SEC Division of Investment Management staff letter: Mutual Benefit Fund, et al.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C 20549 August 23 1991 Gary Cohen Esq Freedman Levy Kroll Simonds 1050 Connecticut Avenue N.W Washington D.C 20036 Re Mutual Benefit Fund File No 2-36663 MBL Growth Fund Inc File No 2-96199 MAP Government Fund Inc File No 2-78975 The Specialty Managers Trust File No 33-23512 Mutual Benefit Variable Contract Account-7 File No 286722 Markston Investment Management File No 801-15894 Mutual Benefit Financial Service Company File No 801-8154 Directed Services Inc File No 801-32675 Dear Mr Cohen Enclosed is our response to your letters of August 1991 and August 23 1991 By incorporating our answer into the enclosed photocopies of your letters we avoid having to recite or summarize the facts involved In any future correspondence on this matter please refer to our Reference No IP3-91 Sincerely Heidi Stain Assistant Chief Office of Insurance Products and Legal Compliance

Our Reference No IP-3-91
Mutual Benefit Fund
File No 236663
MBL Growth Fund Inc
Inc
File No 278975
The Specialty Managers
Trust
File No 3323512
Mutual Benefit Variable
Contract Account7
File No 286722
Markston Investment
Management
File No 80115894
Mutual Benefit Financial
Services Company
RESPONSE OF THE OFFICE OF File No 801-8154 INSURANCE PRODUCTS Directed Services Inc DIVISION OF INVESTMENT MANAGEMENT File No 801-32675 Based upon the facts and representations set forth in your letters of August 1991 and August 23 1991 and without necessarily agreeing with your legal analysis we would not recommend enforcement action to the Commission against Mutual Benefit Fund MBL Growth Fund Inc MAP Government Fund Inc The Specialty Managers Trust Mutual Benefit Variable Contract Account7 Markston Investment Management Markston Mutual Benefit Financial Service Company FISCO and Directed Services Inc DSI pursuant to Sections 2a 15a and 15b of the Investment Company Act of 1940 if Markston FISCO and DSI continue to perform under their respective investment advisory agreements and principal underwriting agreements without further interestholder vote On July 16 1991 the Superior Court of New Jersey entered an Order appointing the Conunissioner of Insurance of New Jersey as Rehabilitator of Mutual Benefit Life Insurance Company You note in your letter that there has been no sale or purchase of advisory or underwriting contracts in connection with the appointment of the Rehabilitator Moreover you state that the appointment of the Rehabilitator has not resulted in change in the managing partners directors or key management personnel of Markston FISCO or DSI Your letter dated August 23 1991 states that the Superior Court of New Jersey on August 1991 entered 1/ The Division declines to express an opinion on whether the facts and circumstances presented by your letter would satisfy Rule 2a-6 See Investment Company Act Release No 10809 Aug 1979 note [Pub. Avail.: Aug. 23, 1991]

an Order Continuing Rehabilitators Appointment Continuing Restraints and Granting Other Relief You should note that facts or conditions different from those presented in your letters might require different conclusion Further this response only expresses the Divisions position on enforcement action and does not purport to express any legal conclusions on the questions presented Michael Wible Staff Attorney August 23 1991

LAW OFFICES
FREEDMANLEVyKROLLSIMONDS
WASHINGTON SQUARE-I050 CONNECTICUT AVEN WASHINGTON 20036-5366 202 457-5100 GARY 0.COHEN CABLE ATTORNEYS 202 457-5107 TELECOPI ER 202-457-5151 August 1991 1940 Act/2a4 1940 Act/15a4 1940 Act/15b 1940 Act/Rule 2a6 BY HAND DELIVERY Mr Clifford Kirsch Esq Assistant Director Office of Insurance Products Legal Compliance Division of Investment Management U.S Securities and Exchange Commission 450 5th Street N.W Room 10167 Stop 106 Washington D.C 20549 Re Mutual Benefit Fund Benefit Fund File No 8112046 and No 236663 MBL Growth Fund Inc Growth Fund File No 8113593 and No 296199 MAP Government Fund Inc MAP Fund File No 8113548 and No 278975 The Specialty Managers Trust Managers Tfust File No 8115629 and No 3323512 Mutual Benefit Variable Contract Account-7 VCA-7 File No 8113853 and No 286722 Markston Investment Management Markston File No 80115894 Mutual Benefit Financial Service Company FISCO File No 8018154 and No 815263 Directed Services Inc DSI File No 80132675 and No 839104 Dear Mr Kirsch We write on behalf of the abovenamed companies to request that the Commission staff furnish us with letter stating that it

FREEDMAN LEvy KROLL SIM0NDS will not recommend that the Commission take enforcement action if Markston FISCO and DSI continue to perform under their respective investment advisory agreements including service and management agreements and principal underwriting agreements including distributors and sales agreements without further interestholder vote under the highly unusual circumstances described below Companies Benefit Growth and MAP Funds are corporations registered as management investment companies under the Investment Company Act of 1940 the Act Managers Trust is business trust registered as management investment company under the Act VCA-7 is separate account of The Mutual Benefit Life Insurance Company Mutual Benefit Life registered as management investment company under the Act Mutual Benefit Life is mutual life insurance company organized in New Jersey in 1845 and presently licensed to engage in the life insurance business in all 50 states the District of Columbia and Puerto Rico Markston is general partnership 51% of the interests in which are indirectly owned by Mutual Benefit Life FISCO and DSI are both whollyowned indirect subsidiaries of Mutual Benefit Life

FREEDMAN LEvY KROLL SIM0NDS
Markston FISCO and DSI are investment advisers registered under the Investment Advisers Act of 1940 FISCO and DSI are also broker-dealers registered under the Securities Exchange Act of 1934 Markston is investment adviser for Benefit and Growth Funds FISCO is investment adviser for MAP Fund and VCA-7 and principal underwriter for Benefit Growth and MAP Funds and VCA-7 DSI is investment adviser and principal underwriter for Managers Trust Mutual Benefit Life has entered into separate service agree inents with Markston and FISCO regarding the Funds and VCA-7 pursuant to which it has agreed to provide to the extent needed by each entity the personnel office space and other resources necessary for the proper conduct of each companys business.1 Mutual Benefit Life organized and/or holds interests in each of the Funds Managers Trust and VCA-7 Each entity utilizes the support services of Mutual Benefit Life to different degrees on cost reimbursement basis In the case of disagreement as to the fair basis for allocating cost such basis shall be fixed by the entitys independent auditors Any employee of Mutual Benefit Life while performing services for any such entity shall report and be responsible solely to the officers and directors of the entity utilizing the services Each entity maintains its own officers and related facilities and has sufficient staff and resources to meet its respective contractual obligations

FREEDMAN LEvy KR0LL SIM0NDs
Rehabilitation Order
On July 16 1991 the Superior Court of New Jersey entered an Order the Order copy enclosed appointing the Commissioner of Insurance of New Jersey as Rehabilitator of Mutual Benefit Life Rehabilitator paragraph 2.2 The Order grants the Rehabilitator immediate exclusive possession and control of and title to the business and all of the assets contracts causes of action books records bank accounts certificates of deposit funds securities or other funds and all real or personal property of any nature of Mutual Benefit paragraph The Order directs the Rehabilitator to conduct the business of Mutual Benefit Life and to take such steps as he may deem appropriate toward removing the cause and conditions that have made rehabilitation necessary paragraph The Order contemplates Mutual Benefit Life will continue in business see paragraph and restrains policy loans and surrenders paragraph 15 in order to enable Mutual Benefit Life to continue in business The Order is not be deemed declaration of insolvency paragraph 16 emphasis added and does not authorize the Rehabilitator to transfer control of demutualize reorganize or liquidate Mutual Benefit Life 2A11 references to paragraphs are to paragraphs of the Order

FREEDMAN LEVY ROLL SIMONDS
The Order does not address the businesses that Mutual Benefit Life conducts through subsidiaries such as the businesses of serving as investment advisers and principal underwriters to investment companies The Order does not address the Funds Managers Trust VCA-7 Markston FISCO or DSI or their advisory and underwriting agreements Indeed the Order contemplates that Mutual Benefit Life will continue unaffected the investment company business of VCA7 and distinguishes it from Mutual Benefit Lifes nonsecurities related insurance business by providing for the continuation of payments on separate accounts in connection with variable annuities paragraph 15 Questions Raised Sections 15a and of the Act3 require in effect that advisory and underwriting agreements provide in substance for their automatic termination in the event of assignment Each of the agreements involved here so provides
Section 2a of the Act defines assignment to include
any direct or indirect transfer or hypothecation of contract 3A11 references herein to sections and rules are to sections of the Act and rules thereunder

