[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6397-6402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3101]


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

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23677; File No. 812-11366]


Endeavor Series Trust, et al.; Notice of Application

February 2, 1999.
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 (``Act'') for exemptions from the 
provisions of 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 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 or to 
serve as an investment vehicle for qualified pension and retirement 
plans and for which Endeavor 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 companies 
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'').

APPLICANTS: Endeavor Series Trust (``Trust'') and Endeavor Management 
Co. (``Endeavor'' or ``Manager'').

FILING DATE: The application was filed on October 20, 1998, and amended 
on December 21, 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 March 1, 1999, and 
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 Secretary of the 
SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
Applicants, c/o Vincent J. McGuinness, Jr., President, Endeavor 
Management Co., 2101 East Coast Highway, Suite 300, Corona del Mar, 
California 92625.

FOR FURTHER INFORMATION CONTACT:
Elisa D. Metzger, Senior Counsel, or Susan M. Olson, Branch Chief, 
Division of Investment Management, Office of Insurance Products, 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, NW, 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Trust was organized on November 18, 1988 as a Massachusetts 
business trust and is registered as an open-end management investment 
company with the SEC. The Trust consists of multiple, separately 
managed investment portfolios (``Portfolios'') and may in the future 
issue shares of additional Portfolios.
    2. Endeavor is registered under the Investment Advisers Act of 
1940. Endeavor serves as Manager of the Trust. The Manager is 
responsible for providing investment management and administrative 
services to the Trust and in the exercise of such responsibility 
selects other affiliated and unaffiliated registered investment 
advisers (``Advisers'') for each of the Portfolios and monitors the 
Advisers' investment programs and results, reviews brokerage matters, 
oversees compliance matters and supervises the provision of services by 
third parties such as the Trust's custodian. The Manager has entered 
into or will enter into investment advisory agreements with the 
Advisers that will be primarily responsible for the day-to-day 
investment programs of each Portfolio. Vincent J. McGuinness, a trustee 
of the Trust, together with his family members and trusts for the 
benefit of his family members, owns all of Endeavor's outstanding 
common stock.
    3. The Funds (including the Trust) 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 
(``Contracts'') established by Participating Insurance Companies. These 
separate accounts may be registered as investment companies under the 
Act or exempt from registration pursuant to Section 3(c)(l). Each 
Participating Insurance Company will enter into a fund participation 
agreement with the Funds in which the Participating Insurance Company

[[Page 6398]]

invests. Shares of the Trust are currently offered to variable annuity 
separate accounts established by PFL Life Insurance Company and certain 
of its affiliates.
    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 Sec. 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 Internal Revenue Code of 1986, as amended (``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 Sec. 1.817-5(f)(3)(iii).

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 variable annuity and variable life insurance 
separate accounts 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) 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 or 
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) 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. Applicants assert that the relief granted by 
paragraph (b)(15) of Rules 6e-2 and 6e-3(T) should not be affected by 
the proposed sale of Fund shares to Plans because such sales may allow 
for the development of larger pools of assets, resulting in the 
potential for greater investment and diversification opportunities and 
for decreased expenses at higher asset levels resulting in greater cost 
efficiencies.
    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 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 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, and 
to be sold directly to Plans. Relief is requested for a class or 
classes of persons and transactions consisting of Participating 
Insurance Companies and their scheduled premium variable life insurance 
separate accounts and flexible premium variable life insurance accounts 
(and, to the extent necessary, any investment adviser, principal 
underwriter and depositor of such separate accounts) investing in any 
of the Funds.

Disqualification

    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

[[Page 6399]]

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 section 9. 
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 Participating 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).

Pass-Through Voting

    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 pass-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 shared 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 underlying fund, or any contract between a fund and its investment 
adviser, when required to do so by an insurance regulatory authority. 
Rules 6e-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)(5)(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 
irreconcilable material conflicts with respect to voting is not present 
with Plans because the Plans are not entitled to pass-through voting 
privileges. Applicants further assert that investments in the Funds by 
Plans will not create any of the voting complications occasioned by 
mixed and shared funding because Plan investor voting rights cannot be 
frustrated by veto rights of insurers or state regulators.
    13. Applicants state that some Plans may provide participants with 
the right to give voting instructions. Applicants submit that there is 
no reason to believe that participants in Plans generally, or those in 
a particular Plan, either as a single group or in combination with 
other Plans, would vote in a manner that would disadvantage Contract 
owners. Accordingly, Applicants assert that the purchase of Fund shares 
by Plans that provide voting rights to participants does not present 
any complications not otherwise occasioned by mixed and shared funding.

