[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Notices]
[Pages 65108-65112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32311]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22924; File No. 812-10240]


Nationwide Life Insurance Company, et al.; Notice of Application

December 3, 1997.
Agency: U.S. Securities and Exchange Commission (``SEC or 
Commission'').

Action: Notice of application for an order under (i) Sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') granting 
exemptive relief from Section 17(a) of the Act; and (ii) Section 
12(d)(1)(J) of the Act granting exemptive relief from Sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act.

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Summary of Application: Applicants request an order to commence 
operations as a ``fund of funds'' whereby certain investment companies 
would invest in both investment companies that are part of the same 
``group of investment companies'' and investment companies that are not 
part of the same ``group of investment companies.'' Other investments 
of the ``fund of funds'' could include government securities, short-
term fixed income securities, and a guaranteed investment contract.

Applicants: Nationwide Life Insurance Company, Nationwide Advisory 
Services, Inc., Nationwide Asset Allocation Trust, Nationwide Investing 
Foundation, Nationwide Investing Foundation II, and Nationwide Account 
Trust.

Filing Dates: The application was filed on July 8, 1996, and amended 
and restated on February 18, 1997, July 25, 1997, and November 19, 
1997, and amended on December 3, 1997.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 29, 
1997, and should be accompanied by proof of service on Applicants in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

Addresses: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C., 
20549. Applicants, Nationwide Life Insurance Company, One Nationwide 
Plaza, Columbus, Ohio 43215.

For Further Information Contact: Edward P. Macdonald, 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 may be obtained for a fee from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Nationwide Life Insurance Company (``Nationwide'') is organized 
as a stock life insurance company under Ohio state law. Nationwide is 
admitted to do business in all fifty states, as well as the District of 
Columbia, the U.S. Virgin Islands, and Puerto Rico.
    2. Nationwide Asset Allocation Trust (``NAAT'') is a Massachusetts 
business trust, initially consisting of five series

[[Page 65109]]

