[Federal Register Volume 65, Number 206 (Tuesday, October 24, 2000)]
[Notices]
[Pages 63647-63653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27217]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. IC 24691; File No. 812-12218]


Mutual of America Investment Corporation, et al.

October 17, 2000.
AGENCY: Securities and Exchange Commission (the ``Commission'' or 
``SEC'').

ACTION: Notice of application for an order pursuant to Section 6(c) of 
the Investment Company Act of 1940 (the ``1940 Act'') granting 
exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) 
thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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APPLICANTS: Mutual of America Investment Corporation (the ``Investment 
Company'') and Mutual of America Capital Management Corporation 
(``Capital Management'').

SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
necessary to permit shares of the Investment Company and shares of any 
other investment company or portfolio that is designed to fund variable 
life insurance policies and/or variable annuity contracts 
(collectively, ``Variable Contracts'') and for which Capital Management 
or its affiliates may serve in the future as investment adviser, 
manager, principal underwriter, sponsor, or administrator (``Future 
Investment Companies'') (collectively with the Investment Company, the 
``Investment Companies'') to be sold to and held by (i) separate 
accounts funding Variable Contracts issued by both affiliated and 
unaffiliated life insurance companies and (ii) qualified pension and 
retirement plans (``Qualified Plans'' or ``Plans'') outside the 
separate account context.

FILING DATE: The application was filed on August 11, 2000.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on November 7, 2000, 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 interests, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, c/o Dolores J. Morrissey, President and Chief 
Executive Officer, Mutual of America Investment Corporation, 320 Park 
Avenue, New York, New York 10022; copy to J. Sumner Jones, Esq., Jones 
& Blouch L.L.P., 1025 Thomas Jefferson St., NW., Suite 410 East, 
Washington, DC 20007-0805.

FOR FURTHER INFORMATION CONTACT: Keith Carpenter, Branch Chief, or 
Rebecca A. Marquigny, Senior Counsel, 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 is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth St., NW., Washington, DC 20549 
(tel. (202) 942-8090).

Applicants' Representations

    1. The Investment Company is a Maryland corporation that is 
registered under the 1940 Act as an open-end management investment 
company. It currently has nine investment portfolios (each a ``Fund''): 
the Equity Index Fund, All America Fund, Mid-Cap Equity Index Fund, 
Aggressive Equity Fund, Composite Fund, Bond Fund, Mid-Term Bond Fund, 
Short-Term Bond Fund and Money Market Fund. Currently, the Investment 
Company sells shares of the Funds to the respective separate accounts 
of Mutual America Life Insurance Company (``Mutual of America'') and 
The American Life Insurance Company of New York (``American Life''), an 
indirect wholly-owned subsidiary of Mutual of America, as investment 
vehicles for Variable Contracts issued by such companies. The 
Investment Company may offer additional investment portfolios in the 
future (each a ``Future Fund'') (the current Funds and the Future Funds 
are collectively referred to as the ``Funds'').
    2. Capital Management is registered as an investment adviser under 
the Investment Advisers Act of 1940 and serves as the investment 
adviser to the Investment Company. Capital Management is an indirect 
wholly-owned subsidiary of Mutual of America.
    3. Mutual of America has entered into an agreement to sell American 
Life to an unaffiliated third party. As of the date of such sale, 
American Life will no longer be an affiliate of Mutual of America and 
the Investment Company, and the provisions of Rules 6e-2 and

[[Page 63648]]