Conflicts of Interest

    14. 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.
    15. 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.
    16. 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

[[Page 6400]]

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.
    17. 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.
    18. 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 Sec. 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.
    19. 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 states 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 values. 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.
    20. Applicants state that they do not see any greater potential for 
irreconcilable material conflicts arising between the interests of 
participants under the Plans and owners of the Contracts issued by the 
separate accounts of Participating Insurance Companies 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.
    21. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving such voting rights to 
Contract owners and to Plans. Applicants represent that a Fund will 
inform each shareholder, including each separate account and Plan, of 
information necessary for the shareholder meeting, including their 
respective share ownership in the Fund. A Participating Insurance 
Company will then solicit instructions in accordance with the ``pass-
through'' voting requirements of Rules 6e-2 and 6e-3(T).
    22. 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.
    23. 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.
    24. 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 
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 Endeavor and the 
Advisers, 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 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 portfolio more feasible.
    25. Applicants state that, regardless of the types of Fund 
shareholders, Endeavor 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 
Endeavor works with a pool of money without consideration for the 
identity of shareholders, and, thus, manages the Funds in the same 
manner as any other mutual fund.

[[Page 6401]]

    26. Applicants believe that there is no significant legal 
impediment to permitting mixed and shared funding.

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(s) 
or director(s), 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 SEC may prescribe by order upon application.
    2. The Boards will monitor their respective Funds for the existence 
of any irreconcilable material conflict between the interests of 
Contract owners 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 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, 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 Funds are being managed; (e) a difference in voting 
instructions given by variable annuity and variable life insurance 
Contract owners or trustees of Eligible Plans; (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 Plan participants.
    3. The Manager, Advisers (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 report any potential or 
existing conflicts to the Board of any relevant fund. The Manager, 
Advisers (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 it not limited to, an obligation by 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 a Participating Plan to inform 
the Board whenever it has determined to disregard Plan participant 
voting instructions. The responsibility to report such information and 
conflicts, and to assist the Boards, will be contractual obligations of 
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, Plan participants.
    4. If a majority of the Board of a Fund, or a majority of its 
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 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 an irreconcilable material conflict arises because 
of a decision by a Participating Insurance Company 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 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, 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 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 owners and Plans 
participants, as applicable.
    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 a Fund, Manager, Advisers (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 4 to establish a new funding medium for any 
Contract if a majority of Contract owners materially affected by the 
irreconcilable material conflict, vote to decline such offer. No 
Participating Plan shall be required by this Condition 4 to establish a 
new funding medium for such Plan if (a) a majority of Plan participants 
materially and adversely affected by the 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 Plan participant vote.
    5. The Manager, Advisers, all Participating Insurance Companies and 
Participating Plans will be promptly informed in writing of any Board's 
determination that an irreconcilable material conflict exists, and its 
implications.

[[Page 6402]]

    6. 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 as it votes shares for which it has received instructions. 
Each Participating Plan will vote as required by applicable law and 
governing plan documents.
    7. 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 Manager, Advisers, 
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.
    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 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 events in order to 
identify the existence of any material conflicts of interest and to 
determine what action, if any, should be taken in response to any such 
conflict.
    9. 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 SEC 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 
SEC's interpretation of the requirements of section 16(a) with respect 
to periodic elections of directors (or trustees) and with whatever 
rules the SEC 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 Act is adopted) to provide exemptive relief 
from any provisions of the Act or the rules promulgated 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, the Participating Insurance Companies 
and Participating Plans, as appropriate, shall take such steps as may 
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and 
Rules 6e-3, as adopted, to the extent applicable.
    11. No less than annually, the Manager, Advisers (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 carry out all 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 Participating Insurance 
Companies and Participating Plans to provide these reports, materials 
and data to the Boards shall be a contractual obligation of all 
Participating Insurance Companies and Participating Plans under the 
agreements governing their participation in the Funds.
    12. 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 herein to the extent applicable. A 
Plan or Plan participant 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 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 SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3101 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M