FREEDMAN LEVY ROLL SIMON Es by the assignor or of controlling block of the assignors outstanding voting securities by security holder of the assignor Rule 2a6 provides that transaction that does not result in change of actual control or management of an investment adviser or principal underwriter is not an assignment for purposes of Section l5a4 or b2 The question arises whether the appointment of Rehabilitator for Mutual Benefit Life the indirect parent of Markston FISCO and DSI would be deemed to constitute an indirect transfer or hypothecation of the advisory and underwriting agreements or to result in change of actual control or management of Markston FISCO and DSI that causes each of the agreements to terminate further question arises whether under all of the circumstances the Funds Managers Trust and VCA-7 should be required to solicit interestholder approval of new agreements Our View We do not believe that the appointment of the Rehabilitator should be deemed to constitute an assignment of the advisory and underwriting agreements so as to cause them each to terminate We also do not believe that even if the appointment of the

FREEDMAN LEvY KR0LL SIM0NDS
Rehabilitator could be deemed to constitute such an assignment the interestholders of the investment companies should be required to vote on new advisory and underwriting agreements Instead we believe that the advisory and underwriting agreements including the obligations of all of the parties thereunder should be deemed to have continued in force without interruption from the date of the Order The Commission has formally noted that the staff has provided noaction assurances in this regard.4 We request such assurance on the basis set out below Basis for View Basis for No Assignment The appointment of the Rehabilitator does not constitute an assignment within the literal terms of Section 2a4 The Order as described in above appoints Rehabilitator and gives the Rehabilitator title to the business assets and 4See SEC Release No IC10809 Aug 1979 proposing the adoption of Rule 2a-6

FREEDMAN LEvY KR0LL SIMONDS contracts of Mutual Benefit Life The appointment however does not constitute an assignment of the advisory and underwriting agreements within the literal terms of Section 2a4
Section 2a contemplates assignment through transfer or
hypothecation of contract by an assignor.5 However neither Markston FISCO DSI nor Mutual Benefit Life literally transferred or hypothecated any contractual right that it holds.6 The Rehabilitator obtained title to the business assets and contracts of Mutual Benefit Life by court order7 pursuant to the New Jersey insurance law8 and not by transfer or hypothecation by Mutual Benefit Life or its subsidiaries as assignors
Section 2a also contemplates assignment through transfer
or hypothecation of controlling block of the assignors 5Likewise the proscriptions against assignment contained in
Section 15 were intended to make clear that the management
contract is personal that it cannot be assigned and that you cannot turn over the management of other peoples money to someone else Investment Trusts and Investment Companies Hearing on S.3580 Before Subcomm of the Senate Comm on Banking and Commerce 76th Cong 3d Sess 1940 statement of David Schenker Chief Counsel SEC emphasis added 60n the contrary the Order directly enjoins all persons corporations partnerships associations and all other entities wherever located from transferring selling terminating cancelling or assigning any contracts of any nature of Mutual Benefit paragraph 12 7See infra note 16 8See infra note 27 and accompanying text

FREEDMAN LEvY KROLL SIMONDS outstanding voting securities by the assignor Mutual Benefit Life mutual life insurance company is owned and continues to be owned by its policyholders.9 The policyholders literally did not transfer or hypothecate controlling block of the policies that they hold Furthermore Mutual Benefit Life did not transfer or hypothecate any controlling block of the outstanding voting securities of Markston FISCO or DSI that it holds The appointment of the Rehabilitator therefore does not constitute an assignment within the literal terms of Section 2a In economic reality the appointment of the Rehabilitator does not constitute an assignment contemplated by the Act Congress and the courts have established that definitions under the federal securities laws should be applied in flexible manner consistent with economic reality The preamble to the definitions in Section states that the definitions apply unless the context otherwise requires The courts in order to avoid wooden and unrealistic results have 9Policyholders have statutory right to vote and receive dividends N.J Stats Ann S17B18-l3 and 17B18-46 West 1985 See 18 Appleman Insurance Law and Practice 10046 at 98 10059 at 147-8 1945 See also paragraph 10 of the Order

FREEDMAN LEvy KR0LL SIM0NDS interpreted such language to distinguish between that which Congress intended to include and intended to exclude under the federal securities laws The courts have fashioned flexible analytical approach that looks to economic reality for determining when definitions should apply The Commission also has recognized the concept of economic reality in its administration of Section 2a4 by adopting definitional Rule 2a-6 The Rule provides that transaction that falls within the definition of assignment under Section 2a nevertheless would be deemed not to terminate advisory and underwriting agreements if in economic reality the transaction does not result in change of actual control or management See e.g United Housing Foundation Inc Forman 431 U.S 837 848 1975 Exchange National Bank of Chicago Touche Ross Co 544 F.2d 1126 1138 2d Cir 1976 Intl Bhd of Teamsters Daniel 439 U.S 551 1979 11The Commission in proposing Rule 2a6 explained its rationale as follows The term assignment is defined in section 2a of the Act to include any direct or indirect transfer of control ling block of the assignors outstanding voting securities by security holder of the assignor From time to time an investment adviser or principal underwriter to an investment company may be involved in certain transactions particular ly modifications of corporate structure which may be considered to involve direct or indirect transfer of controlling block of the investment advisers voting securi ties but which would not affect the actual control or management of the investment adviser Absent proposed rule 2a6 such transaction might be viewed as an assignment continued..

FREEDMAN LEVY KR0LL SIM0NDS
Assuming arguendo that the appointment of the Rehabilitator could fall within the definition of assignment under Section 2a4 the appointment does not in economic reality--result in change in actual control or management of Markston FISCO or DSI.12 Accordingly Rule 2a6 defines the scope of Section 2a to exclude the appointment of the Rehabilitator The appointment of the Rehabilitator has not resulted in any change in actual control or management of Markston FISCO or DSI.13 On the contrary the managing partners of Markston and the board .continued within the meaning of section 2a for purposes of termi nating automatically the investment advisory contract or an underwriting contract with the investment company Nonetheless such transaction would not contain any of the abusive elements which Congress would have considered to be trafficking in investment advisory or underwriting contracts Moreover where there is no change in the actual control or management of the investment adviser or principal underwriter and hence the actual management of the investment company as result of the transaction the transaction would not appear to conflict with the Congressional concerns embodied in the Act SEC Release No IC10809 Aug 1979 propos ing the adoption of Rule 2a-6 emphasis added footnote omitted 2Alternatively it could be argued that change in control or management of Mutual Benefit Life solely for purposes of rehabilitation would not be deemed to result in change in control or management of Markston FISCO and DSI subsidiaries of Mutual Benefit Life that in turn would constitute an assignment of the advisory and underwriting agreements 13Cf e.g Templeton Investment Counsel Ltd SEC No-Action Letter Jan 22 1986 control at all times of reorganization remained with same individual

FREEDMAN LEvY KR0LL SMoNDs of directors of FISCO and of DSI continue to consist of the same persons as prior to the issuance of the Order Moreover the day￾to-day control of the operations of Markston FISCO and DSI continues to reside in the key management personnel of such companies as it did prior to the issuance of the Order.4 In this regard Markston FISCO and DSI have each advised its investment companies that it knows of no present intention to change key management personnel Moreover as noted in Part above the Order does not require that any personnel changes be made in Markston FISCO or DSI.5 The appointment of the Rehabilitator also has not resulted in change in actual control or management of Mutual Benefit Life.6 4The practice of the industry and the Commission staff has been to conclude that transaction does not result in change in management where there is no change in key management personnel See e.g The Equitable Life Assurance Society of the United States SEC No-Action Letter Dec 12 1983 request represented that the advisory services will continue to be provided by the same professional staff and in the same manner L.F Rothschild Earnings and Liquidity Inc SEC No-Action Letter Jan 24 1983 request represented that the operating and management personnel will remain the same Smith Barney Co Inc SEC No￾Action Letter Feb 161976 request represented that no change in personnel or policy of Smith Barneys investment management department will result 50f course subsequent changes in the circumstances of Mutual Benefit Life or its subsidiaries pursuant to additional court orders or otherwise may eventually result in change in actual control or management 6Recently the Commission did not deem the court appointment of trustee with full power duty and authority to manage and administer the business affairs and assets of an investment continued..