6e-3(T) under the 1940 Act will no longer be available. As of such 
date, the Investment Company will enter into separate agreements (each 
a ``Participation Agreement'') with Mutual of America and American Life 
covering the sale of Fund shares to such companies and their respective 
separate accounts.
    4. Mutual of America, American Life and all other insurance 
companies which in the future may purchase shares of the Funds or of 
the portfolios of the Future Investment Companies through their 
respective separate accounts to fund Variable Contracts are together 
referred to as the ``Participating Insurance Companies'' (and 
individually as a ``Participating Insurance Company''). Each of Mutual 
of America and American Life as of the date of the sale of American 
Life, and each of the other Participating Insurance Companies as of the 
date of its initial purchase of shares of the funds or of portfolios of 
Future Investment Companies: (a) Will have one or more separate 
accounts established in accordance with applicable insurance laws 
(``Separate Accounts'') in connection with the issuance of Variable 
Contracts and the obligation to satisfy all applicable requirements 
under both state and federal law; and (b), on behalf of its Separate 
Accounts, will have entered into a Participation Agreement with each of 
the relevant Investment Companies. Under the Participation Agreements, 
the Investment Companies will be obligated, among other things, to 
offer the shares of their portfolios to the participating Separate 
Accounts and to comply with any conditions that the Commission may 
impose upon granting the order requested herein.
    5. Applicants also propose that the Investment Companies may offer 
and sell shares of their portfolios to Qualified Plans that are not 
funded through Separate Accounts. Such shares sold to Qualified Plans 
would be held by Plan trustees as required by Section 403(a) of the 
Employee Retirement Income Security Act (``ERISA''). To the extent 
permitted under applicable law, Capital Management or one of its 
affiliates may act as investment adviser or trustee to Qualified Plans 
that purchase shares of the Funds or of portfolios of Future Investment 
Companies.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
as a unit investment trust (``UIT'') under the 1940 Act, Rule 6e-
2(b)(15) provides partial exemptions from sections 9(a), 13(a), 15(a), 
and 15(b) of the 1940 Act to the extent those sections require ``pass-
through'' voting with respect to an underlying fund's shares. These 
exemptions are available only when all the assets of the UIT are shares 
of management investment companies ``which offer their shares 
exclusively to variable life insurance separate accounts of the life 
insurer or of any affiliated life insurance company.'' Accordingly, the 
relief granted by Rule 6e-2(b)(15) is not available with respect to a 
scheduled premium life insurance separate account that owns shares of 
an underlying fund that also offers its shares to a variable annuity or 
flexible premium variable life insurance separate account of the same 
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 the same life insurance company and 
any affiliated life insurance company is referred to as ``mixed 
funding.''
    2. The relief granted by Rule 6e-2(b)(15) also is not available 
with respect to a scheduled premium variable life insurance separate 
account that owns shares of any underlying fund that also offers its 
shares to separate accounts funding Variable Contracts of unaffiliated 
life insurance companies. The use of a common management investment 
company as the underlying investment medium for variable annuity and/or 
variable life insurance separate accounts of unaffiliated life 
insurance companies is referred to as ``shared funding.''
    3. Rule 6e-3(T)(b)(15) similarly provides partial exemptions from 
sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act in connection 
with the funding of flexible premium variable life insurance contracts 
issued through a separate account registered under the 1940 Act as a 
UIT. These exemptions are available only where all the assets of the 
separate account are shares of one or more registered management 
investment companies which offer to sell their shares ``exclusively to 
separate accounts of the life insurer, or of any affiliated life 
insurance company, offering either scheduled contracts 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.'' Accordingly, Rule 6e-3(T) permits mixed funding 
but does not permit shared funding.
    4. Neither Rule 6e-2 nor Rule 6e-3(T) contemplates that shares of 
an underlying portfolio funding Variable Contracts might also be sold 
to Qualified Plans. The use of a common management investment company 
as the underlying investment medium for Qualified Plans as well as for 
variable annuity and variable life separate accounts of affiliated and 
unaffiliated insurance companies is referred to herein as ``extended 
mixed and shared funding.''
    5. Applicants state that changes in the federal tax law have 
created the opportunity for the Investment Companies to substantially 
increase their assets by selling shares to Qualified Plans. Section 
817(h) of the Internal Revenue Code of 1986, as amended (the ``Code''), 
imposes certain diversification standards on the assets underlying 
Variable Contracts, such as those in the Funds or the portfolios of 
Future Investment Companies. The Code provides that Variable Contracts 
will not be treated as annuity contracts or life insurance contracts, 
as the case may be, for any period (or any subsequent period) for which 
the underlying assets are not, in accordance with regulations issued by 
the Treasury Department (the ``Regulations''), adequately diversified. 
On March 2, 1989, the Treasury Department issued Regulations (Treas. 
Reg. 1.817-5) which established specific diversification requirements 
for investment portfolios underlying Variable Contracts. The 
Regulations generally provide that, in order to meet these 
diversification requirements, all of the beneficial interests in such 
portfolios must be held by the segregated asset accounts of one or more 
life insurance companies. The Regulations, however, contain an 
exception to this requirement. This exception permits trustees of 
Qualified Plans to hold shares of an investment company portfolio which 
are also held by insurance company segregated asset accounts without 
adversely affecting the status of such portfolio as an adequately 
diversified underlying investment for Variable Contracts issued through 
such segregated asset accounts (Treas. Reg. 1.817-5(f)(3)(iii)). 
Applicants maintain that, as a result of this exception to the general 
diversification requirement, Qualified Plans may select the Funds or 
the portfolios of Future Investment Companies as investment options 
without endangering the tax status of the Variable Contracts issued 
through Participating Insurance Companies.
    6. Applicants note that the Commission promulgated Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) prior to the issuance of the Regulations 
which permit shares of an investment company portfolio to be held by 
the trustee of a