(the ``Asset Allocation Funds''), with the following investment 
objectives: Aggressive, Moderately Aggressive, Moderate, Moderately 
Conservative, and Conservative. Additional Asset Allocation Funds may 
be established in the future as (i) series of NAAT, (ii) series of any 
other Nationwide open-end investment company organized as a series 
trust, or (iii) as any other investment company of Nationwide that does 
not offer its securities in separate series. Each of the Asset 
Allocation Funds proposes to operate as a ``fund of funds'' that may 
invest in (i) shares of investment companies or their series, now 
existing or created in the future, that are part of the same ``group of 
investment companies'' (as defined in Section 12(d)(1)(G)(ii) as the 
Asset Allocation Funds (``Affiliated Underlying Funds'') and (ii) 
shares of other investment companies that are not part of the same 
``group of investment companies'' as the Asset Allocation Funds 
(``Unaffiliated Underlying Funds'') (Affiliated and Unaffiliated 
Underlying Funds are collectively referred to as ``Underlying Funds''). 
In addition to investing in the Underlying Funds, the Asset Allocation 
Funds also may invest in government securities, certain short-term 
fixed income securities, and a fixed rate investment contract issued by 
Nationwide (the ``Fixed Contract'').
    3. Nationwide Investing Foundation (``NIF'') is a Michigan business 
trust and Nationwide Investing Foundation II (``NIF II) and Nationwide 
Separate Account Trust (``NSAT'') are Massachusetts business trusts 
registered under the Act as open-end management investment companies. 
Collectively, the portfolios of NIF, NIF II, and NSAT will initially 
act as the Affiliated Underlying Funds.
    4. Nationwide Advisory Services, Inc. (``NAS'') is a registered 
broker-dealer and investment adviser and is a member of the National 
Association of Securities Dealers, Inc. (``NASD''). NAS is a wholly 
owned subsidiary of Nationwide and serves as principal underwriter of 
variable annuity contracts and variable life insurance policies issued 
by Nationwide and Nationwide's wholly subsidiary Nationwide Life and 
Annuity Insurance Company. Additionally, NAS currently serves as the 
investment adviser to all of the portfolios in NIF, NIF II, and NSAT. 
NAS also will serve as the investment adviser for NAAT once NAAT begins 
operations.
    5. Nationwide will issue variable annuity contracts (``Contracts'') 
designed to be sold to retirement plans of governmental entities. The 
Contracts will offer participants in these retirement plans an 
opportunity for asset allocation through the selection of five Asset 
Allocation Fund options that have investment objectives ranging from 
conservative to aggressive.
    6. The Asset Allocation Funds will invest primarily in Underlying 
Funds in accordance with a target allocation of investment categories 
(aggressive growth, growth, growth and income, balanced, guaranteed 
interest, bond/money market) reflecting the overall objective of each 
Asset Allocation Fund and matching the participant's risk tolerance and 
time horizon. The Asset Allocation Funds will invest in Underlying 
Funds, subject to certain conditions. Some of the Unaffiliated 
Underlying Funds may be organized as ``feeder'' funds in a ``master-
feeder'' structure. The allocation for each Asset Allocation Fund will 
be ensured through periodic rebalancing.
    7. The Asset Allocation Funds also may invest in the Fixed 
Contract. Each Asset Allocation Fund will be permitted to remove its 
assets from the Fixed Contract at any time without imposition of a 
sales charge or market value adjustment.
    8. The Underlying Funds will pay advisory fees to their advisers. 
In addition, the Underlying Funds will pay fees to their service 
providers for all other services relating to their operations, 
including custody, administration, and fund accounting. Therefore, 
shareholders of the Asset Allocation Funds indirectly will pay their 
proportionate share of any Underlying Fund fees and expenses.
    9. The Asset Allocation Funds also will pay a unified fee at the 
annual rate of .50% of daily net assets to NAS for both investment 
advisory services and for administrative expenses (the ``Unified 
Fee''). The portion of the Unified Fee that covers the investment 
advisory services provided by NAS to the Asset Allocation Funds is for 
services in addition to, and not duplicative of, those provided by the 
investment advisers for the Underlying Funds. In Addition, the Asset 
Allocation Funds will pay for administrative, custody, legal, 
accounting, and other expenses out of the Unified Fee. The services at 
the Asset Allocation Fund level are different from the services 
provided to the Underlying Funds because each Asset Allocation Fund is 
a separate entity with its own administrative, compliance, 
recordkeeping, and custody needs.
    10. The Asset Allocation Funds will pay no front-end sales loads or 
contingent deferred sales charges in connection with the purchase or 
redemption of Underlying Fund shares. In addition, any sales charges or 
service fees, as defined in Section 2830 of the NASD Conduct Rules, 
will be limited in the manner described in Condition 3 below. 
Nationwide, however, will be permitted to include with the Contract a 
contingent deferred sales load chargeable upon termination of the 
Contract, to the extent permitted by the Act, the regulations of the 
NASD, or any other applicable law or regulation.
    11. The Contracts will impose an actuarial risk fee related to the 
Contract's mortality and expense risks and administrative expenses 
(``Actuarial Risk Fee''). The Actuarial Risk Fee will be paid to 
Nationwide, and will be equivalent to a maximum of .95% of average 
account value on an annual basis (.10% for mortality risk, 40% for 
expense risk, and .45% for administration). The administrative portion 
of the Actuarial Risk Fee is designed to reimburse Nationwide for 
maintaining Contract and participant level records and reporting 
including tax reporting, customer services (including executing and 
tracking transfers and exchanges for the Contracts) and compliance with 
applicable laws and regulations. Nationwide, or one of its affiliates, 
may receive an administrative fee from any of the Underlying Funds, or 
an adviser or administrator of an Underlying Fund, to compensate 
Nationwide for maintaining participant level records and providing 
customer servicing to participants. The receipt by Nationwide of such a 
fee will result in a corresponding reduction in the Actuarial Risk Fee. 
In addition, the Actuarial Risk Fee is subject to a sliding scale 
reduction based on the asset size of a Contract.