FREEDMAN LEVY KR0LL SIMONDS
The Order specifically authorizes the Rehabilitator to keep Mutual Benefit Lifes current management personnel paragraph 21 to conduct Mutual Benefit Lifes business Indeed although the Board 16 continued company to constitute transfer of advisory and underwriting agreements within the meaning of Section 2a4 William Penn Interest Income Fund File No 33-39645 Pre-Effective Amendment No at filed on June 14 1991 to Registration Statement on Form N14 Commission files show no shareholder vote in connection with appointment of trustee The Commission has however stated in the past that transferring actual control or management to receiver would constitute an assignment SEC Release No IC 11005 Jan 1980 emphasis added adoption of Rule 2a-6 see also Waddell Reed SEC No-Action Letter March 12 1976 In this context it is unclear what the Commission intended by the term receiver The federal Bankruptcy Code for example envisions liquidations as well as reorganizations being administered by trustee and not receiver See e.g 11 U.S.C 105 1978 Indeed receivers commonly refer to persons consolidating assets where party is incompetent to properly apply them See Blacks Law Dictionary 4th ed 1957 The term is less apt where as here there has been no insolvency and Mutual Benefit Lifes corporate existence and activities continue in an effort to restore and reinstate it to its former condition of successful operation see paragraph The New Jersey insurance law applicable here reflects this same distinction between rehabilitation and insolvency or liquida tion Chapter 32 of Title 17B of the New Jersey insurance laws is entitled Rehabilitation and Liquidation N.J Stats Ann 17B32-1 et seq West 1985 and 1991 Suppi. The action insti tuted by the Commissioner of Insurance is one of rehabilitation not insolvency or liquidation See infra footnote 27 See also paragraph 16 of the Order In addition the New Jersey insurance law distinguishes rehabilitator from receiver Specifically while the word receiver is used generically in several sections of the New Jersey law its actual meaning may be receiver liquidator rehabilitator or conservator as the context may require N.J Stats Ann 17B321k West 1985 emphasis added The appointment of rehabilitator therefore is distinguishable from the appointment of receiver in context other than rehabilitation

FREEDMAN LEvY KR0LL SIM0NDS of Directors of Mutual Benefit Life has resigned the actual day￾to-day control or management continues as it did prior to the issuance of the Order.7 In addition although the Order provides that the Rehabilitator has possession and control over the business and assets of Mutual Benefit Life for purposes of rehabilitation paragraph as mutual insurance company organized in New Jersey Mutual Benefit Life has always been subject to the comprehensive supervision of the Commissioner of Insurance under the New Jersey insurance law.8 Indeed the Commissioner of Insurance as Rehabilitator is exercising many of the same powers that were available to him prior 7Although the President of Mutual Benefit Life Henry Kates stepped down from that position he has agreed to be employed as consultant for period of up to six months see page 14 of the Order Furthermore he was succeeded by Stephen Carlotti who prior to Mr Kates resignation was the Senior Executive Vice President see page 14 of Order and Chief Operations Officer of Mutual Benefit Life since 1989 In addition Mutual Benefit Lifes Executive Vice Presidents Edward Bull Robert Budwick and Donald Sondergeld and Senior Vice Presidents Donald Hailer Jr and Charles McCaig have each agreed to remain with Mutual Benefit Life for period of up to twelve months see page 14 of the Order 8Mutuai Benefit Life has operated and continues to operate as an insurer pursuant to authority granted by the Commissioner of Insurance N.J Stats Ann S17B17ll.a and 17B1712.a West 1985 As New Jersey insurer Mutual Benefit Life has been and continues to be required to abide by all applicable provisions of the New Jersey insurance law which is administered by the Commissioner of Insurance N.J Stats Ann 17B17-13 and 17lC￾West 1985

FREEDMAN LEvy KROLL SIMONDs to the issuance of the Order Prior to the issuance of the Order the Conunissioner of Insurance had the power to impose reasonable and temporary restrictions upon the type class or permissible extent of investments that may be made by Mutual Benefit Life if it appeared to the Commissioner that by reason of investment condi tions generally or the financial condition or investment portfolio content of Mutual Benefit Life giving due regard to policyholders protection afforded by its capital surplus and reserves the safety of the public or policyholders warranted such restrictions.9 In addition the Commissioner of Insurance prior to the issuance of the Order had the power to require Mutual Benefit Life to dispose of any specific real estate acquired by it after hearing and determination that the interest of the policyholders so required.2 Moreover the many aspects of the operations of Mutual Benefit Life had been prior to the issuance of the Order subject to the oversight of the Commissioner of Insurance includ ing among other things changes in organization2 reinsurance arrangements22 valuation of reserves2 and the ability to provide any consultative administrative investment actuarial loss 9N.J Stats Ann 17B206 West 1985 20N.J Stats Ann l7Bl845 West 1985 2N.J Stats Ann l7Bl857 1858 and 1861 West 1985 22N.J Stats Ann S17B1864 West 1985 23N.J Stats Ann 17Bl92 West 1985

FREEDMAN LEVY KR0LL SMoNDs prevention data processing accounting claims and collection services independent of any insurance or annuity contract.24 In sum the appointment of the Rehabilitator did not constitute transfer or hypothecation of the advisory or underwriting agreements or of controlling block of the outstanding voting interests or securities of Mutual Benefit Life Markston FISCO or DSI within the literal terms of Section 2a4 Assuming arguendo that the appointment of the Rehabilitator could have constituted an assignment under Section 2a the appointment in economic reality has not resulted in direct or indirect transfer of actual control and has not resulted in any change in key management personnel of Markston FISCO or DSI Accordingly under Rule 2a-6 the appointment of the Rehabilitator does not fall within the definition of assignment in Section 2a4 24N.J Stats Ann l7Bl843 West 1985 -- --

FREEDMAN LEvY KR0LL SIMONDS
Basis for No Shareholder Vote
Congress has provided that the Act shall be interpreted in flexible manner so as to mitigate or eliminate conditions that adversely affect the interest of investors
Section declares that the Act shall be interpreted in
accordance with its policy and purposes which are to mitigate and so far as feasible eliminate the conditions enumerated in the
Section which adversely affect the national public interest and the
interest of investors Section 1b declares that such adverse effects can arise when the control or management of investment companies is transferred without the consent of security holders Presumably the Act need not be interpreted to apply where an assignment did not present the abuses that the Act is intended to eliminate Indeed as shown above the Commission has adopted Rule 2a6 defining assignment to exclude transactions that do not present such abuses.25 25See supra note 11

FREEDMAN LEvY KR0LL SIM0NDS
Assuming that the appointment of the Rehabilitator could be deemed to constitute an assignment no interestholder vote should be required because the assignment does not present the abuses that the Act is intended to eliminate The legislative history of Section 1b shows that Congress was concerned with the widespread trafficking in advisory and underwriting contracts prior to 1940 whereby frequent changes in investment company managements took place without the consent and sometimes even without the knowledge of the public security holders.26 The requirement that advisory and underwriting agreements provide for termination on their assignment was one of the remedies Congress adopted to eliminate the abuses growing out of these practices The appointment of the Rehabilitator does not present any of the abuses associated with trafficking in agreements On the contrary the appointment of the Rehabilitator was made for the purpose of removing the cause and conditions that have made rehabilitation necessary.27 26Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth H.R Rep No 2337 89th Cong 2d Sess 150 1966 27The rehabilitation process was commenced pursuant to Section 32-6k of Title 17B of the New Jersey insurance law with the consent of the Board of Directors of Mutual Benefit Life N.J Stats Ann 17B326k West 1985 See also paragraphs and continued..

