment adviser, 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 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 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. The relief granted by Rule 6e-
2(b)(15) is not available with respect to a scheduled premium variable 
life insurance separate account that owns shares of an underlying fund 
that offers its shares to a variable annuity separate account of the 
same company or of any other affiliated or unaffiliated life insurance 
company. Therefore, Rule 6e-2(b)(15) precludes mixed funding as well as 
shared funding.
    2. Applicants state that because the relief under Rule 6e-2(b)(15) 
is available only where shares are offered exclusively to separate 
accounts of insurance companies, additional exemptive relief is 
necessary if shares of the Funds also are to be sold to Plans.
    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the Act as 
a UIT, Rule 6e-3(T)(b)(15) provide 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 or 
flexible 

[[Page 35981]]
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) permits mixed funding, but does 
not permit shared funding.
    4. Applicants state that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, additional relief is necessary if shares of the Funds also 
are to be sold to Plans.
    5. Applicants state that changes in the tax law have created the 
opportunity for the Funds to increase their asset base through the sale 
of Fund shares to the Plans. Applicants state that Section 817(h) of 
the Internal Revenue Code of 1986, as amended (the ``Code''), imposes 
certain diversification requirements on the underlying assets of the 
Contracts held in the Funds. The Code provides that such Contracts 
shall not be treated as an annuity contract or life insurance contract 
for any period in which the underlying assets are not, in accordance 
with regulations prescribed by the Treasury Department, adequately 
diversified. On March 2, 1989, the Treasury Department issued 
regulations which established diversification requirements for the 
investment portfolios underlying variable contracts. Treas. Reg. 
Sec. 1.817-5 (1989). The regulations provide that, 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. The regulations do, however, 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 contracts. Treas. 
Reg. Sec. 1.817-5(f)(3)(iii).
    6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the Act preceded the issuance of these Treasury regulations. 
Applicants assert that, given the then current tax law, the sale of 
shares of the same investment company to both separate accounts and 
Plans could not have been envisioned at the time of the adoption of 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    7. Applicants therefore request relief from Sections 9(a), 13(a), 
15(a) and 15(b) of the Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder, to the extent necessary to permit shares of the Funds to be 
offered and sold in connection with both mixed and shared funding.
    8. Section 9(a) of the Act provides that it is unlawful for any 
company to serve as an investment adviser to or principal underwriter 
for 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). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide exemptions 
from Section 9(a) under certain circumstances, subject to the 
limitations on mixed and shared funding. The relief provided by Rules 
6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person disqualified 
under Section 9(a) to serve as an officer, director, or employee of the 
life insurer, or any of its affiliates, so long as that person does not 
participate directly in the management or administration of the 
underlying fund. The relief provided by Rules 6e-2(b)(15)(ii) and 6e-
3(T)(b)(15)(ii) permits the life insurer to serve as the underlying 
fund's investment adviser or principal underwriter, provided that none 
of the insurer's personnel who are ineligible pursuant to Section 9(a) 
participate in the management or administration of the fund.
    9. Applicants state that the partial relief from Section 9(a) found 
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount 
of monitoring necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of that 
Section. Applicants state that those rules recognize that it is not 
necessary for the protection of investors or the purposes fairly 
intended by the policy and provisions of the Act to apply the 
provisions of Section 9(a) to the many individuals employed by the 
Participating Insurance Companies, most of whom will have no 
involvement in matters pertaining to investment companies within that 
organization. Applicants note that the Participant Insurance Companies 
are not expected to play any role in the management or administration 
of the Funds. Therefore, Applicants assert, applying the restrictions 
of Section 9(a) serves no regulatory purpose. Applicants state that the 
relief requested should not be affected by the proposed sale of shares 
of the Funds to the Plans because the Plans are not investment 
companies and are not, therefore, subject to Section 9(a).
    10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the Act 
assume the existence of a pass-through voting requirement with respect 
to management investment company shares held by a separate account. The 
application states that the Participating Insurance Companies will 
provide mass-through voting privileges to all Contract owners so long 
as the Commission interprets the Act to require such privileges.
    11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the Act 
provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming observance of the 
limitations on mixed and shares funding imposed by the Act and the 
rules thereunder.
    Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that 
the insurance company may disregard the voting instructions of its 
Contract owners with respect to the investments of an underling fund, 
or any contract between a fund and its investment adviser, when 
required to do so by an insurance regulatory authority.
    Rules 6e3-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that 
the insurance company may disregard voting instructions of its Contract 
owners if the Contract owners initiate any change in the investment 
company's investment policies, principal underwriter, or any investment 
adviser, provided that disregarding such voting instructions is 
reasonable and subject to the other provisions of paragraphs 
(b)(15)(ii) and (b)(7)(ii)(B) and (C) of each rule.
    12. Applicants further state that shares of the Funds sold to Plans 
will be held by the trustees of such Plans as required by Section 
403(a) of ERISA. Section 403(a) also provides that the trustees must 
have exclusive authority and discretion to manage and control the Plan 
with two exceptions: (a) when the Plan expressly provides that the 
trustees 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 (b) 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 to the named fiduciary. In 
any event, there is no pass-through voting to the participants in such 
Plans. Accordingly, Applicants note that, unlike the case with 
insurance company separate accounts, the issue of the resolution of 
material irreconcilable conflicts with 