[[Page 63649]]

Qualified Plan without adversely affecting the holding of shares in the 
same portfolio by separate accounts supporting Variable Contracts. 
Thus, the sale of shares of the same underlying portfolio to both 
separate accounts and Qualified Plans was not contemplated at the time 
when Rules 6e-2(b)(15) and 6e-3(T)(b)(15) were adopted.
    7. Section 9(a)(3) of the 1940 Act provides that it is unlawful for 
any company to serve as investment adviser or principal underwriter of 
any registered open-end investment company if an affiliated person of 
that investment adviser or principal underwriter is subject to a 
disqualification enumerated in sections 9(a)(1) or (2). Rules 6e-
2(b)(15)(i) and (ii) and Rules 6e-3(T)(b)(15)(i) and (ii) under the 
1940 Act provide exemption from Section 9(a) under certain 
circumstances, subject to the limitations on mixed and shared funding. 
These exemptions limit the application of the eligibility restrictions 
to those affiliated individuals or companies that directly participate 
in the management of the underlying management company.
    8. Applicants state that the relief provided by Rules 6e-
2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the life insurance company 
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) participates in the management or 
administration of the fund. This partial relief from the requirements 
of section 9 serves to limit 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 Rules 
6e-2(b)(15) and 6e-3(T)(b)(15) recognize that the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the 1940 Act do not require application of section 9(a) to 
individuals in a large insurance company complex, most of whom will 
have no involvement in matters pertaining to investment companies 
within such a complex. These rules further recognize that it is 
unnecessary to apply section 9(a) to individuals in unaffiliated 
insurance companies (or their affiliated companies) that may utilize an 
investment company as the funding medium for Variable Contracts. In 
Applicants' view, no regulatory purpose is served by extending section 
9(a) monitoring requirements in the context of extended mixed or shared 
funding. The Participating Insurance Companies and Qualified Plans are 
not expected to play any role in the management of the Investment 
Companies. The individuals who manage the Investment Companies will 
remain the same regardless of which Separate Accounts or Qualified 
Plans invest in the Investment Companies. Applicants further submit 
that the costs of such extended monitoring may result in increased 
costs for Participating Insurance Companies and Qualified Plans and may 
thereby adversely affect contract owners and Plan participants.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide 
exemptions from the pass-through voting requirements with respect to 
several significant matters. Rules 6e-2(b)(15)(iii)(A) and 6e-
3(T)(b)(15)(iii)(A) provide that an insurance company may disregard 
contract owners' voting instructions which would change the sub-
classification or investment objectives of an underlying fund, or any 
contract between such a fund and its investment adviser, when required 
to do so by an insurance regulatory authority (subject to the 
provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of Rules 6e-2 and 
6e-3(T)). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
provide that an insurance company may disregard contract owners' voting 
instructions which would initiate any change in an underlying fund's 
investment policies, principal underwriter, or investment adviser, 
provided that disregarding such voting instructions is reasonable and 
subject to the other provisions of paragraphs (b)(5)(ii), 
(b)(7)(ii)(B), and (b)(7)(ii)(C) of Rules 6e-2 and 6e-3(T).
    10. With respect to Qualified Plans, which are not registered as 
investment companies under the 1940 Act, there is no requirement to 
pass-through voting rights to Plan participants. Indeed, applicable law 
expressly reserves voting rights associated with Plan assets to certain 
specified persons. Under section 402(a) of ERISA, mutual fund shares 
sold to a Qualified Plan must be held by the trustees of the Plan. 
Section 403(a) also provides that Plan trustees) must have exclusive 
authority and discretion to manage and control the Plan, except: (a) 
When the Plan expressly provides that the trustee(s) are subject to the 
direction of a named fiduciary who is not a trustee, in which case the 
trustees are subject to proper directions made in accordance with the 
terms of the Plan and not contrary to ERISA, and (b) when the authority 
to manage, acquire, or dispose of Plan assets is delegated to one or 
more investment managers pursuant to Section 402(c)(3) of ERISA. Unless 
one of these two exceptions applies, Plan trustees have the exclusive 
authority and responsibility for voting proxies.
    11. When a named fiduciary to a Qualified Plan appoints an 
investment manager, the investment manager has the responsibility to 
vote the shares held by the Plan unless the right to vote such shares 
is reserved to the trustees or the named fiduciary. Qualified Plans may 
have their trustee(s) or other fiduciaries exercise voting rights 
attributable to investment securities held by the Qualified Plans in 
their discretion. Some Qualified 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 Plan participants.
    12. Applicants state even if a Qualified Plan were to hold a 
controlling interest in an open-end management investment company, 
Applicants do not believe that such control would disadvantage other 
investors in such company to any greater extent than is the case when 
any institutional shareholder holds a majority of the voting securities 
in an underlying fund. In this regard, Applicants submit the investment 
in an underlying fund by a Plan will not create any of the voting 
complications occasioned by mixed funding or shared funding. Unlike 
mixed funding or shared funding, Plan investor voting rights cannot be 
frustrated by veto rights of insurers or state regulators.
    13. Applicants state that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. A particular state insurance regulatory body could require 
action that is inconsistent with the requirements of other states in 
which the insurance company offers its policies. The fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem.
    14. Applicants further state that shared funding by unaffiliated 
insurers, in this respect, is no different that the use of the same 
investment company as the funding vehicle for affiliated insurers, 
which Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit. Affiliated insurers 
may be domiciled in different states and subject to differing state law 
requirements. In Applicants' view, affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. Applicants submit that the conditions set forth in the 
Application and included in this notice are designed to safeguard 
against, and provide procedures for resolving, any adverse effects that 
differences

