[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