FREEDMAN LEvY KR0LL SMoNDs
The Rehabilitator is the Commissioner of Insurance of New Jersey who is charged under the insurance law of New Jersey with the supervision of Mutual Benefit Life In connection with the appointment of the Rehabilitator there has been no sale or pur chase of advisory or underwriting contracts.28 In addition the appointment of the Rehabilitator has generated no finders fee or commission or other pecuniary gain to any company or individual person particularly any amount that could be recouped from the investment companies to the disadvantage of shareholders.29 Moreover the Rehabilitator was appointed by the Superior Court of New Jersey and is responsible on his official bond for the proper administration of all assets coming into his possession or control.3 The appointment of the Rehabilitator also has not resulted in change in the managing partners directors or key 27 .continued of the Order Notably the rehabilitation process was not commenced on the basis of insolvency or any deficiency as otherwise provided for by the New Jersey insurance law See N.J Stats Ann 17B32-6a through and West 1985 See also paragraph 10 of the Order 28See supra Part E.l.a See generally Report of the Securities and Exchange Commission on Investment Trusts and Investment Companies H.R Doc No 279 76th Cong 1278-13 03 1940 hereinafter SEC Report to Congress 29Such recoupment of finders fees was one of the abuses existing at the time Section 1b was adopted Id 30N.J Stats Ann l7B 3215.d West 1985 Selfdealing was one of the abuses existing at the time Section 1b was adopted See generally SEC Report to Congress at 1029-1031 1086- 1089 10921093 13631366 and 19181936

FREEDMAN LEvY KROLL SIM0NDS management personnel of Markston FISCO or DSI.31 Furthermore the appointment of the Rehabilitator is certainly no secret to the interestholders of the investment companies The newspapers radio and television have given prominent and wide spread publicity to the appointment Each of the investment companies has distributed to existing interestholders supplement to its current prospectus disclosing the appointment.32 Interest￾holders will continue to have the right to redeem their interests if they so choose.33 proxy statement seeking approval of new advisory and underwriting agreements would be problematic The unusual situation presented by the appointment of the Rehabilitator is still quite fluid and the disclosure required to be included in proxy statement could quickly become outdated requiring revised proxy material as the situation develops further In addition the disclosure of the appointment of the 31See supra note 32See file numbers for the investment companies supra page of this letter 33The Order specifically provides that separate account interestholders continue to have the right to redeem paragraph 15 Mutual Benefit Life is seeking confirmation that variable life insurance policyholders continue to have right to redeem The right of redemption with respect to shares of the Funds and the Trust continues under the federal securities laws

FREEDMAN LEVY KR0LL SIMONDs
Rehabilitator as constituting an assignment of the existing agreements that could result in their termination is highly technical argument that may confuse the interestholders Certainly the significance of any technical assignment will be difficult for interestholders to grasp where the key management personnel of Markston FISCO and DSI remain the same and where the agreements themselves have not changed Finally it may be difficult for interestholders to grasp the consequences of negative vote on new agreements where such vote would not cause the Rehabilitator to be removed Moreover assuming the interestholders approve new advisory and underwriting agreements with Markston FISCO and DSI the subsequent completion of the rehabilitation process could arguably result in another technical assignment of the agreements thereby requiring another proxy solicitation which could further confuse interestholders The investment companies emphasize that solicitation of interestholder approval of new agreements could also precipitate mass redemptions with adverse consequences for not only the investment companies but also the interestholders Such consequences could include immediate disposition of portfolio investments to generate cash redemption proceeds dislocation of investment programs and higher expense ratios for remaining

FREEDMAN LEvy KR0LL SIMONDS shareholders Mutual Benefit Lifes situation received widespread publicity which unfortunately precipitated run on the bank.34 The investment companies while mindful of their obligations to redeem respectfully submit that proxy statement describing highly technical termination of advisory and underwriting agreements could under the uncertain circumstances here contribute to thoughtless and needless redemptions that would not be in the best interests of the investment companies or their interestholders In sum Congress intended the Act to be interpreted flexibly to mitigate or eliminate conditions adversely affecting the interest of investors Accordingly even assuming that the appointment of the Rehabilitator constitutes an assignment no interestholder vote should be required in the present situation which presents none of the abuses that the Act is intended to eliminate Notably there has been no purchase or sale of any advisory 34The Newark Star Ledger July 17 1991 at 34 col reported that Samuel Fortunato Commissioner of Insurance of New Jersey said that recent spate of adverse publicity concerning the companys problems in commercial real estate had compounded its problems by frightening some customers and fueling run of redemptions

FREEDMAN LEvy KROLL SIMONDS or underwriting agreement in connection with the appointment of the Rehabilitator Moreover the appointment has generated no finders fees or other commissions that could be recouped from the invest ment companies In addition the Rehabilitator is responsible for the proper administration of the assets of Mutual Benefit Life Finally there has been adequate disclosure of the appointment of the Rehabilitator to the interestholders Any proxy solicitation regarding the appointment would necessarily be problematic given the highly unusual circumstances presented and could lead to mass redemptions Conclusion For the foregoing reasons we respectfully submit that the Commission staff should grant the noaction relief requested This letter follows up several conversations we have had with the staff concerning this matter We raised this matter with the staff prior to the issuance of the Order We are addressing this letter to you because one of the investment companies is life insurance company separate account and three of the five mutual funds offer their shares exclusively

FREoMAN LEvY KR0LL SIMONDS to life insurance company separate accounts This letter is based on what we understand from representa tives of the companies involved We have not conducted any independent inquiry We note that the Superior Court of New Jersey could modify the Order Representatives of the companies would be happy to meet with you to answer questions and discuss this matter Please call me Diane Ambler or Richard Choi at this firm if you have any questions or wish to discuss this matter GOC/cjc Enclosures Order Six copies of letter cc Heidi Stain Esq Michael Wible Esq Gary Cohen

16 1991
CHAMBERS OF DGE PAUL LEVY
ROBERT DEL TUFO
Attorney General of New Jersey
Attorney for Plaintiff
R.J Hughes Justice Complex
CN 112
Trenton New Jersey 08625
609 292-1506
SUPERIOR COURT OF NEW JERSEY
CHANCERY DIVISION MERCER COUNTY
GENERAL EQUITY PART
DOCKET NO C-91-00109
IN THE MATTER OF THE
REHABILITATION OF MUTUAL Civil Action BENEFIT LIFE INSURANCE COMPANY Mutual Insurance CONSENT ORDER TO SHOW CAUSE Company of New Jersey WITH TEMPORARY RESTRAINTS This matter having been opened to the Court by Robert Del Tufo Attorney Genera of New Jersey attorney for plaintiff Samuel Fortunato Commissioner of Insurance hereafter Commissioner with the consent of defendant Mutual Benefit Life Insurance Company hereafter Mutual Benefit by defendants counsel Samuel Butler Esq of Cravath Swaine and Moore for an order pursuant to N.J.S.A 17832-7a for the rehabilitation of Mutual Benefit and it appearing to the court that the parties have consented to the commencement of delinquency proceedings by the Commissioner against defendant Mutual Benefit pursuant to N.J.S.A 17B32-6k and to the entry of an Order pursuant to N.J.S.A 17B32-7a directing th Commissioner to rehabilitate said

defendant and it further appearing that Consent Order for Rehabilitation is herewith submitted to the court in this matter and the court having considered the papers and oral representations of the Attorney General and counsel for defendant and for good cause shown IT IS on this day of_JL1L 1991 ORDERED as follows ORDER COMMENCING REHABILITATION Having consented through resolution of its Board of Directors pursuant to N.J.S.A 17B32-6k Mutual Benefit shall in its existing form cease all operations on of.iL/ 1991 effective at3toclock in the472 noon Effective at the same date and time Mutual Benefit Life Insurance Company in Rehabilitation shall continue as successor the operations of the company consistent with the .terms of this Order and the terms of all subsequent Orders of this Court COMMISSIONER APPOINTED REHABILITATOR Pursuant to N.J.S.A 17B32-15a Samuel Fortunato Commissioner of Insurance of the State of New Jersey and his successors in office are hereby appointed Rehabilitator of Mutual Benefit Life Insurance Company and are vested in addition to the powers set forth in this Order with all the powers and authority expressed or implied under the provisions of N.J.S.A 17B32-1 et

APPOINTMENT OF DEPUTY REHABILITATOR The Rehabilitator may appoint consultant or other person to serve as Deputy Rehabilitator to assist the Rehabilitator in accomplishing the directives of this Order The Deputy Rehabilitator shall serve at the pleasure of the Rehabilitator and subject to the approval of the Rehabilitator shall be entitled to exercise all of the powers and authorities vested in the Rehabilitator pursuant to this Order and to the applicable law Compensation of the Deputy Rehabilitator shall be set by the Rehabilitator subject to the approval of this court and shall be paid out of the funds and assets of Mutual Benefit The Deputy Rehabilitator shall have no personal liability for his acts or omissions in connection with his duties as Deputy Rehabilitator provided that such acts or omissions are undertaken in good faith and without willful misconduct gross negligence or criminal intent All expenses costs and attorneys fees incurred by the Deputy Rehabilitator in connection with any lawsuit brought against him in his representative capacity as Deputy Rehabilitator shall be subject to the approval of the Commissioner and the court and shall be exclusively paid out of the funds and assets of Mutual Benefit The Deputy Rehabilitator shall not be deemed to be an employee of the State of New Jersey and thus shall not be subject to the provisions of the New Jersey Tort Claims Act N.J.S.A 591-1 et