[[Page 63650]]

among state regulatory requirements may produce. If a particular state 
insurance regulatory's decision conflicts with the position of a 
majority of other state regulators, then the affected insurer will be 
required to withdraw its Separate Account's investment in the 
Investment Companies. This requirement will be provided for in the 
Participation Agreements.
    15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give the insurance company 
the right to disregard the contract owners' voting instructions in 
certain specific circumstances. This right does not raise any issues 
different from those raised by the authority of state insurance 
administrators over separate accounts. Applicants submit that 
affiliation does not eliminate the potential, if any exists, for 
divergent judgments as to the advisability or legality of a change in 
investment policies, principal underwriter or investment adviser 
initiated by contract owners. The potential for disagreement is limited 
by the requirements in Rules 6e-2 and 6e-3(T) that the insurance 
company's disregard of voting instructions be reasonable and based on 
specific good-faith determinations.
    16. Applicants state that a particular insurer's disregard of 
voting instructions could, nevertheless, conflict with the majority of 
contract owners' voting instructions and with the determinations of all 
or some other insurers (including affiliated insurers) that contract 
owners' voting instructions should prevail. It could either preclude a 
majority vote approving a change or represent a minority view. If the 
insurer's judgment represented a minority position or precluded a 
majority vote, then the insurer might be required, at the relevant 
Investment Company's election, to withdraw its Separate Account's 
investment from the affected portfolio. No charge or penalty would be 
imposed as a result of such withdrawal. This requirement will be 
provided for in the Participation Agreements.
    17. Applicants submit that there is no reason why the investment 
policies of an underlying fund would or should be materially different 
depending on whether such underlying fund funds only variable annuity 
contracts or only variable life insurance policies, whether flexible 
premium or scheduled premium policies. Each type of insurance product 
is designed as a long-term investment program. Applicants represent 
that each of the Funds and the portfolios of Future Investment 
Companies will be managed to attempt to achieve its investment 
objective or objectives, and not to favor or disfavor any particular 
Participating Insurance Company or type of insurance product.
    18. Applicants state that no one investment strategy can be 
identified as appropriate to a particular insurance product. Each pool 
of variable annuity and variable life insurance contract owners is 
composed of individuals of diverse financial status, age, and insurance 
and investment goals. An underlying fund supporting even one type of 
insurance product must accommodate these diverse factors in order to 
attract and retain purchasers. Permitting mixed and shared funding will 
broaden the base of contract owners which will facilitate the 
establishment of additional funds serving diverse goals.
    19. As noted above, section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of Variable 
Contracts held in an underlying mutual fund. The Code provides that a 
Variable Contract shall not be treated as an annuity contract or life 
insurance, as applicable, for any period (and any subsequent period) 
for which the investments are not, in accordance with Regulations, 
adequately diversified.
    20. Regulations issued under section 817(h) provide that, in order 