Applicants' Legal Analysis

Sections 12(d)(1) (A) and (B) of the Act

    1. Section 12(d)(1)(A) of the Act provides that it shall be 
unlawful for any registered investment company (the ``acquiring 
company'') to purchase or otherwise acquire any security issued by any 
other investment company (the ``acquired company'') if the acquiring 
company and any other company or companies controlled by it immediately 
after such purchase or acquisition own in the aggregate (i) more than 
3% of the total outstanding voting stock of the acquired company, (ii) 
securities issued by the acquired company having an aggregate value in 
excess of 5% of the value of the total assets of the acquiring company, 
or (iii) securities issued by the acquired company and all other 
investment companies having an

[[Page 65110]]

aggregate value in excess of 10% of the value of the total assets of 
the acquiring company.
    2. Section 12(d)(1)(B) of the Act provides that it shall be 
unlawful for any registered open-end investment company (the ``acquired 
company'') knowingly to sell or otherwise dispose of any security 
issued by the acquired company to any other investment company (the 
``acquiring company'') or any company or companies controlled by the 
acquiring company if immediately after such sale or disposition (i) 
more than 3% of the total outstanding voting stock of the acquired 
company is owned by the acquiring company and any company or companies 
controlled by it, or (ii) more than 10% of the total outstanding voting 
stock of the acquired company is owned by the acquiring company and 
other investment companies controlled by them.
    3. Section 12(d)(1)(G)(i) of the Act states that Section 12(d)(1) 
does not apply to securities of a registered open-end investment 
company (the ``acquired company'') purchased or otherwise acquired by a 
registered open-end investment company (the ``acquiring company'') if 
(i) the acquired company and the acquiring company are part of the same 
group of investment companies, (ii) the securities of the acquired 
company, securities of other registered open-end investment companies 
that are part of the same group of investment companies, government 
securities, and short-term paper are the only investments held by the 
acquiring company, (iii) with respect to securities of the acquiring 
company, any sales loads and other distribution-related fees charged, 
when aggregated with any sales load and distribution-related fees paid 
by the acquiring company with respect to securities of the acquired 
fund, are not excessive under rules adopted pursuant to Section 22(b) 
or Section 22(c) by a securities association registered under Section 
15A of the Securities Exchange Act of 1934, or the Commission, and (iv) 
the acquired company has a policy that prohibits it from acquiring any 
securities of registered investment companies in reliance on Section 
12(d)(1) (G) or (F).
    4. Applicants state that the Asset Allocation Funds may not rely on 
the exemption provided by Section 12(d)(1)(G) because they propose to 
invest in shares of Unaffiliated Underlying Funds and the Fixed 
Contract as well as securities of funds that are part of the same 
``group of investment companies'' as the Asset Allocation Funds, 
government securities, and short-term paper.
    5. Section 12(d)(1)(F) of the Act provides that the provisions of 
Section 12(d)(1) shall not apply to securities purchased or otherwise 
acquired by a registered investment company if immediately after such 
purchase or acquisition, not more than 3% of the total outstanding 
stock of such issuer is owned by such registered investment company and 
all affiliated persons of such registered investment company; and such 
registered investment company has not offered or sold and is not 
proposing to offer or sell any security issued by it through a 
principal underwriter or otherwise at a public offering price that 
includes a sales load of more than 1\1/2\%. Further, no issuer of any 
security purchased under Section 12(d)(1)(F) shall be obligated to 
redeem such security in an amount exceeding 1% of such issuer's total 
outstanding securities during any period less than 30 days. Applicants 
state that investments by the Asset Allocation Funds in Unaffiliated 
Underlying Funds will be made in accordance with Section 12(d)(1)(F).
    6. Section 12(d)(1)(J) of the Act provides that the Commission is 
authorized to exempt any person, security, or transaction, or any class 
or classes of persons, securities, or transactions from any provisions 
of Section 12(d)(1), if and to the extent that such exemption is 
consistent with the public interest and the protection of investors. 
Applicants request an order under Section 12(d)(1)(J) exempting them 
from the limitations of Sections 12(d)(1) (A) and (B).
    7. Applicants assert that the purpose of Section 12(d) of the Act 
was to prevent unregulated pyramiding of investment companies and the 
negative effects that are perceived to arise from such pyramiding. Such 
abuses include duplicative costs, the exercise of undue influence or 
control over the underlying funds, the threat of large-scale 
redemptions, and the complexity of such arrangements.