[[Page 35982]]
respect to voting is not present with Plans.
    13. Applicants state that no increased conflicts of interest would 
be present by the granting of the requested relief. Applicants assert 
that 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. Applicants note that where 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. Applicants submit that this possibility is no different or 
greater than exists where a single insurer and its affiliates offer 
their insurance products in several states.
    14. Applicants further submit that affiliation does not reduce the 
potential for differences in state regulatory requirements. In any 
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15) discussed below) are designed to safeguard against any 
adverse effects that these differences 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.
    15. Applicants also argue that 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. Potential disagreement is limited by the requirement that 
the Participating Insurance Company's disregard of voting instructions 
be both reasonable and based on specified good faith determinations. 
However, if a Participating Insurance Company's decision to disregard 
Contract owner 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. No charge or penalty will be imposed as a result of such a 
withdrawal.
    16. Applicants submit that there is no reason why the investment 
policies of a Fund with mixed funding would, or should, be materially 
different from what those policies would, or should, be if such 
investment company or series thereof funded only variable annuity or 
variable life insurance contracts. Applicants therefore argue that 
there is no reason to believe that conflicts of interest would result 
from mixed funding. Moreover, Applicants represent that the Funds will 
not be managed to favor or disfavor any particular insurer or type of 
Contract.
    17. Section 817(h) of the Code imposes certain diversification 
requirements on the underlying assets of variable annuity and variable 
life insurance 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 ``qualified pension or retirement plans'' and 
separate accounts to share the same underlying management investment 
company. Therefore, Applicants have concluded that neither the Code, 
the Treasury regulations, nor the revenue rulings thereunder present 
any inherent conflicts of interest if Plans, variable annuity and 
variable life insurance separate accounts all invest in the same 
management investment company.
    18. Applicants note that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, Applicants state that 
these tax consequences do not raise any conflicts of interest. When 
distributions are to be made, and the separate account or the Plan is 
unable to net purchase payments to make the distributions, the separate 
account or the Plan will redeem shares of the Funds at their respective 
net asset value. The Plan will then make distributions in accordance 
with the terms of the Plan. The life insurance company will make 
distributions in accordance with the terms of the variable contract.
    19. Applicants argue that the ability of the Funds to sell their 
respective shares directly to Plans does not create a ``senior 
security,'' as such term is defined under Section 18(g) of the Act, 
with respect to any Contract owner as opposed to a participant under a 
Plan. Regardless of the rights and benefits of participants and 
Contract owners under the respective Plans and Contracts, the Plans and 
the separate accounts have rights only with respect to their shares of 
the Funds. Such shares may be redeemed only at net asset value. No 
shareholder of any of the Funds has any preference over any other 
shareholder with respect to distributions of assets or payment of 
dividends.
    20. Finally, applicants state that there are no conflicts of 
interest between Contract owners and participants under the Plans with 
respect to the state insurance commissioners' veto powers over 
investment objectives. The state insurance commissioners have been 
given the veto power to prevent insurance companies indiscriminately 
redeeming their separate accounts out of one fund and investing those 
monies in another fund. Generally, to accomplish such redemptions and 
transfers, complex and time consuming transactions must be undertaken. 
Conversely, trustees of Plans or the participants in participant-
directed Plans can make the decision quickly and implement redemption 
of shares from a Fund and reinvest the monies in another funding 
vehicle without the same regulatory impediments or, as is the case with 
most Plans, even hold cash pending a suitable investment. Based on the 
foregoing, Applicants represent that even should there arise issues 
where the interests of Contract owners and the interests of Plans and 
Plan participants conflict, the issues can be almost immediately 
resolved in that trustees of the Plans can, independently, redeem 
shares out of the Funds.
    21. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. According to Applicants, these factors include: 
the cost of organizing and operating an investment funding medium; the 
lack of expertise with respect to investment managers (principally with 
respect to stock and money market investments); and the lack of public 
name recognition as investment experts. Specifically, Applicants state 
that 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. Applicants argue the use of 
the Funds as common investment media for the Contracts would ease these 
concerns. Participating Insurance Companies would benefit not only from 
the investment and administrative expertise of ASISI, but also from the 
cost efficiencies and investment flexibility afforded by a large pool 
of funds. Applicants state that making the Funds available for mixed 
and shared funding may encourage more insurance companies to offer 
variable contracts such as the Contracts which may then increase 
competition with respect to both the design and the pricing of variable 
contracts. Applicants submit that this can be expected to result in 
greater product variation and lower charges. Thus, Applicants argue 
that 

