Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices 28527

the Federal Register on December 17,

1997 (62 FR 66138). However, by letter

dated May 14, 1998, the licensee

withdrew the proposed change.

For further details with respect to this

action, see the application for

amendment dated July 16, 1997, and the

licensee’s letter dated May 14, 1998,

which withdrew the application for

license amendment. The above

documents are available for public

inspection at the Commission’s Public

Document Room, the Gelman Building,

2120 L Street, NW., Washington, DC,

and at the local public document room

located at the Ocean County Library,

Reference Department, 101 Washington

Street, Toms River, New Jersey 08753.

Dated at Rockville, Maryland, this 19th day

of May 1998.

For the Nuclear Regulatory Commission.

Ronald B. Eaton Sr.,

Project Manager, Project Directorate I–3,

Division of Reactor Projects—I/II, Office of

Nuclear Reactor Regulation.

[FR Doc. 98–13901 Filed 5–22–98; 8:45 am]

BILLING CODE 7590–01–P

OFFICE OF PERSONNEL

MANAGEMENT

Federal Prevailing Rate Advisory

Committee Cancellation of Open

Committee Meeting

According to the provisions of section

10 of the Federal Advisory Committee

Act (Pub. L. 92–463), notice is hereby

given that the meeting of the Federal

Prevailing Rate Advisory Committee

scheduled for Thursday, June 4, 1998,

has been canceled.

Information on other meetings can be

obtained by contacting the Committee’s

Secretary, Office of Personnel

Management, Federal Prevailing Rate

Advisory Committee, Room 5559, 1900

E Street, NW., Washington, DC 20415,

(202) 606–1500.

Dated: May 13, 1998.

Phyllis G. Heuerman,

Acting Chair, Federal Prevailing Rate

Advisory Committee.

[FR Doc. 98–13920 Filed 5–22–98; 8:45 am]

BILLING CODE 6325–01–P

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.

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. § 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
28528 Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices

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. § 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
Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices 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 passthrough 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
28530 Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices

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, timeconsuming, 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
Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices 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
28532 Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4 (1995).

3Securities Exchange Act Release No. 39767

(March 17, 1998), 63 FR 1414 (March 24, 1998).

4The Amex expects that the ‘‘professional

hearing officer will be an individual who is a

lawyer who has had litigation experience in the

securities area. It is possible that such individual,

or his firm, may provide advice or services to the

Exchange on matters that do not relate to the

investigation or preparation of disciplinary

matters.’’ See letter from Janice M. Stroughter,

Director of Hearings and Special Counsel, Legal &

Regulatory Policy, American Stock Exchange, Inc.,

to Katherine England, Esq., Assistant Director,

Market Supervision, SEC, dated February 25, 1998

(‘‘Amendment No. 2’’).

5CR. CBOE Rule 2.1 (establishing committees,

procedures and duties and powers thereof); NYSE

rule 476(b) (outlining the composition of a Hearing

Board, the selection pool from which panelists are

chosen and length of service); and PCX Rule 11

(procedures for establishing committees in general,

membership selection, and delegation of

jurisdiction to specific committees).

6Cf. CBOE Const. art. IX, NYSE Const. art. XII,

and PCX Const. art. XVI. According to these

provisions, indemnification is granted to members

of any committees authorized by their respective

Constitutions or Boards.

7Cf. CBOE Rule 17.10 (review shall be conducted

by the Board or a committee of the Board); NYSE

Rule 476(f) (review of Hearing Panel’s decision

conducted by the Board); and PCX Rule 10.8(a)

(review may either be conducted by the Board or

by a committee appointed by Board).

8Pursuant to Section 3(f) of the Act, the

Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. In updating its rules to improve its

disciplinary process, the Exchange has enhanced

efficiency by streamlining a process that should

enable the Exchange to expeditiously resolve

disciplinary actions. Competition should also

improve as members and customers become

confident that wrongdoing will be quickly and

effectively addressed. If competition increases then

capital formation should improve as an increase in

business should result in increased profits. 15

U.S.C. 78c(f).

