[Federal Register Volume 63, Number 100 (Tuesday, May 26, 1998)]
[Notices]
[Pages 28527-28532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13815]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23190; File No. 812-10958]


Baron Capital Funds Trust, et al.; Notice of Application

May 18, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940, as amended (the ``Act''), granting 
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.

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SUMMARY OF APPLICATION: Baron Capital Funds Trust and BAMCO, Inc., seek 
an order pursuant to Section 6(c) of the Act to the extent necessary to 
permit shares of any current or future series of the Trust designed to 
fund insurance products (``Insurance Funding Series'') and shares of 
any other investment company or series thereof now or in the future 
registered under the Act that is designed to fund insurance products 
and for which the Adviser, or any of its affiliates (``Affiliates''), 
may in the future serve as investment adviser, administrator, manager, 
principal underwriter or sponsor (the Insurance Funding Series and each 
such other investment company being hereinafter referred to, 
collectively, as the ``Funds'') to be sold to and held by: (a) Variable 
annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies (``Participating 
Insurance Companies''), and (b) certain qualified pension or retirement 
plans outside of the separate account context (``Plans'').

APPLICANTS: Baron Capital Funds Trust (``Trust'') and BAMCO, Inc. 
(``Adviser'').

FILING DATES: The application was filed on January 12, 1998.

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 Secretary of the SEC 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 June 12, 1998, 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 may request 
notification of a hearing by writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, Baron Capital Funds Trust, c/o Linda Martinson, 767 
Fifth Avenue, New York, New York 10153; copy to Richard T. Prins, Esq., 
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, 
New York 10222.

FOR FURTHER INFORMATION CONTACT: Elisa D. Metzger, Senior Counsel, or 
Mark C. Amorosi, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Public Reference Branch of the SEC, 450 Fifth Street, N.W., 
Washington, DC 20549, (tel. (202) 942-8090).

Applicants' Representations

    1. The Trust is a Delaware business trust and is registered under 
the Act as an open-end diversified management investment company. The 
Trust currently is composed of one series, Baron Capital Asset Fund, 
and is authorized to issue shares in separate series or classes. 
Additional series may be added in the future.
    2. The Adviser is registered under the Investment Advisers Act of 
1940 and is the investment adviser for the Trust. The Adviser is a 
wholly owned subsidiary of Baron Capital Group, Inc. (``BCG'').
    3. The Funds intend to offer shares to separate accounts 
established by Participating Insurance Companies to fund variable 
annuity and variable life insurance contracts (``Contracts''). Shares 
of each series of any of the Funds, including the Insurance Funding 
Series, also may be offered directly to Plans outside of the separate 
account context.
    Applicants state that due to changes in the interpretation of the 
tax law by the Internal Revenue Service, the Funds are afforded an 
opportunity to increase their asset base through the sale of shares of 
the Funds to Plans. Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of variable annuity 
contracts and variable life contracts held by the portfolios of the 
Funds. The Code provides that such contracts shall not be treated as an 
annuity contract of life insurance contract for any period (and any 
subsequent period) for which the investments are not, in accordance 
with regulations prescribed by the Treasury Department, adequately 
diversified. On March 2, 1989, the Treasury Department issued 
Regulations (Treas. Reg. Sec. 1.817-5) which establish diversification 
requirements for the investment portfolios underlying variable annuity 
and variable life contracts. 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

[[Page 28528]]

which allows shares in an investment company to be held by 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. Sec. 1.817-
5(f)(3)(iii)). To the extent permitted by applicable law, the Adviser 
or any Affiliate may act as investment adviser to Plans that will 
purchase shares of the Funds.