to meet the statutory 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, however, contain certain exceptions to this requirement, 
one of which allows shares in an underlying mutual fund to be held by 
the trustees of a Qualified Plan without adversely affecting the 
ability of such shares also to be held by separate accounts of 
insurance companies in connection with their Variable Contracts (Treas. 
Reg. 1.817-5(f)(3)(iii)). The Regulations thus specifically permit 
``qualified pension or retirement plans'' and separate accounts to 
invest in the same underlying fund. For this reason, Applicants have 
concluded that the Code, Regulations and Revenue Rulings thereunder do 
not present any inherent conflicts of interest.
    21. Applicants note that while there are differences in the manner 
in which distributions from Variable Contracts and Qualified Plans are 
taxed, these differences will have no impact on the Investment 
Companies. If, at the time distributions are to be made, a Separate 
Account or Qualified Plan is unable to net purchase payments against 
distributions, each will redeem shares of the relevant underlying funds 
at their respective net asset values in conformity with Rule 22c-1 
under the 1940 Act (without the imposition of any sales charge) to 
provide proceeds for distribution needs. A Participating Insurance 
Company will then make distributions in accordance with the terms of 
its Variable Contract, and a Qualified Plan will then make 
distributions in accordance with the terms of the Plan.
    22. Applicants considered whether, and determined that it is 
possible, to provide an equitable means of giving voting rights to 
contract owners in Separate Accounts and, if necessary or desirable, to 
Qualified Plans. In connection with any meeting of shareholders, the 
Investment Companies will inform each separate Account and Qualified 
Plan of its respective shares of ownership in the Funds or the 
portfolios of Future Investment Companies. Each Participating Insurance 
Company will then solicit voting instructions in accordance with Rules 
6e-2 and 6e-3(T), as applicable, and its obligations under 
Participation Agreements with the Investment Companies. Qualified Plans 
and Separate Accounts will each have the opportunity to exercise voting 
rights with respect to their shares in the Funds or the portfolios of 
Future Investment Companies, although only the Separate Accounts are 
required to pass-through their votes to contract owners. The voting 
rights provided to a Qualified Plan with respect to shares of the Funds 
or portfolios of Future Investment Companies would be no different from 
the voting rights that are provided to Qualified Plans with respect to 
shares of mutual funds sold to the general public. Furthermore, if a 
material irreconcilable conflict arose because a Qualified Plan decided 
to disregard Plan participants' voting instructions, if applicable, and 
that decision represented a minority position or precluded a majority 
vote, a Plan which had entered into a Participation Agreement could be 
required, at the election of the relevant Investment Company, to 
withdraw its investment in the particular Fund or portfolio of a Future 
Investment Company, with no charge or penalty imposed as a result of 
such withdrawal.
    23. Applicants also considered whether a ``senior security,'' as 
such term is defined under section 18(g) of the 1940 Act, may be 
created with respect to any Variable Contract owner as opposed to a 
participant under a Qualified Plan. Applicants concluded that the 
ability of the Investment Companies to sell shares of each Fund or 
portfolio of a Future Investment Company directly to Qualified Plans 
does not create a ``senior security'' which is defined under Section 
18(g) to

[[Page 63651]]