[[Page 35983]]
Contract owners would benefit because mixed and shared funding will 
eliminate a significant portion of the costs of establishing and 
administering separate funds. Moreover, Applicants assert that sales of 
shares of the Funds to Plans should increase the amount of assets 
available for investment by such Funds. This should, in turn, promote 
economies of scale, permit increased safety of investments through 
greater diversification, and make the addition of new portfolios more 
feasible.
    22. Applicants believe that there is no significant legal 
impediment to permitting mixed and shared funding. Additionally, 
Applicants note the previous issuance of orders permitting mixed and 
shared funding where shares of a fund were sold directly to qualified 
plans such as the Plans.

Applicants' Conditions

    Applicants have consented to the following conditions if the order 
requested in the application 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 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. The Boards will monitor their respective Funds for the existence 
of any material irreconcilable conflict between the interests of 
Contract owners of all of separate accounts investing in the Funds. An 
irreconcilable material conflict may arise for a variety of reasons, 
which may include: (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 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 
Funds are being managed; (e) a difference in voting instructions given 
by variable annuity and variable life insurance Contract owners; (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of Contract owners; and (g) if applicable, a decision by a 
Plan to disregard the voting instructions of Plans participants.
    3. The Investment Manager (or any other investment adviser of a 
Fund), any Participating Insurance Company, and any Plan that executes 
a fund participation agreement upon becoming an owner of 10% or more of 
the assets of a Fund (such Plans referred hereafter as ``Participating 
Plans'') will report any potential or existing conflicts to the Board 
of any relevant Fund. The Investment Manager, Participating Insurance 
Companies and Participating Plans 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 the Investment Manager and a 
Participating Insurance Company to inform the Board whenever it has 
determined to disregard Contract owner voting instructions and, if 
pass-through voting is applicable, an obligation by the Investment 
Manager and a Participating Plan to inform the Board whenever it has 
determined to disregard Plans participant voting instructions. The 
responsibility to report such information and conflicts and to assist 
the Boards will be contractual obligations of the Investment Manager 
and all Participating Insurance Companies and Participating Plans 
investing in Funds under their agreements governing participation in 
the Funds, and such agreements shall provide that these 
responsibilities will be carried out with a view only to the interests 
of Contract owners and if applicable, Plans participants.
    4. If a majority of the Board of a Fund, or a majority of its 
disinterested trustees or directors, determine that a material 
irreconcilable conflict exists, the Investment Manager and relevant 
Participating Insurance Companies and Participating Plans, at their 
expense and to the extent reasonably practical (as determined by a 
majority of the disinterested trustees or directors), will take 
whatever steps are necessary to remedy or eliminate the irreconcilable 
material conflict. Such steps could include: (a) Withdrawing the assets 
allocable to some or all of the separate 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; (b) 
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 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 (c) 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 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 separate account's investment 
in such Fund, and no charge or penalty will be imposed as a result of 
such withdrawal. If a material irreconcilable conflict arises because 
of a Participating Plan's decision to disregard Plan participant voting 
instructions, if applicable, and that decision represents a minority 
position or would preclude a majority vote, the Participating Plan may 
be required, at the election of the Fund, to withdraw its investment in 
such Fund, and no charge or penalty will be imposed as a result of such 
withdrawal. To the extent permitted by applicable law, 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 the 
Investment Manager and all Participating Insurance Companies and 
Participating Plans 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 and Plans participants, as 
applicable.
    5. For purposes of this Condition Five, 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 or ASISI (or any other 
investment adviser of the Funds) be required to establish a new funding 
medium for any Contract. No Participating Insurance Company shall be 
required by this Condition Five to establish a new funding medium for 
any Contract if a majority of Contract owners materially and adversely 
affected by the irreconcilable material conflict, vote to decline such 
offer. No Participating Plan shall be required by this Condition Five 
to establish a new funding medium for such plan if (a) a majority of 
Plan 