Applicants' Legal Analysis

    1. Applicants seek an order exempting variable life insurance 
separate accounts of Participating Insurance Companies (and any 
principal underwriters and depositors of such accounts, and the 
Applicants) from Sections 9(a), 13(a), 15(a) and 15(b) of the Act, and 
Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15) thereunder, to the extent 
necessary to permit shares of the Funds to be offered and sold to, and 
held by, (1) variable annuity and variable life separate accounts of 
both affiliated and unaffiliated life insurance companies; and (2) 
qualified pension and retirement plans outside of the separate account 
context.
    2. In connection with scheduled premium variable life insurance 
contracts issued through a separate account registered under the Act as 
a unit investment trust, Rule 6e-2(b)(15) provides partial exemptions 
from Sections 9(a), 13(a), 15(a) and 15(b) of the Act. The exemptions 
granted by Rule 6e-2(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 share ``exclusively 
to variable life insurance separate accounts of the life insurer, or of 
any affiliated life insurance company.'' Therefore, 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 
investment management company that also offers its shares to a variable 
annuity separate account or a flexible premium variable life insurance 
separate account of the insurer or of any affiliated or unaffiliated 
insurance company. The use of a common investment management company as 
the underlying investment medium for both variable annuity and variable 
life insurance separate accounts is referred therein as ``mixed 
funding.'' In addition, the relief granted by Rule 6e-2(b)(15) is not 
available if shares of the underlying investment management company are 
offered to variable annuity or variable life insurance separate 
accounts of unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment medium for 
separate accounts of unaffiliated insurance companies is referred to 
herein as ``shared funding.''
    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the Act as 
a unit investment trust, 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 by Rule 6e-3(T)(b)(15) are available only where all 
of 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 any affiliated 
life insurance company offering either scheduled premium variable life 
insurance contracts of flexible premium variable life insurance 
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. Therefore, Rule 6e-3(T)(b)(15) permits mixed funding 
for flexible premium variable life insurance separate accounts under 
certain circumstances. The rule, however, does not permit shared 
funding, because the relief granted by the rule is not available with 
respect to a flexible premium variable life insurance separate account 
that owns shares of a management investment company that offers it 
shares to separate accounts (including flexible premium variable life 
insurance separate accounts) of unaffiliated life insurance companies.
    4. Applicants state that the relief granted by Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) will not be negatively affected by the purchase of 
shares of the Funds by Plans. Because the relief under Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) is available only where shares of the 
investment company are offered exclusively to separate accounts, 
however, exemptive relief is necessary if shares of the Funds are also 
to be sold to Plans.
    5. Section 9(a) of the Act provides that a company may not act as 
investment adviser to or principal underwriter for any registered open-
end investment company if an affiliated person of that company, such as 
an officer, director or employee, is subject to a disqualification 
contained in Sections 9(a)(1) or (2). Rule 6e-2(b)(15)(i) and (ii) and 
Rule 6e-3(T)(b)(15)(i) and (ii) provide partial exemptions from Section 
9(a) under certain circumstances, subject to the limitation on mixed 
and shared funding. These exemptions limit the application of the 
eligibility restrictions of Section 9(a) to those affiliated 
individuals or companies that participate directly in the management of 
the underlying fund.
    6. The partial relief granted from Section 9(a) in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) limits, in effect, the amount of monitoring 
necessary to ensure compliance with Section 9 to that which is 
appropriate in light of that section's policy and purposes. 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 to the provisions of Section 9(a) to 
individuals in a large insurance company complex, most of whom will 
have no connection with the investment company funding the separate 
accounts.
    7. Applicants maintain that it is unnecessary to limit the 
applicability of the rules merely because the Funds may be sold in 
connection with mixed and shared funding. The Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Funds. Accordingly, Applicants state that 
applying the restrictions of Section 9(a) because of investment by 
other insurers' separate accounts would not serve any regulatory 
purpose. Additionally, Applicants submit that the reasons underlying 
the grant of relief from Section 9(a) will not be affected in any way 
by the proposed sale of the Funds to Plans.
    8. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume the 
existence of a pass-through voting requirement with respect to 
management investment company shares held by a separate account. Rules 
6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii), however, provide exemptions 
from the pass-through voting requirement with respect to several 
significant matters, assuming the limitations on mixed and shared 
funding are observed. 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 underlying fund or any contract between a fund and 
its investment adviser, when required to do so by an insurance 
regulatory authority, under certain circumstances. Rules 6e-
2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the 
insurance company may disregard the voting instructions of contract 
owners in favor of any change in such company's