include ``any stock of a class having priority over any other class as 
to distribution of assets or payment of dividends.'' Regardless of the 
rights and benefits of participants under Plans or contract owners 
under Variable Contracts, the Plans and the Separate Accounts only have 
rights with respect to their respective shares of the Funds and the 
portfolios of Future Investment Companies. They only can redeem such 
shares at net asset value. No shareholder of a Fund or of a portfolio 
of a Future Investment Company has any preference over any other 
shareholder with respect to distribution of assets or payment of 
dividends.
    24. Applicants also considered whether there are any conflicts 
between contract owners of the Separate Accounts and participants under 
the Plans with respect to state insurance commissioners' veto powers 
over investment objectives. Applicants note that a basic premise of 
corporate democracy and shareholder voting is that not all shareholders 
may agree with a particular proposal. That the interests and opinions 
of shareholders may differ does not mean that inherent conflicts of 
interest exist between or among shareholders. 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. Conversely, the trustees of Qualified Plans, 
or participants in participant-directed Qualified Plans, can make such 
decisions quickly and redeem their interests in a fund and reinvest in 
another funding vehicle without the regulatory impediments faced by the 
Separate Accounts or, as is the case with most Qualified Plans, even 
hold cash pending suitable investment. Applicants believe that issues 
where the interests of contract owners and Qualified Plans are in 
conflict can be almost immediately resolved since the trustees of (or 
participants in) the Plans can, on their own, redeem the shares out of 
underlying funds.
    25. Applicants also considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
and Qualified Plans as a result of future changes in the tax laws. 
Applicants do not see any greater potential for material irreconcilable 
conflicts between the interests of participants in Qualified Plans and 
contract owners of the Separate Accounts resulting from future changes 
in the federal tax laws than that which already exists between variable 
annuity contract owners and variable life insurance contract owners.
    26. Applicants state that the foregoing list, while not all 
inclusive, is representative of issues which Applicants believe are 
relevant to this Application. Applicants believe that the discussion 
contained in the Application demonstrates that the sale of shares of 
the Funds and of portfolios of Future Investment Companies to Qualified 
Plans does not increase the risk of material irreconcilable conflicts 
of interest. Further, Applicants submit that the use of the Funds and 
portfolios of Future Investment Companies with respect to Qualified 
Plans is not substantially dissimilar from their anticipated use with 
respect to Variable Contracts in that both are generally long-term 
retirement vehicles.
    27. Applicants note that various factors have kept more insurance 
companies from offering Variable Contracts than currently offer them. 
These factors include the costs of organizing and operating a funding 
medium, the lack of expertise with respect to investment management 
(principally with respect to stock and money market investments), and 
the lack of public name recognition of certain insurers as investment 
experts with which the public feels comfortable entrusting their 
investment dollars. For example, some smaller life insurance companies 
may not find it economically feasible, or within their investment or 
administrative expertise, to enter the Variable Contracts business on 
their own. Use of investment company portfolios such as the Funds or 
portfolios of Future Investment Companies as common investment media 
for Variable Contracts would reduce or eliminate these concerns. 
Applicants submit that mixed and shared funding also should provide 
several benefits to Variable Contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate funds. Applicants maintain that Participating Insurance 
Companies will benefit not only from the investment and administrative 
expertise of the Investment Companies, but also from the cost 
efficiencies and investment flexibility afforded by a large pool of 
funds. Mixed and shared funding also would make greater amounts of 
assets available for investment by the Funds and the portfolios of 
Future Investment Companies, thereby promoting economies of scale, 
permitting increased safety through greater diversification, and making 
more feasible the addition of new Funds and portfolios. Therefore, 
making the Investment Companies available for mixed and shared funding 
will encourage more insurance companies to offer Variable Contracts, 
and this should result in increased competition in both Variable 
Contract design and pricing and hence in more product variation and 
lower charges. Applicants assert that the sale of shares of the Funds 
and of portfolios of Future Investment Companies to Qualified Plans, in 
addition to Separate Accounts, should enhance these results.
    28. Applicants submit that, regardless of the type of shareholder 
in the Funds or portfolios of Future Investment Companies, the 
Investment Companies are or will be contractually and otherwise 
obligated to manage those Funds or portfolios solely and exclusively in 
accordance with their respective investment objectives, policies and 
restrictions as well as any guidelines established by the Board of 
Directors of the applicable Investment Company (the ``Board''). The 
Investment Companies will work with pools of money and will not take 
into account the identities of shareholders. Thus, each of the Funds 
and the portfolios of Future Investment Companies will be managed in 
the same manner as any other mutual fund.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Board of each of the Investment Companies will 
consist of persons who are not ``interested persons'' of such 
investment company, as defined by section 2(a)(19) of the 1940 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 director or 
directors, then the operation of this condition will 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 Board of each of the Investment Companies will monitor such 
investment company for the existence of any material irreconcilable 
conflict among the interests of the contract owners of all Separate 
Accounts and the participants under Qualified Plans investing in such 
investment company and will determine what action, if any, should be 
taken in response to such conflicts. A material irreconcilable conflict 
may arise for a