Duplication of Costs

    8. Applicants argue that the proposed arrangement will include 
safeguards designed to address layering of fees. They assert that, 
before approving any advisory contract under Section 15 of the Act, the 
trustees of the Asset Allocation Funds, including a majority of the 
trustees who are not ``interested persons,'' as defined in Section 
2(a)(19) of the Act, would find that any advisory fees or charges under 
the contract are based on services that are in addition to, rather than 
merely duplicative of, services provided under the advisory contract 
for any Underlying Fund.
    9. Applicants also submit that the structure of the Asset 
Allocation Funds will not implicate sales charge layering concerns 
because the Asset Allocation Funds will not purchase Underlying Funds 
that impose a sales load upon the Asset Allocation Funds. Furthermore, 
Applicants argue that as a condition for the requested relief, they 
will limit any sales charges or service fees as defined in Section 2830 
of the NASD Conduct Rules by agreeing that such fees will only be 
charged at either the Asset Allocation Fund level or at the Underlying 
Fund level, but not both. Applicants believe that these limits place 
the Contracts and the Asset Allocation Funds in a position that is 
similar to that for other group variable annuity contracts and their 
underlying mutual fund options.
    10. Administrative expenses will be charged at the Underlying Fund 
level and, as part of the Unified Fee, at the Asset Allocation Fund 
level. Applicants assert that similar, but distinct, administrative 
services need to be provided at both the Asset Allocation Fund level 
and the Underlying Fund level in order to provide the benefits of asset 
allocation. Applicants also state that they have limited the total 
expenses of the Asset Allocation Funds by adopting a Unified Fee.
    11. Applicants state that the administration portion of the 
Actuarial Risk Fee is designed to reimburse Nationwide for maintaining 
Contract and participant level records and reporting, providing 
customer services, and compliance functions. Applicants argue that 
these services directly affect contract owners and their participants 
and, as such, are distinct from any administrative charges at the Asset 
Allocation Fund and Underlying Fund levels. In addition, Applicants 
note that if Nationwide receives any administrative or service fees 
from the Underlying Funds, or from the adviser or administrator of the 
Underlying Funds, to compensate Nationwide for providing these 
services, there will be a corresponding reduction in the Actuarial Risk 
Fee.
    12. Furthermore, Applicants represent that fees and charges at all 
levels, in the aggregate, will be reasonable in relation to the 
services rendered, expenses expected to be incurred, and risks assumed 
by Nationwide.

Control

    13. Applicants further assert that the Unaffiliated Underlying 
Funds cannot be controlled in any meaningful way by the Asset 
Allocation Funds since

[[Page 65111]]

purchases will be made in accordance with the percentage limitations in 
Section 12(d)(1)(F).
    14. Moreover, when purchasing Affiliated Underlying Funds the 
concern over this potential abuse is minimized, Applicants submit, 
because there is little risk that NAS will exercise inappropriate 
control over the Affiliated Underlying Funds, which are part of the 
``same group of investment companies.'' NAS, in serving as the 
investment adviser for both the Asset Allocation Funds and the 
Affiliated Underlying Funds, is under a fiduciary obligation to act in 
the best interests of the shareholders of both sets of funds. 
Therefore, it is argued, NAS will not operate the Asset Allocation 
Funds so as to penalize the Affiliated Underlying Funds.

Large Scale Redemptions

    15. Applicants assert that there is little risk that the Asset 
Allocation Funds' adviser will exercise inappropriate control over the 
Affiliated Underlying Funds, which are part of the same ``group of 
investment companies.'' In this connection, Applicants note that 
Section 12(d)(1)(G) of the Act does not impose any express limitations 
on statutory funds of funds with respect to redemption of shares of the 
underlying funds. With respect to investments by the Asset Allocation 
Funds in shares of Unaffiliated Underlying Funds, Applicants state that 
the Asset Allocation Funds, together with their affiliates, will comply 
with the restrictions of Section 12(d)(1)(F) on redeeming more than 1% 
of the outstanding securities of any of the Unaffiliated Underlying 
Funds during any period of less than 30 days.