[[Page 28529]]

investment policies, principal underwriter, or any investment adviser, 
under certain circumstances.
    9. Applicants state 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. Flexible premium variable life insurance contracts 
and variable annuity contracts are subject to substantially the same 
state insurance regulatory authority, and therefore, corresponding 
provisions of Rule 6e-3(T) (which apply to flexible premium insurance 
contracts and which permit mixed funding) presumably were adopted in 
recognition of the same considerations as the Commission applied in 
adopting Rule 6e-2. Applicants assert that these considerations are no 
less important or necessary when an insurance company funds its 
separate accounts in connection with mixed and shared funding.
    10. Applicants further state that where applicable, 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 Plans 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(a)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, the Plan trustees have 
exclusive authority and responsibility for voting proxies.
    11. 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 name fiduciary. The Plans may have their trustee(s) or other 
fiduciaries exercise voting rights attributable to investment 
securities held by the Plans in their discretion. Some of the Plans, 
however, may provide for the trustee(s), an investment adviser (or 
advisers) or another named fiduciary to exercise voting rights in 
accordance with instructions from participants in Plans (``Plan 
Participants'').
    12. Where a Plan does not provide Plan Participants with the right 
to give voting instructions, the Applicants do not see any potential 
for irreconcilable material conflicts of interest between or among 
Contract holders and Plan Participants with respect to voting of the 
respective Fund's shares. Accordingly, Applicants note that, unlike the 
case with insurance company separate accounts, the issue of the 
resolution of irreconcilable material conflicts with respect to voting 
is not present with respect to such Plans since the Plans are not 
entitled to pass-through voting privileges. Even if a Plan were to hold 
a controlling interest in a Fund, the Applicants do not believe that 
such control would disadvantage other investors in such Fund to any 
greater extent than is the case when any institutional shareholder 
holds a majority of the voting securities of any open-end management 
investment company. In this regard, the Applicants submit that 
investment in the Funds by a Plan will not create any of the voting 
complications occasioned by mixed funding or shared funding. Unlike 
mixed or shared funding, Plan Participant voting rights cannot be 
frustrated by veto rights of insurers of state regulators.
    13. Where a Plan provides Plan Participants with the right to give 
voting instructions, the Applicants see no reason to believe that Plan 
Participants in Plans generally or those in a particular Plan, either 
as a single group or in combination with Plan Participants in other 
Plans, would vote in a manner that would disadvantage Contract holders. 
The purchase of shares of the Funds by Plans that provide voting rights 
does not present any complication not otherwise occasioned by mixed or 
shared funding.
    14. Applicants represent that the Funds will inform each 
shareholder, including each separate account and Plan, of information 
necessary for the meeting including their respective share ownership in 
the Fund. A Participating Insurance Company will then solicit voting 
instructions consistent with the ``pass through'' voting requirement.
    15. Applicants assert that no increased conflict of interest would 
be present if the requested relief is granted. Applicants maintain 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. 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 other insurance regulators in one 
or more other states in which other Participating Insurance Companies 
are domiciled. The possibility, however, also exists when a single 
insurer and its affiliates offer their insurance products in several 
states, as is currently permitted.
    16. Applicants also assert that affiliations do not reduce the 
potential for differences in state regulatory requirements. In any 
event, the conditions set forth in the application and described below 
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.
    17. Applicants maintain that affiliation does not eliminate the 
potential for divergent judgments as to when a Participating Insurance 
company could disregard Control holder voting instructions. The 
potential for disagreement is limited by the requirement that 
disregarding voting instructions be reasonable and based on specified 
good faith determinations. However, if the Participating Insurance 
Company's decision to disregard Contract holder 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 upon the Contract holders as a result of such 
withdrawal.
    18. Applicants submit that there is no reason why the investment 
policies of a Fund would or should be materially different from what it 
would or should be if it funded only variable annuity contracts or only 
variable life insurance contracts rather than Contracts and Plans. The 
Funds will not be managed to favor or disfavor any particular insurer 
or type of Contract. Regardless of the types of Fund shareholders, the 
Adviser is legally obligated to manage the Funds in accordance with 
each Fund's investment objectives, policies and restrictions as well as 
any guidelines established by the relevant Board of Directors or 
Trustees of the Funds. Applicants assert that the