POSSESSION OF ASSETS RECORD NOTICE OF TITLE The Rehabilitator is hereby granted and is hereby directed to take immediate exclusive possession and control of and title to the business and all of the assets contracts causes of action books records bank accounts certificates of deposit funds securities or other funds and all real or personal property of any nature of Mutual Benefit including furniture fixtures and office supplies wherever located and including such property of Mutual Benefit which may be discovered hereafter Pursuant to N.J.S.A 17B32-l5c the filing or recording of this order or certified copy hereof with the Clerk of this Court and with the recorder of deeds of the jurisdiction in which Mutual Benefits corporate and administrative offices are located or in the case of real estate with the recorder of deeds of the jurisdictions where the property is located shall impart the same notice as would be imparted by deed bill of sale or other evidence of title duly filed or recorded with that recorder of deeds Except as otherwise indicated elsewhere in this Order and upon notice provided by the Rehabilitator all agents and brokers and all other persons or entities holding funds assets or property of or on behalf of Mutual Benefit shall forthwith file an accounting of those funds assets or property with the Rehabilitator and shall within 10 days of the entry of this Order turn those funds assets or property over to the Rehabilitator

REHABILITATORS AUTHORITY TO CONDUCT BUSINESS The Rehabilitator is hereby directed to immediately begin conducting the business of Mutual Benefit and to begin taking such steps as the Rehabilitator or his designee may deem appropriate toward removing the cause and conditions which have made rehabilitation necessary The Commissioner is hereby authorized to take such necessary steps as he may deem appropriate to protect and to preserve the valuable existing group health insurance group life insurance and long-term disability insurance LTD collectively the group business including but not limited to transferring assets to separate subsidiary for the overall benefit of Mutual Benefits creditors and policyolders subject to approval by this Court upon the return date of this Order NAME CHANGE AND WITHDRAWAL OF BANK ACCOUNTS The Rehabilitator may change to his own name the name of any of Mutual Benefits accounts funds or other property or assets held with any bank savings and loan association or other financial institution and may withdraw such funds accounts and other assets rpm such institutions or take any lesser action necessary for the proper conduct of the rehabilitation INJUNCTION AGAINST CONDUCTING BUSINESS INTERFERING WITH REHABILITATION MAKING LEVIES DISPOSING OF ASSETS AND PURSUING SUITS AGAINST THE REHABILITATOR ESTATE AND REINSURERS All officers directors policyholders agents and employees of Mutual Benefit and all other persons or entities of any nature including but not limited to claimants holders of

annuity contracts beneficiaries under any Mutual Benefit contract plaintiffs or petitioners in any action against Mutual Benefit physicians hospitals or other medical or health care providers and any governmental agencies having claims of any nature against Mutual Benefit including crossclaims counterclaims and third party claims are hereby enjoined and restrained from conducting any portion or phase of the business of Mutual Benefit unless so authorized by the Rehabilitator or Deputy Rehabilitator bringing maintaining or further prosecuting any action at law suit In equity special or other proceeding against Mutual Benefit its estate in receivership or against the Commissioner and his successors in office as Rehabilitator thereof or against the Deputy Rehabilitator appointed pursuant to paragraph above making or executing any levy upon the property or estate of Mutual Benefit selling transferring wasting or otherwise disbursing or disposing of or encumbering in any manner the assets and property of any nature of Mutual Benefit except as the Rehabilitator may direct in writing or until further order of the court interfering in any way with the Commissioner or any successors in office in his possession of or title to the property and assets of Mutual Benefit or in the discharge of his duties as Rehabilitator thereof pursuant to this Order All

persons or entities of any nature other than the Rehabilitator are hereby restrained from commencing maintaining or further prosecuting any direct or indirect actions against any reinsurer of Mutual Benefit for proceeds of any reinsurance policies issued to or treaties or other agreements with Mutual Benefit REINSURANCE POLICIES AND CONTRACTS The amounts recoverable by the Rehabilitator from any reinsurer of Mutual Benefit shall not be reduced as result of this rehabilitation proceeding or by reason of any partial payment or distribution on reinsured policy contract or claim and each such reinsurer of Mutual Benefit is hereby enjoined and restrained from terminating cancelling failing to extend or renew or reducing or changing coverage under any reinsurance policy or contract with Mutual Benefit except for non-payment of premium The Rehabilitator or Deputy Rehabilitator may terminate or rescind any contract with reinsurer or reinsurers that is contrary to the best interests of the estate in rehabilitation UNPAID PREMIUMS Any agent broker premium finance company or any other person other than the insured responsible for the payment of premium shall be obligated to pay any unpaid premiums whether earned or unearned as shown on the records of Mutual Benefit as of the date of the entry of this Order No credit or set-off shall be allowed in favor of such person against his account with Mutua Benefit for the unearned portion of the premium on any cancelled contract bond or policy unless

that contract bond or policy was cancelled prior to the entry of this Order and iithe unearned premium on the cancelled contract bond or policy was in fact refunded or credited to the insured or the insureds assigns prior to the entry of this Order The Rehabilitator shall also have the right to recover from such person any part of an unearned premium that represents commission to such person All group and individual insureds of Mutual Benefit shall be obligated to pay any unpaid earned premium due to Mutual Benefit at any time as shown on the records of Mutual Benefit POLICY CONTRACT CONTINUATION AND CANCELLATIONS 10 All contracts of coverage issued by Mutual Benefit shall remain in full force and effect until further Order of this court except where cancelled for non-payment of premium or for similar reasons or upon the normal expiration date Notwithstanding the above any policy cancellations initiated by Mutual Benefits policyholders shall be prospective only where such cancellations are allowable by law and according to each individual policy The Rehabilitator shall have the right to cancel any policy where such cancellation is allowable by law and according to each individual or group policy or binder

TRUST AGREEMENTS
11 Al trust agreements of which Mutual Benefit is party are hereby frozen such that no trustee or beneficiary is permitted to make any transactions with respect to any such trust until further Order of this court or unless the Rehabilitator or Deputy Rehabilitator deems it advisable to approve certain transactions relating to any such trust INJUNCTION AGAINST INTERFERING WITH REHABILITATION 12 Until further Order of this court all persons corporations partnerships associations and all other entities wherever located are hereby enjoined and restrained from interfering in any mariner with the Rehabilitators possession￾title and rights to the assets and property of Mutual Benefit and from interfering in any manner with the conduct of the rehabilitation of Mutual Benefit Those persons corporations partnerships associations and all other entities are hereby enjoined and restrained from wasting transferring selling concealing terminating cancelling destroying disbursing disposing of or assigning any assets contracts causes of action funds records or other property of any nature of Mutual Benefit INJUNCTION AGAINST ACTIONS BY SECURED CREDITORS 13 All secured creditors or parties pledgees lien holders collateral holders or other persons claiming secured priority or preferred interests in any property or assets of Mutual Benefit including any governmental entity are hereby enjoined from taking any steps whatsoever to transfer sell encumber

attach dispose of or exercise purported rights in or against any property or assets of Mutual Benefit APPOINTMENT OF DEPUTIES AND OTHER PERSONNEL 14 Pursuant to N.J.S.A 17932-17 the Rehabilitator is authorized to employ or to continue to employ and to fix the compensation of such deputies counsel agents clerks employees accountants actuaries consultants assistants and other personnel as he considers necessary and all compensation and expenses of such persons and of taking possession of Mutual Benefit and conducting this proceeding shall be paid out of the funds and assets of Mutual Benefit RESTRAINTS ON POLICY LOANS AND SURRENDERS 15 Restraints are hereby imposed on lending Mutual Benefit funds on policy loans payment of cash surrender values surrenders withdrawal of pension deposits funds transfers lapses cash-outs conversions options or redemptions and the payment of any benefits or periodicpayments of any kind except as provided herein pending the further order of this court however these restraints do not enjoin disbursement of regular benefit payments to lifa insurance policy beneficiaries disability policy beneficiaries health policy beneficiaries annuity holders or pension beneficiaries on existing policies or any disbursement pursuant to group life group disability or group medical insurance contracts or any policy loans under policy form FA85 Nor shall these restraints prohibit the payment on separate accounts in connection with variable annuities These restraints shall take

effect immediately so that any checks or other payInents which have not actually been mailed by Mutual Benefit prior to the entry of this Order shall be subject to the restraints as will all other payments requested Any checks or other payments which have been actually mailed by Mutual Benefit as of the date of the Order will be honored provided that those checks or payments are otherwise proper and in compliance with relevant law The Commissioner shall retain his full authority however to challenge any payments as voidable transfers under N.J.S.A 17B32-25 or otherwise The Rehabilitator may pay obligations which he or his deputy determines to be essential to the administration of the rehabilitation estate
and hardship exceptions to the restraints imposed by this paragraph....
may be paid at the discretion of the Rehabilitator or Deputy Rehabilitator NOT DECLARATION OF INSOLVENCY 16 This Order shall not be deemed declaration of insolvency such as would activate the provisions of the New Jersey Property and Liability Insurance Guaranty Association Act N.J.S.A 1730A-1 et or the provisions of similar Act of any other State CAPTION FOR PROCEEDINGS 17 All further papers filed in these proceedings shall bear the caption and beentitled SUPERIOR COURT OF NEW JERSEY IN THE MATTER OF THE CHANCERY DIVISION MERCER COUNTY REHABILITATION OF MUTUAL GENERAL EQUITYART BENEFIT LIFE INSURANCE DOCKET NO INSURANCE COMPANY