Complexity

    16. Finally, Applicants submit that, with respect to whether the 
proposed structure is complex, Congress, in Section 12(d)(1)(G)(i)(IV), 
required that the funds underlying a statutory fund of finds have a 
policy prohibiting such underlying funds from acquiring any securities 
in reliance on Sections 12(d)(1) (G) or (F). Applicants state that the 
Affiliated Underlying Funds have adopted such policies. In addition, 
Applicants state that no Underlying Fund will acquire securities of any 
other investment company in excess of the limits contained in Section 
12(d)(1)(A) of the Act except to the extent that such Underlying Fund 
(a) receives securities of another investment company or as a result of 
a plan of reorganization of a company (other than a plan devised for 
the purpose of evading Section 12(d)(1) of the Act); or (b) acquires 
(or is deemed to have acquired) securities of another investment 
company pursuant to exemptive relief from the Commission permitting 
such Underlying Fund to (i) acquire securities of one or more 
affiliated investment companies for short-term cash management 
purposes; or (ii) engage in interfund borrowing and lending 
transactions.

Section 17(a) of the Act

    17. Section 17(a) of the Act prohibits any affiliated person or 
promoter of or principal underwriter for a registered investment 
company (other than a company of the character described in Section 
12(d)(3) (A) and (B)), or any affiliated person of such a person, 
promoter, or principal underwriter, acting as principal, from knowingly 
selling any security or other property to such registered company or to 
any company controlled by such registered company, unless such sale 
involves solely: (a) securities of which the buyer is the issuer; (b) 
securities of which the seller is the issuer and which are part of a 
general offering to the holders of a class of its securities; or (c) 
securities deposited with the trustee of a unit investment trust or 
periodic payment plan by the depositor thereof.
    18. Section 6(c) of the Act provides that the Commission may, by 
order upon application, conditionally or unconditionally exempt any 
person, security, or transaction, or any class or classes of persons, 
securities, or transactions, from any provision of the Act if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    19. Section 17(b) of the Act provides that the Commission may, by 
order upon application, exempt a proposed transaction from one or more 
provisions of Section 17(a) if the terms of the proposed transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned; the proposed transaction is consistent with the policy of 
each registered investment company concerned, as recited in its 
registration statement and reports filed with the Omission; and the 
proposed transaction is consistent with the general purposes of the 
Act.
    20. Applicants seek relief from the prohbiitions of Section 17(a) 
of the Act pursuant to Sections 6(c) and 17(b) of the Act to allow the 
Asset Allocation Funds to purchase the Affiliated Underlying Funds and 
the Nationwide Fixed Contract.
    21. Applicants assert that since the Asset Allocation Funds and the 
Affiliated Underlying Funds are each advised by NAS, the Asset 
Allocation Funds and the Affiliated Underlying Funds could be deemed to 
be affiliated persons of one another by virtue of being under common 
control of their adviser. Moreover, Applicants state that the Asset 
Allocation Funds and the Affiliated Underlying Funds may also be deemed 
to be affiliated persons of one another to the extent that the Asset 
Allocation Funds own 5% or more of the shares of an Affiliated 
Underlying Fund. Therefore, purchases by Asset Allocation Funds and the 
sale by the Affiliated Underlying Funds of their shares to the Asset 
Allocation Funds could be deemed to be principal transactions between 
affiliated persons under Section 17(a).
    22. Nationwide states that it will issue from its general account a 
Fixed Contract to NAAT on behalf of each of NAAT's funds. NAS is a 
wholly owned subsidiary of Nationwide and serves as principal 
underwriter of the Contracts funded by the Separate Account. Moreover, 
NAS serves as investment adviser to NAAT, which will purchase the Fixed 
Contract on behalf of each of NAAT's funds. Applicants submit that the 
Asset Allocation Funds may be deemed to be affiliated persons of 
Nationwide to the extent they are advised by NAS, Nationwide's wholly 
owned subsidiary. Applicants state that any purchases of the Fixed 
Contract by the Asset Allocation Funds could be deemed to be principal 
transactions between affiliated persons.
    23. Applicants state that they believe that, with respect to the 
purchase of the Affiliated Underlying Funds and the Fixed Contract, the 
requested relief is appropriate because the proposed arrangements meet 
the standards of Section 17(b) of the Act. First, Applicants argue that 
the terms of the proposed transactions are fair and reasonable and do 
not involve overreaching. The consideration paid for the sale and 
redemption of shares of the Affiliated Underlying Funds will be based 
on the net asset values of the Affiliated Underlying Funds with no 
sales load. Any investment advisory fee paid to NAS by the Asset 
Allocation Funds will not be duplicative of the investment advisory 
fees paid by the Affiliated Underlying Funds. In addition, the Asset 
Allocation Funds will pay no sales load when purchasing the Fixed 
Contract and the guaranteed rate on the Fixed Contract will be at least 
as favorable as the guaranteed rate paid on other similar fixed 
contracts issued by Nationwide. Also, each Asset