[[Page 35984]]
participants materially and adversely affected by the material 
irreconcilable material conflict vote to decline such offer, or (b) 
pursuant to governing plan documents and applicable law, the 
Participating Plan makes such decision without Plans participant vote.
    6. The Investment Manager, all Participating Insurance Companies, 
and Participating Plan will be promptly informed of any Board's 
determination that an irreconcilable material conflict exists, and its 
implications.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all Contract owners so long as the SEC interprets 
the Act to require pass-through voting privileges for Contract owners. 
Accordingly, the Participating Insurance Companies will vote shares of 
a Fund held in their separate accounts in a manner consistent with 
voting instructions received from Contract owners. Participating 
Insurance Companies will be responsible for assuring that each of their 
separate accounts calculates voting privileges in a manner consistent 
with all other Participating Insurance Companies. The obligation to 
calculate voting privileges in a manner consistent with all other 
separate 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 Gas it votes shares for which it has received instructions. 
Each Participating Plan will vote as required by applicable law and 
governing plan documents.
    8. All reports of potential or existing conflicts of interest 
received by a Board, and all Board action with regard to determining 
the existence of a conflict, notifying the Investment Manager, 
Participating Insurance Companies and Participating Plans 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 available to the Commission upon request.
    9. 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 may be offered to insurance 
company separate accounts of both annuity and life insurance variable 
contracts, and to 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 Plans investing in the 
Funds may conflict; and (c) the Board will monitor the Funds for any 
material conflicts of interest and determine what action, if any, 
should be taken.
    10. Each Fund will comply with all the provisions of the Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the Funds) and in 
particular, each such Fund will either provide for annual meetings 
(except to the extent that the Commission may interpret Section 16 of 
the Act not to require such meetings) or comply with Section 16(c) of 
the Act (although the Funds are not within the trusts described in 
Section 16(c) of the Act) as well as Section 16(a) and if applicable 
Section 16(b) of the 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.
    11. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or if Rule 6e-3 under the Act is adopted) to provide exemptive relief 
from any provisions of the 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 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.
    12. No less than annually, the Investment Manager, the 
Participating Insurance Companies and Participating Plans, shall submit 
to the Boards such reports, materials, or data as such Boards may 
reasonably request so that the Boards may carry out fully the 
obligations imposed upon them by the conditions contained in the 
Application. Such reports, materials and data shall be submitted more 
frequently if deemed appropriate by the applicable Boards. The 
obligations of the Investment Manager, Participating Insurance 
Companies and Participating Plans to provide these reports, materials 
and data to the Boards shall be a contractual obligation of the 
Investment Manager, all Participating Insurance Companies and 
Participating Plans under the agreements governing their participation 
in the Funds.
    13. If a Plan or Plan participant shareholder should become an 
owner of 10% or more of the assets of a Fund, such Plan or Plan 
participant shareholder will execute a participation agreement with 
such Fund including the conditions set forth herein to the extent 
applicable. A Plan or Plan participant shareholder will execute an 
application containing an acknowledgement of this condition at the time 
of its initial purchase of shares of the Fund.

Conclusion

    For the reasons set forth above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and purposes 
fairly intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16997 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M