[[Page 63652]]

variety of reasons, including: (a) An action by any state insurance 
regulatory authority; (b) a change in applicable federal or state 
insurance, tax or securities laws or regulations, or a public ruling, 
private letter ruling, no-action or interpretative 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 such investment company are 
being managed; (e) a difference in voting instructions given by 
variable annuity contract owners, variable life insurance contract 
owners, and trustees of Qualified Plans; (f) a decision by a 
Participating Insurance Company to disregard the voting instructions of 
contract owners; or (g) if applicable, a decision by a Qualified Plan 
to disregard voting instructions of Plan participants.
    3. The Participating Insurance Companies, any Qualified Plan that 
executes a Participation Agreement upon becoming an owner of 10 percent 
or more of the assets of any of the Funds or the portfolios of Future 
Investment Companies (a ``Participating Qualified Plan''), and Capital 
Management or any other investment adviser to the Investment Companies 
(collectively, the ``Participants'') will report any potential or 
existing conflicts to the relevant Board. Participants will be 
responsible for assisting the relevant board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for it to consider any issues raised. 
This responsibility includes, but is not limited to, an obligation by 
each Participating Insurance Company to inform the relevant Board 
whenever contract owners' voting instructions are disregarded, and, if 
pass-through voting is applicable, an obligation by each Participating 
Qualified Plan to inform the relevant Board whenever such Plan has 
determined to disregard Plan participants' voting instructions. The 
responsibility to report such information and contracts, and to assist 
the Board, will be a contractual obligation of all Participating 
Insurance Companies and Participating Qualified Plans under their 
Participation Agreements with the Investment Companies, and this 
responsibility will be carried out with a view only to the interests of 
the conflict owners or Plan participants, as applicable.
    4. If it is determined by a majority of a Board, or a majority of 
its disinterested members, that a material irreconcilable conflict 
exists, then the relevant Participant will, at its expense and to the 
extent reasonably practicable (as determined by a majority of the 
disinterested directors), take whatever steps are necessary to remedy 
or eliminate the material irreconcilable conflict, up to and including: 
(a) Withdrawing the assets allocable to some or all of the Separate 
Accounts or Participating Qualified Plans from the relevant Fund or 
portfolio of a Future Investment Company and reinvesting such assets in 
a different investment medium, including another such Fund or 
portfolio, or in the case of Participating Insurance Companies 
submitting the question as to 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., 
annuity contract owners or life insurance contract owners of one or 
more Participating Insurance Companies) that votes in favor of such 
segregation, or offering to the affected contract owners the option of 
making such a change; and (b) establishing a new registered management 
investment company or managed separate account. If a material 
irreconcilable conflict arises because of a decision by a Participating 
Insurance Company to disregard contract owners' voting instructions, 
and that decision represents a minority position or would preclude a 
majority vote, then such insurer may be required, at the election of 
the relevant Investment Company, to withdraw such insurer's Separate 
Account's investment in such Investment Company, with no charge or 
penalty imposed as a result of such withdrawal. If a material 
irreconcilable conflict arises because of a Participating Qualified 
Plan's decision to disregard Plan participants' voting instructions, if 
applicable, and that decision represents a minority position or would 
preclude a majority vote, such Plan may be required, at the election of 
the relevant Investment Company, to withdraw its investment in the 
relevant Investment Company, with no charge or penalty imposed as a 
result of such withdrawal. The responsibilities to take remedial action 
in the event of a Board determination of a material irreconcilable 
conflict and to bear the cost of such remedial action will be 
contractual obligations of all Participating Insurance Companies and 
Participating Qualified Plans under the Participation Agreements, and 
these responsibilities will be carried out with a view only to the 
interests of contract owners or Plan participants, as applicable.
    For purposes of this Condition 4, a majority of the disinterested 
members of a Board will determine whether or not any proposed action 
would adequately remedy any material irreconcilable conflict, but in no 
event will any of the Investment Companies or their investment advisers 
be required to establish a new funding medium for any Variable 
Contract. No Participating Insurance Company will be required by this 
Condition 4 to establish a new funding medium for any Variable Contract 
if any offer to do so has been declined by vote of a majority of the 
contract owners materially and adversely affected by the material 
irreconcilable conflict. Further, no Participating Qualified Plan will 
be required by this Condition 4 to establish a new funding medium for 
such Plan if (a) a majority of the Plan participants materially and 
adversely affected by the material irreconcilable conflict vote to 
decline such offer, or (b) pursuant to documents governing the Plan, 
the Plan makes such decision without a vote of Plan participants.
    5. A Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participants.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all contract owners so long as the Commission 
continues to interpret the 1940 Act to require such pass-through 
voting. Accordingly, such Participants, where applicable, will vote 
shares of the applicable Fund or portfolio of a Future Investment 
Company held in their Separate Accounts in a manner consistent with 
voting instructions timely received from contract owners. Participating 
Insurance Companies will be responsible for assuring that each of their 
Separate Accounts investing in a Fund or portfolio of a Future 
Investment Company calculates voting privileges in a manner consistent 
with other Participating Insurance Companies. All Participating 
Insurance Companies will contractually agree to calculate voting 
privileges as providing in this Application, pursuant to their 
Participation Agreements with the Investment Companies. Each 
Participating Insurance Company will vote shares for which it has not 
received timely voting instructions as well as shares it owns that are 
not attributable to Variable Contracts in the same proportion as it 
votes those shares for which it has received voting instructions. Each 
Participating Qualified Plan will vote as required by