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

SECURITIES AND EXCHANGE

COMMISSION

(Release No. 34–39996; File No. SR–AMEX–

97–30)

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the American Stock Exchange, Inc.

Relating to Professional Hearing

Officers, Executive Committee Review

of Appeals From Disciplinary Panel

Decisions and Indemnification of

Persons Serving on Disciplinary

Panels and Exchange Officials

May 18, 1998.

I. Introduction

On August 11, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘ACT’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

which amends the Exchange’s

Constitution and Rules of Procedure

applicable to its disciplinary

proceedings. A notice of the proposed

rule change appeared in the Federal

Register on March 24, 1998.3 The

Commission received no comment

letters concerning this rule change. This

order approves the proposed rule

change.

The Exchange’s Constitution and

Rules of Procedure applicable to

disciplinary proceedings currently

require, among other things, the

Exchange to draw members of

disciplinary panels exclusively from the

ranks of practicing securities industry

professionals. These rules also generally

require the Chairmen of Disciplinary

Panels to be Exchange Officials. The

Exchange believes the current system

for selecting Disciplinary Panels has

worked well for many years, and Panel

members have performed an invaluable

service to the Exchange on a voluntary

basis. Recently, the Exchange has

noticed that the complexity of the legal

issues confronting its disciplinary

panels has increased, thus requiring

Article V, Section 1(b) of the Exchange’s

Constitution and its Rules of Procedure

to be modified.

II. Description of the Proposal

i. Professional Hearing Officers

Frequently, Disciplinary Panels face

complicated legal questions that must

be resolved promptly to ensure the

timely resolution of enforcement

matters. While the Exchange provides

the Panels with an assistant, this staff

person has a non-substantive role in

enforcement proceedings and, therefore,

is unable to fully participate in

evaluating important legal, evidentiary

and procedural questions. Accordingly,

the Exchange has amended its

Constitution and Rules to provide for

professional hearing officers to serve as

chairmen and voting members of

Exchange Disciplinary Panels.4 The

remaining members of Disciplinary

Panels would continue to be drawn

from the ranks of practicing securities

industry professionals as currently

provided for in the Exchange’s

Constitution and Rules.5

ii. Indemnification of Persons Serving

on Disciplinary Panels and Exchange

Officials

The indemnification provision of the

Exchange’s Constitution had not

specifically mentioned persons serving

on Disciplinary Panels nor Exchange

Officials. Although the Exchange

believes there are sound arguments for

concluding that persons serving on

Disciplinary Panels and Exchange

Officials already are covered by the

Exchange’s indemnity provision, the

Exchange has, nevertheless, amended

the Constitution to make this coverage

explicit to help ensure that the

Exchange can continue to attract and

retain qualified persons to serve in these

capacities.6

iii. Board Review of Disciplinary Panel

Decisions

Prior to this proposal, in all instances,

disciplinary appeals were heard by the

Executive Committee of the Board

pursuant to delegated authority from the

Board of Governors as authorized by

Article V, Section 1(b) of the

Constitution except where a member or

member organization is expelled or

suspended for a period of one year or

more. In such instance, a review by the

full Board would have been required.

However, the Exchange has amended its

Constitution to vest in the Executive

Committee the delegated authority to

hear all appeals (including matters the

Board calls for review) regardless of the

nature of the respondent or the penalty.7

This should make the appeal process

less cumbersome, while at the same

time eliminating a special review

privilege (i.e., full Board review) that

existed for members and member

organizations, but not for their

employees. The full Board would retain

authority to review disciplinary

decisions when such review is deemed

appropriate.

III. Discussion

The Commission believes that the

proposed rule change is consistent with

the Act 8 and the rules and regulations

promulgated thereunder. Specifically,

the Commission believes that approval

of the proposed rule change is