[[Page 28530]]

Adviser does not give consideration to the identity of particular 
shareholders in a Fund, and, thus, manages the Funds in the same manner 
as any other mutual fund.
    19. Applicants submit that there is no greater potential for 
material irreconcilable conflicts arising between the interests of 
participants and contract owners of separate accounts from possible 
future changes in the federal tax laws than that which already exists 
between variable annuity contract owners and variable life insurance 
contract owners.
    20. Applicants note that while there are differences in the manner 
in which distributions from variable contracts and Plans are taxed, the 
tax consequences do not raise any conflicts of interest. When 
distributions are to be made, and a separate account or Plan is unable 
to net purchase payments to make the distributions, the separate 
account and Plan will redeem shares of their Funds at their net asset 
value. A Plan will make distributions in accordance with the terms of 
the Plan. A Participating Insurance Company will make distributions in 
accordance with the terms of the variable contract.
    21. Applicants state that the ability of the Funds to sell their 
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. Applicants 
state that regardless of the rights and benefits of participants under 
the Plans or Contract owners under the Contracts, the Plans and the 
variable annuity and variable life insurance separate accounts only 
have rights with respect to their respective shares of the Funds. They 
can only redeem such shares at their net asset value. No shareholder of 
the Funds has any preference over any other shareholder with respect to 
distribution of assets or payment of dividends.
    22. Applicants submit that there are not conflicts between Contract 
owners of separate accounts 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 in recognition of the fact that insurance 
companies usually cannot simply redeem their separate accounts out of 
one fund and invest in another. Generally, time-consuming, complex 
transactions must be undertaken to accomplish such redemptions and 
transfers. On the other hand, the Plans can make the decision quickly 
and implement the redemption of their shares from the Funds and 
reinvest in another funding vehicle without the same regulatory 
impediments or, or as is the case with most Plans, even hold cash 
pending suitable investment. Based on the foregoing, Applicants have 
concluded that even if there should arise issues where the interests of 
Contract owners and the interests of Plans are in conflict, the issues 
can be almost immediately resolved because the Plans can, on their own, 
redeem the shares out of the Funds.
    23. Applicants state that various factors have kept more insurance 
companies from offering variable annuity contracts and variable life 
insurance contracts than currently offer such contracts. 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 
name recognition by the public as investment experts. For example, some 
smaller life insurance companies may not find it economically feasible, 
or within their investment or administrative expertise, to enter the 
variable contract business on their own. Use of a Fund as a common 
investment medium for variable contracts would reduce or eliminate 
these barriers.
    24. Applicants maintain that the Participating Insurance Companies 
will benefit not only from the investment management and administrative 
expertise of the Adviser and its Affiliates, but also from the cost 
efficiencies and investment flexibility afforded by a large pool of 
funds. It would permit a greater amount of assets available for 
investment, thereby promoting economies of scale, permitting greater 
diversification, and making the addition of new portfolios more 
feasible. Additionally, making the Funds available for mixed and shared 
funding will encourage more insurance companies to offer variable 
contracts, and this should result in increased competition with respect 
to both variable contract design and pricing, which can be expected to 
result in more product variation and lower charges.