[[Page 63653]]

applicable law and governing Plan documents.
    7. Each of the Investment Companies will comply with all provisions 
of the 1940 Act requiring voting by shareholders (which for these 
purposes shall be the persons having a voting interest in the shares of 
the respective Funds or portfolio of Future Investment Companies) and, 
in particular, will either provide for annual meetings (except insofar 
as the Commission interprets or may interpret section 16 of the 1940 
Act not to require such meetings) or comply with section 16(c) of the 
1940 Act (although the Investment Companies are not trusts of the type 
described in section 16(c)), as well as with section 16(a) of the 1940 
Act and, if and when applicable, section 16(b) of the 1940 Act. In 
addition each of the Investment Companies 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 such rules as 
the Commission may promulgate with respect thereto.
    8. Each of the Investment Companies will notify all Participants 
that it may be appropriate to include in Separate Account or Plan 
prospectuses or other disclosure documents disclosure regarding 
potential risks of mixed and shared funding. Each of the Investment 
Companies will disclose in its prospectus that: (a) Shares of such 
investment company may be offered to insurance company separate 
accounts of both variable annuity and variable life insurance contracts 
and, if applicable, to Qualified Plans; (b) due to differences in tax 
treatment and other considerations, the interests of various contract 
owners participating in such investment company and the interests of 
Qualified Plans investing in such investment company, if applicable, 
may conflict; and (c) its Board will monitor events in order to 
identify the existence of any material irreconcilable conflicts and to 
determine what action, if any, should be taken in response to any 
conflict.
    9. If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940 
Act are amended, or proposed Rule 6e-3 under the 1940 Act is adopted, 
to provide exemptive relief from any provision of the 1940 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 in this Application, then the Investment 
Companies and/or Participating Insurance Companies and Participating 
Qualified Plans, as appropriate, shall take such steps as may be 
necessary to comply with Rules 6e-2 and 6e-3(T), or Rule 6e-3, as such 
rules are applicable.
    10. The Participants, at least annually, will submit to each 
relevant Board such reports, materials, or data as such Board 
reasonably may request so that the directors may fully carry out the 
obligations imposed upon the Board by the conditions set forth in the 
Application, and said reports, materials, and data will be submitted 
more frequently if deemed appropriate by such Board. The obligations of 
Participating Insurance Companies and Participating Qualified Plans to 
provide these reports, materials, and data to a Board, when it so 
reasonably requests, will be a contractual obligation under the 
Participation Agreements.
    11. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants of a conflict, and determining 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the Board or other appropriate 
records, and such minutes or other records shall be made available to 
the Commission upon request.
    12. None of the Investment Companies will accept a purchase order 
from a Qualified Plan if such purchase would make such Plan an owner of 
10 percent or more of the assets of one of the Funds or the portfolios 
of Future Investment Companies unless such Plan executes a 
Participation Agreement with the relevant Investment Company that 
includes the conditions set forth in the Application to the extent 
applicable. A Plan will execute an application containing an 
acknowledgment of this condition at the time of its initial purchase of 
shares of any such Fund or portfolio.

Conclusion

    For the reasons summarized above, Applicants believe that the 
requested exemptions, in accordance with the standards of section 6(c), 
are appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27217 Filed 10-23-00; 8:45 am]
BILLING CODE 8010-01-M