APPLICATION FOR FURTHER RELIEF
18 The Commissioner or Rehabilitator may at any time make further application for such further and different relief as he sees fit RETENTION OF JURISDICTION 19 This court shall retain jurisdiction for all purposes necessary to effectuate and enforce this Order FUTURE POLICY SALES WITH REINSURANCE 20 The Commissioner may allow Mutual Benefits agents to continue to write Mutual Benefit individual life insurance policies from and after the date of this Order provided such policies are 100% reinsured to the satisfaction of the Commissioner RETENTION OF MANAGEMENT 21 The Commissioner may take such steps in his discretion as may be necessary to keep Mutual Benefits current management personnel on the rehabilitation staff subject to approval by this Court upon the return date of this Order and it is CONTINUATION OF INDEMNICATION 22 Pending the return date of the Order to Show Cause the Rehabilitator shall continue existing indemnification by-law provisions and insurance for those persons who as of the date of the Order to Show Cause were the directors officers and employees of Mutual Benefit

FURTHER ORDERED that the defendant and all other interested parties shall show cause before the Honorable Paul Levy J.S.C at the Mercer County Courthouse Trenon New Jersey at/%OO a.m on the .6Z1y ofd91 1991 why an Order should not be entered containing the following provisions Continuing the Commissioners power to act as Rehabilitator with all of the powers and authority provided under this Order and pursuant to statute Continuing the restraints imposed by this order Approving transfer of the group business to Mutual Benefits subsidiary as more fully set forth in the affidavits submitted herewith and Making the following orders Indemnification Persons who as of the date of the Order to Show Cause were the directors officers and employees of Mutual Benefit shall during the rehabilitation period be entitled to indemnification by Mutual Benefit for period not to exceed three years from the date of the Order against all liabilities and expenses arising by reason of their holding or having held any such position prior to the date that Mutual Benefit is ordered into rehabilitation in accordance with the provisions of Section 31 of Mutual Benefits bylaws incorporating the provisions of N.J.S.A l4A3-5 and to receive the benefits of Mutual Benefits present Executive Liability Insurance Policy including Company

Reimbursement Policy No. 7022-56-24 dated March 20 1991 .which policy shall not be amended or terminated by the Rehabilitator iiRetention Of Corporate Officers And Termination Bonus Employment of the following corporate officers who have held the positions indicated will be continued at the discretion of the Commissioner and in such capacity as he directs Henry Kates President Stephen Carlotti Senior Executive Vice President Edward Bull Executive Vice President Donald Hailer Jr Senior Vice President Robert Budwick Executive Vice President Charles McCaig Senior Vice President Donald Sondergeid Executive Vice President Mr Kates who has resigned as President agrees to be employed as consultant on diem basis for period of up to six months Mr Carlotti and Mr Hailer have agreed to be exclusively employed for period of up to six months compensated at the annual rate of $500000 and $400000 respectively The other individuals have agreed to be exclusively employed for period of up to twelve 12 months Subject to the conditions set forth below each of the aforesaid corporate officers will be paid termination bonus equal in monetary amount to that which he would have received pursuant to resolution of the Mutual Benefit Board of Directors on June 19 1991 i.e for persons occupying the office of executive vice president or above the sum of two weeks base salary for each year or portion of year of service with the company or any affiliate including service as General Agent but not to exceed fifty-two 52 weeks and an amount equal to twenty-six 26 weeks of the authorized --

base salary for such individual without regard to any incentive compensation arrangement and for Messrs Carlotti Hailer and Sondergeld the monetary value of benefits to which they would otherwise be entitled under the companys unfunded deferred compensation plan for an amount equal to fifty percent 50% of annual base salary To receive this termination bonus however the following conditions must be satisfied The corporate officer must continue employment with Mutual Benefit at the discretion of the Commissioner for the period indicated following the entry of the proposed Order The corporate officer shall not have been terminated for cause by the Commissioner and That no evidence has been found of acts or omissions by the individual that would justify the companys refusal to indemnify him pursuant to
Section 31 of the by-laws
It is further provided that Henry Kates may apply to the Court for earned but unpaid deferred compensation in the amount of $150000 which application the Commissioner shall support provided that appropriate proofs are submitted and it is FURTHER ORDERED that service of true conformed copies of this Order to Show Cause the Verified Complaint the supporting affidavits of plaintiff shall be made upon Mutual Benefit by overnight mall or courier within two days of the entry of this Order and it is FURTHER ORDERED that service of notice of this Order to Show Cause upon all other creditors policyholders subsidiaries

and interested parties shall be accomplished by publishing copy of .the form of Notice which is appended to this Order to Show Cause once within days of the date of this Order in newspaper of general circulation in the capital city of each state in which Mutual Benefit does business as well as in the Wall Street Journal The New York Times The Star-Ledger The Times of Trenton and The Courier-Post and it is FURTHER ORDERED that any person who wishes to object or be heard on the issues to be considered on the return date of this Order to Show Cause shall file written objection and accompanying brief with this Court and also serve same upon the Attorney General and counsel for Mutual Benefit not later than /cJays before the return date of this Order No objections or comments be entertained by this Court if this requirement for written objections and brIefs is

NOTICE TO ALL POLICYHOLDERS CREDITORS CLAIMANTS SUBSIDIARIES AND ALL OmR INTERESTED PARTIES REGARDING MUTUAL BENEFIT LIFE INSURANCE COMPANY On July 16 1991 the Superior Court of New Jersey entered Consent Order to Show Cause With Temporary Restraints In the Matter of the Rehabilitation of Mutual Benefit Life Insurance Company Docket No C-91-00l09 against MUTUAL BENEFIT LIFE INSURANCE COMPANY MUTuAL BENEFIT mutual insurance company having principal offices at 520 Broad Street Newark New Jersey The Order to Show Cause principally provides as follows The New Jersey Insurance Commissioner is appointed as rehabilitator who is immediately authorized to conduct the business of Mutual Benefit and may appoint Deputy Rehabilitator to perform these duties and functions imposes temporary restraints on policy loans cash surrenders and other specific categories of disbursements authorizes pre-arranged reinsurance for new life insurance business written by Mutual Benefit authorizes the Commissioner as Rehabilitator to commence measures subject to further court approval on the return date to preserve the valuable group business of Mutual Benefit including but not limited tO the transfer of such business and corresponding asset reserves to separate subsidiary for the overall benefit of Mutual creditors and policyholders continues the indemnification provisions under the company by-laws for officers directors and employees of Mutual Benefit pending the return date and imposes additional interim relief to advance the rehabilitation process all as more particularly set forth in the Order to Show Cause The Honorable Paul Levy J.S.C has established return date at the Mercer County Courthouse Trenton New Jersey at 900 a.m on the day of 1991 at which time the defendant and all other interested parties shall show cause why an Order should not be entered containing the following provisions Continuing the Commissioners power to act as Rehabilitator with all of the powers and authority provided under the Order to Show Cause and pursuant to statute Continuing the restraints imposed by the Order to Show Cause Approving transfer of the group business to Mutual Benefits subsidiary as set forth in supporting affidavits filed by the State and Making the following orders to assure the continued retention in the discretion of the Rehabilitator of certain senior management of Mutual Benefit to assist in the orderly rehabilitation of Mutual Benefit under the Rehabilitators

direction and to obtain the consent of the Board to the rehabilitation proceedings Approving the retention of certain officers who will remain employed with the company at the discretion of the Rehabilitator for up to twelve months and who will receive certain cÆmpensation and other benefits as specified in prior June 19 1991 resolution of- the Board This compensation will be due provided that the officers are not terminated or cause and there is no evidence of conduct that would disqualify them from indemnification Granting indemnification during the rehabilitation period against all liabilities and expenses for period of three years to the directors officers and employees at Mutual Benefit arising by reason of those persons holding or having held any such position prior to the date that Mutual is ordered into rehabilitation in manner consistent with the Mutuals existing by-laws and consistent with N.J.S.A.14A3-5 POLICYHOLDERS CREDITORS CLAIMANTS SUBSIDIARIES AND OTHER INTERESTED PARTIES who wish to object or be heard on the issues to be considered on the return date of the Order to Show Cause shall within days from the date of the Order to Show Cause file written objection and accompanying brief with this Court and also serve same upon Sharon Ha1lnn Deputy Attorney General Richard Hughes Justice Complex 01 117 Trenton New Jersey 08625 and counsel for defendant Samuel Butler Esq cravath Swaine and Moore Worldwide Plaza 825 Eighth Avenue New Jersey 10019 No objections or comments will be entertained by the Court if this requirement for written objections and briefs is not met