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 the Trust and 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 45 days if the vacancy or vacancies may be 
filed 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 irreconcilable material conflict between and among the interests 
of the Contract holders of all separate accounts and of Plan 
Participants and Plans investing in the Funds, and determine what 
action, if any, should be taken in response to any such conflicts. 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 holders; (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of Contract holders; and (g) if applicable, a decision by 
a Plan to disregard the voting instructions of Plan Participants.
    3. The Adviser (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 
issued and outstanding shares of a Fund (such Plans referred to 
hereafter as ``Participating Plans'') will be required to report any 
potential or existing conflicts to the Board of the relevant Fund. The 
Adviser (or any other investment adviser of a Fund), 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 a Participating 
Insurance Company to inform the Board whenever it has determined to 
disregard Contract holder voting instructions and, if pass-through 
voting is applicable, an obligation by a

[[Page 28531]]

Participating Plan to inform the Board whenever it has determined to 
disregard Plan Participant voting instructions. The responsibility to 
report such information and conflicts to and to assist the Boards will 
be contractual obligations of all Participating Insurance Companies and 
Participating Plans investing in the Funds under their agreement 
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 holders and, if applicable, Plan Participants.
    4. If a majority of the Board of a Fund, or a majority of the 
disinterested trustees or directors, determine that an irreconcilable 
material conflict exists, the relevant Participating Insurance 
Companies and Participating Plans, at their expense and to the extent 
reasonably practicable (as determined by a majority of the 
disinterested trustees or directors), will be required to 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 and 
reinvesting such assets in a different investment medium, which may 
include another series of the Trust or another Fund; (b) submitting the 
questions of whether such segregation should be implemented to a vote 
of all affected Contract holders and, as appropriate, segregating the 
assets of any appropriate group (i.e., variable annuity or variable 
life insurance Contract holders of one or more Participating Insurance 
Companies) that votes in favor of such segregation, or offering to the 
affected Contract holders the option of making such a change; and (c) 
establishing a new registered management investment company or managed 
separate account. If an irreconcilable material conflict arises because 
of a decision by a Participating Insurance Company to disregard 
Contract holders 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, with no charge 
or penalty imposed as a result of such withdrawal. If an irreconcilable 
material 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, with no charge or 
penalty 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 shall be a contractual 
obligation of all Participating Insurance Companies and Participating 
Plans under their agreements governing participation in the Funds, and 
these responsibilities will be carried out with a view only to the 
interests of Contract holders and Plan Participants, as applicable.
    5. For purposes of Condition Four, 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 a Fund or the Adviser (or any other 
investment adviser of the Funds) be required to reestablish a new 
funding medium for any Contract. No Participating Insurance Company 
shall be required by Condition Four to set zero copy attached received 
instructions. Each Participating Plan will vote as required by 
applicable law and governing plan documents.
    8. All reports of potential or existing conflicts received by a 
Board, and all Board action will regard to determining the existence of 
a conflict, notifying the Adviser, 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 with 
respect to such Fund 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 Fund and the 
interests of Plans investing in the Fund may conflict; and (c) the 
Board will monitor such Fund for any material conflicts of interest and 
determine what action, if any, should be taken.
    10. Each Fund will comply with all provisions of the Act requiring 
voting by shareholders (which, for these purposes, shall be the person 
having a voting interest in the shares of the respective Fund), and in 
particular, each 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 with 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 (or trustees) 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 Rule 6e-3 under the Act is adopted) to provide exemptive relief 
from any provision of the Act, or the rules promulgated thereunder with 
respect to mixed or shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Funds shall and the Participating Insurance 
Companies, as appropriate, shall be required to take such steps as may 
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, or Rule 
6e-3, as adopted, to the extent applicable.
    12. No less than annually, the Adviser (or any other investment 
adviser of a Fund), 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 
fully carry out 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 Adviser, Participating Insurance 
Companies and Participating Plans to provide these reports, materials 
and data to the Boards, shall be a contractual obligation of the 
Adviser, 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 issued and outstanding shares of a Fund, 
such Plan will execute a participation agreement with such Fund 
including the conditions set forth in the application to the extent 
applicable. A Plan or Plan Participant shareholder will execute an 
application containing an acknowledgment of this condition at the

[[Page 28532]]

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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13815 Filed 5-22-98; 8:45 am]
BILLING CODE 8010-01-M