[[Page 65112]]

Allocation Fund will be permitted to remove Fund assets from the fixed 
Contract at any time, without the imposition of a sales charge or 
market value adjustment. Second, Applicants submit that the proposed 
transactions will be consistent with the policies of each Asset 
Allocation Fund. Finally, Applicants argue that the proposed 
arrangements do not involve overreaching or self-dealing and are 
consistent with the general purposes of the Act.

Conditions For Relief

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Each Asset Allocation Fund and each Affiliated Underlying Fund 
will be part of the same ``group of investment companies'' as that term 
is defined in Section 12(d)(1)(G)(ii) of the Act.
    2(a). In the case of an Underlying Fund that is not a feeder fund 
in a ``masterfeeder'' structure, no Underlying Fund will acquire 
securities of any other investment company in excess of the limits 
contained in Section 12(d)(1)(A) of the Act, except to the extent that 
such Underlying Fund (a) receives securities of another investment 
company as a dividend or as a result of a plan of reorganization of a 
company (other than a plan devised for the purpose of evading Section 
12(d)(1) of the Act); or (b) acquires (or is deemed to have acquired) 
securities of another investment company pursuant to exemptive relief 
from the Commission permitting such Underlying Fund to (i) acquire 
securities of one or more affiliated investment companies for short-
term cash management purposes; or (ii) engage in interfund borrowing 
and lending transactions.
    2(b). No Underlying Fund that is a feeder fund in a ``master-
feeder'' structure will acquire securities of any other investment 
company except in conformity with Section 12(d)(1)(E) of the Act. No 
master fund in such a structure shall acquire securities of any other 
investment company in excess of the limits contained in Section 
12(d)(1)(A) of the Act, except to the extent that such master fund (a) 
receives securities of another investment company as a dividend or as a 
result of a plan of reorganization of a company (other than a plan 
devised for the purpose of evading Section 12(d)(1) of the Act); or (b) 
acquires (or is deemed to have acquired) securities of another 
investment company pursuant to exemptive relief from the Commission 
permitting such master fund to (i) acquire securities of one or more 
affiliated investment companies for short-term cash management 
purposes; or (ii) engage in interfund borrowing and lending 
transactions.
    3. No sales load will be charged at the Asset Allocation Fund level 
or at the Underlying Fund level, including any Unaffiliated Underlying 
Fund that is a feeder in a ``master-feeder'' structure or any master 
fund in such a structure. Sales charges or service fees as defined in 
Section 2830 of the Conduct Rules of the NASD, if any, will only be 
charged at either the Asset Allocation Fund level or at the Underlying 
Fund level, but not both. In a situation where an Asset Allocation Fund 
invests in a feeder fund, the Applicants agree to limit sales charges 
or service fees to only one level, at the feeder fund, the master fund, 
or the Asset Allocation Fund level.
    4. Before approving any advisory contract pursuant to Section 15 of 
the Act, the Board of Trustees of an Asset Allocation Fund, including a 
majority of the Trustees who are not ``interested persons'' as defined 
in Section 2(a)(19) of the Act, will find that the advisor fees charged 
under such contract, if any, are based on services provided that are in 
addition to, rather than duplicative of, services provided under the 
advisory contract of any Underlying Fund in which the Asset Allocation 
Funds may invest. This finding, and the basis upon which the finding 
was made, will be recorded fully in the minute books of such Asset 
Allocation Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32311 Filed 12-9-97; 8:45 am]
BILLING CODE 8010-01-M