LAW OFFICES
FREEDMAN LEvY KROLL SIM0NDs
WASHINGTON SQUARE- 050 CONNECTICuT AVEN WASHINGTON D.C.20036-5366 202 457-5100 GARY COHEN CABLE ATTORNEYS 202457-5107 TELECOPI ER 202-457-5151 August 23 1991 1940 Act/2a 1940 Act/15a 1940 Act/.5b 1940 Act/Rule 2a-6 BY HAND DELIVERY Clifford Kirsch Esq Assistant Director Office of Insurance Products Legal Compliance Division of Investment Management tJ.S Securities and Exchange Commission 450 5th Street N.W Room 10167 Stop 10-6 Washington D.C 20549 Re Mutual Benefit Fund Benefit Fund File No 8112046 and No 236663 MBL Growth Fund Inc Growth Fund File No 8113593 and No 296199 MAP Government Fund Inc MAP Fund File No 8113548 and No 278975 The Specialty Managers Trust Managers Trust File No 8115629 and No 3323512 Mutual Benefit Variable Contract Account-7 VCA-7 File No 8113853 and No 286722 Markston Investment Management Markston File No 80115894 Mutual Benefit Financial Service Company FISCO File No 8018154 and No 815263 Directed Services Inc DSI File No 80132675 and No 839104 Dear Mr Kirsch We are writing to supplement our letter to you dated August 1991 to reflect certain developments since the appointment of Rehabilitator for The Mutual Benefit Life Insurance Company Mutual Benefit Life and to make certain additional points Our letter requested on behalf of the abovenamed companies that the Commission staff furnish us with letter stating that it will not recommend that the Commission take enforcement action if Markston

FREEDMAN LEvy KRQLL SMoNDs
FISCO and DSI continue to perform under their respective investment advisory agreements including service and management agreements and principal underwriting agreements including distributors and sales agreements without further interestholder vote under the highly unusual circumstances described in our letter We are supplementing our letter pursuant to conversations with you and your staff The Superior Court of New Jersey on August 1991 entered an Order Continuing Rehabilitators Appointment Continuing Restraints and Granting Other Relief the New Order copy enclosed Paragraph 2c of the New Order permits payment from and withdrawal of funds invested in variable life insurance policies as well as variable annuities that have been maintained separately and apart from the other assets and liabilities of Mutual Benefit Life The New Order therefore confirms the fact that as noted in footnote 33 of our letter variable life insurance policyholders continue to have the right to redeem There have been certain changes in the officers of Mutual Benefit Life as set out in footnote 17 of our letter since we submitted our letter Mr Carlotti has resigned as President and Chief Executive Officer but continues to serve as consultant to Mutual Benefit Life Mr Haller has resigned as Executive Vice President but continues to perform the duties of such office in the capacity of consultant to Mutual Benefit Life Mr McCaig was incorrectly referred to in the original Order as Executive Vice President Mr McCaig has resigned as Senior Vice President and Senior Administrative Officer Consistent with paragraph of the New Order Mutual Benefit Life has contracted to sell what the New Order refers to as its Group Business Mr Bull who is in charge of the Group Business is expected to become associated with the buyer upon consummation of the sale Our letter in footnote 15 states that subsequent changes in the circumstances of Mutual Benefit Life or its subsidiaries pursuant to additional court action or otherwise may eventually result in change in actual control or management We hereby delete this footnote from our letter We understand that any no￾action letter issued by the staff will state consistent with traditional staff practice that the no-action position is conditioned on facts and circumstances as stated in our letter As the staff is aware the rehabilitation of Mutual Benefit Life is continuing process and different facts and circumstances would need to be analyzed to determine whether they result in change in actual control or management to which the noaction position may not apply

FREEDMAN LEvY KR0LL SMONDS
Finally we submit that the staffs no-action letter in connection with Siebel Capital Management Inc SCMI dated July 1991 further supports the textual statement accompanying footnote 16 of our letter Our rationale is as follows First the investment adviser SCMI had filed for Chapter 11 bankruptcy in August 1990 as debtor in possession There is no recognition in the incoming letter or staff noaction letter of change in control issue triggered by the bankruptcy courts assumption of jurisdiction over the adviser or that the fact could have effectively caused an assignment of the investment advisory agreements Second in October 1990 SCMIs principal investment manager abruptly resigned and SCMI made representations that the instability of its operations caused by the Chapter 11 filing made it incapable of providing another investment manager see the incoming letter Still there is no indication that this further fact could have constituted change in control or an assignment Finally the staff took no-action position with regard to SCMIs entering into subinvestment advisory agreements pursuant to Rule 15a4 based on an analysis that there was no termination of the SCMI agreements see SEC noaction letter Consistent with the last paragraph on page 23 of our letter we understand that you are informing the Divisions Office of Chief Counsel of our letter Please call me Diane Ambler or Richard Choi at this firm if you have any question or wish to discuss this matter Ver trul ours Gary Cohen GOC/cjc Enclosures New Order Six copies of letter cc Heidi Stam Esq Michael Wible Esq

SUPERIOR COURT OF NEW JJRSEY
CHANCERY DIVISION MERCER COUNTY
GENERAL EQUITY PART
DOCXET NO C-91-00109
IN THE MATTER OF THE Civil Action RHABXLITATION OF MUTUAL BENEFIT LIFE INSURANCE ORDER COt4TINUINGREXABILZTATORS COMPANY Mutual Insurance APPOINTMENT cozxux RESTRAINr8 Company of New Jersey GR.ANTXNG ora REz.xP This matter having been opened to the Court by Robert Del Tufo Attorney General of New Jersey Edward Dauber Assistant Attorney General appearing attorney for plaintiff Samuel Fortunto Commissioner of Insurance Comnisaion.r or and Cole Schotz Berngein Meisal F0rian Michael Meisel appearing Special Counsel to the Rehabi..itator on the return date of this Courts July 16 199 Consent Order to Show Cause with Teznporary Restraints July 16 -L-L2 P.3/i2 iLIi11 THLI i34 tiI_ITLIiL EFIT LIF-E Si t57 FILED U6.7 ftI ROBERT DEL TUFO Attorney General of New Jersey R.3 Hughes Justice Complex CN 117 Trenton New Jersey 0862 609 292-1506 Attorney for Plaintiff COLE SCHOTZ BERNSTEIN MEISEL FORNAN Professional Corporation 25 Main Street Hackensack New Jersey 07602-0800 201 4893000 Special Counsel for Plaintiff

TI-lU 15 .4E tltJTI_1i-L BEPIEFIT LIFE e1 UG 91 158 er and the Court having di.rected that defendant Mutual Benefit Life Insurance Company Mutual Benefit and all inter ested parties show cause why an Order should not be entl3red cont aining the following provisions continuing the Commissioners authority to act as Rehabilitator with all the powers and duties provided under the July 16 Order end pursuant to stetute continuing the restraints imposed by the iuly 16 Order approving the transfer of Mutual Benefits Group Business as idert tified in the Commissioners submissions to the Court and making orders regarding the indemnification of certain directors officers and employees and ii the retentiort of certain corporate officers and termination bonuses uubjecc to ose conditions set forth in the 3uly .6 Order and notice by publication having been given pursuant to the July 16 Order and the Court having considered the objections comments and requests for clarification filed by interested parties and the Corttmis sioners Status Report Request for Order Continuing Restraints with Modifications and Response to Objections and good cause having been shown iT on this 7ddy of Xugu 1991 ORDERED The Commissionersauthority to act as Rehabilitator with all the powers and duttee provided under the July Order and pursuant to statute stal1 continue until further Order of his ourt iUG131

UG THU II IJ L_ iS F.5i
The July 16 order contained certain rtraint5 in paragraphs 10 ll 13 and 15 and all such restraints are continued on an interlocutory basis pending further order of this Court except that the following terms are modified The restraints in paragraph 15 ofl policy loans shall not apply to automatic policy loans under Mutual benefit life insurance policies where stich loans are used to pay renewal prexniums as they become due The exception to the restraints in paragraph 15 which allows policy loans under policy form FA85 shall be deemed to refar to loans on coperate owned life insurance COLI issued on orm FASS or its successors The exception to the restraints In paragraph 3.5 which allows Upayant on separate accounts in connection with variable annuities shall be deeaed to refer to allowing payment from and withdrawal of fUnds invested in those variable annuities and variable life insurance policies which have been maintained separately and apart from Mutual enefits other assets and liabilities The Rehabilitator is authorized continua

LJG11 THU 15 4T riI_lTIjL EaFIT L_IF OE PU 91 1558 P./12 negotiations for the sale of the Group business and ay enter into contract of sale subject to this Courts approval as Bet forth herein The Rehabilitator or his representatives shall meet with representatives of counsel for objectors or other interested parties with concerns about the proposed sale to discus6 practical method for sharing information wi.th those objectors in lieu of more formal discovery procedures The Rehabilitator ray restrict the release of information to assure that appropriate confidentiality is maintained with respect to trade 3ecrete other proprietary information If that meeting does not satisfactorily address the objectors concerns they may request conference call with the Court and the Rehabilitators counsel to resolve any such issue If as is currently contemplated final Contract of Sale is negotiated ana is approvcd by the fl42V boards the Rehabilitator shall seek an order to Show Cause from this Court during the week of August 19 1991 which will provide for notice to the objectors policyholders creditors and paries in interest to the u1y 16 Order Any party seeking to respond to that Order to Show Cause shall file responsive certifications and briefs which viii be deemed first Answer requiring payment Of filing fee to the Clerk of the Superior Court in the amount of $80 Responses on behalf of any corporation elig.ble to file an action in the Superior Court of Naw 3eraay should bs filed by ev Jersey attorney but motions for appearances mro hso may be entertai.ncd under 121-2 The ehabl1itator is authorLZd to continue

G131 THU 1.4E riI_ITUiL BENEFIT L_IF PU j55 negotiations with other insurers to p4rticipate in or manage the remainder of Mutual Benefits business that business other than the Group Bus.riess .tith resulting agreeents being subject to further Court approval by an 0rder to Show cause process patterned after that set forth in paragraph above No order is being made at this time regarding any of the proposed termination bonusc for certain corporate of ficer because no immediate irreparable harm was demonstrated to support such an order Persons who were the directors of ticer5 and employees of Mutual Benefit on ru1y 16 1991 shall be entitled to indemnification by Mutual benefit during the rehabilitation and for period not to exceed three years therefrom The indemnification shall be against all liabilities and expenses arising by reason of their holding or having held any such position before July 16 1991 in accordance with Section 31 of Mutual Benefits bylaws incorporating the provisions of l4Az3 and to receive the benefits of Mutual Benefits present Executive Liability Insurance Policy including Company Reimbursement Policy No 1022S6-24 dated March 20 1991 which policy shall net be amended or terminated by the Rehabilitator The continuing relief set forth in this paragraph Is Interlocutory and is subject to further consideration by this Court The Rehabilitator shall modify the Application Hardship Distribution form attached as Exhibit to the Commissioners August 2.991 Status Report or shall otherwise

IJGj31 THI_t 13 43 FiLITIJiL BaNEFIT L..IPE Si notify applicants for hardship distributions that if the applicant is dissatisfied with the Rehabilitators decision on that Application the applicant may file Verified Petition and Order to Show Cause captioned In re Rehai1itatiOn of Mutual Benefit Life Ins Ce Petition for iardship Review by CName of Petitioneri Superior Court Of New Jersey Chancery Division Larcer County General Equity Past Docket No C-SlOOlOS _- This petition must be filed within thirty 30 days fro receipt of the Rehabilitators decision and served contemporaneously in accord with paragraph below along with the filing fee of $235 payable to the Clerk of the Superior court of NJ The f.lirtq shall be made directly with the Court as follows Mon Paul Levy Superior Court of New Jersey 210 South Sroad Street 5th Floor CN977 Trenton NJ 08625 No party in interest shall file or serve any application for relief with the Court unless suh party shali first have made written request to the Rehabilitator detailing the relief sought to the following designee of the Rehabilitator at this address Barbara Pryor Waugh Asst Commissioner Div of Enforcement and Conswer Protection New Jersey Department of Insurance 20 West State Street 9th Floor CN325 Trenton NJ 08625 the Rehabilitator shall review the request and ruLe on it in writing within ten 10 days of the Rehabilitators receipt thereof according to the terms of the July 16 Order as inodif ted

riLJG131 THU 49 FIUTLIiL HEFIT L_IF PJG 17 Si 16 by this or subseqient Orders of this Court in the reasonable exercise of his expertise as applied to the factual cicuiustartce of the request and the Rehabj1.tator shall send his written decision to the requesting party in interest ii If the requesting party in interestis not satisfied with the Rehabilitators decision that party may seek review from this Court by filing Verified Petition proposed Order to Show Cause with supporting certifications arid brief captioned In re Rehabilitation of Xutua en.fit Life Ins Co Petition for Relief Review by Name of Petitioner 8uprior Court Of Rev Jersey Chancery Division Mercer County .nora1 quity
Part Docket Ro C-91-00109 -R ____ This petition mut be tilCd
within thirty 30 days from receipt of the RehaDi1itators decision and served contemporaneously in accord with paragraph 9. below along with the filing fee of $135 payable to the Clerk of the Superior Court of NJ The filing shall be made directly with the Court as fol1cws Mon Paul Levy Superior Court of New Jersey 210 South Broad Street 5th Floor CN 977 Trenton NJ 08625 service of the Petitions and all supporting documents referred to in paragraphs and of the within Order shall be made upon aron Waflanan py torney Richard Hughes ..istict Complex CN 117 Trenton New Jersey 08625 and tche1 isel Cole Schotz Bernstein Meie.l and Yorman Court Plaza North 25 Main Street P.O Box 800 --

AUG 191 THLI t1UTUL ENEF IT LIFE 11 UG 91 1Oi Hackensack ev Jersey 07602-0800 .0 Service of the within Order sha1l be made by the Rehabilitator on the objectors or their counsel if kncivn and on all counsel who entered an appearance before the Court on 1991 by regular mail within seven days hereo.u1 notice of the within Order shall be given to all other creditàri policyholders subsidiaries or other interested partiejb publishing copy of Notice in the form attached.hersto newspapers of general circulation in the same manner as in paragraph of the July 16 Order

1. Hereafter the Court considers that there
   arties to this action except the State by the Attorney General the Rehabilitator by his Special Counsel Michael Maisel eàq As petitions are filed pursuant to paragraphs and AboveaJl as objections are filed to any orders to Show Cause whIch issue counsel filing same will be considered of reCOxd thereafter they shall receive notice of anything re1ted to th6 claims they have made pursuant to 15-1a Paul Levy

THj tiLITLIL EEHEFIT LIF-E
91 16
NOTICE TO ALL P0LICiROLDERS CREITOR3 CLAXM.NZ5 SU5SIIPRIES 4D ALL OTER ITERE$TEO PMTIES REGARD 40 MUTUAL ENEFIT LIFE IN$UR.P.NCE COMPANY On August 1991 the Superior Court of New ersey entered an order Cntinuing Rehab itetors Appointment Ctinuing Restraints and Granting Other Relief in In the th Rehabilitation cf_1utual Eenefit Life Insurance Company Docket No C-91-00109 egain5t MUTUMBEWEFIT LIFE INSURANCE COMPAN MUTUAL BENEFIT mutual insurance company having principal iffi 520 Broad Street Newark New Jerey Dhe Order principa.ly provides as follows The Commissioner of Insurance of New ersey shell continue to act as Rehabiliatcr of Mutual Eenefic with all the rights and duties provided irt the 3uly 16 Consent Order to Show Cause July L6 Order All of the restrein contained in the July 16 Order shell continue with three modifications or clarifications to paragraph
1.5 to provide that tomat policy loans to pay wl
premiums are not restrained ii policy form FA85 refers to crporate owned life insurance policies Form F85 or its iccessors and iii payTnent on separate accounts reters to payment from and withdrawal of funds invested in those variable annuities end variable lift insurance polic.ea which have been maintained separately and apart from Mutual Eenef its other 6133StS and Uabilitiee The Rehabilitator may contthue negotiations to sell Mutt1 Benefits group business and will meet with interested persons to discuss the proposed sele If the contract of sale is finalized as planned the Aehabilitator shall file en Order to Show Cause during the week of August 1991 to present the final contract of sale to the Court end interested parties The Rehabilitator is further authorized to continue negotiations regarding the remainder Qf Mutual Benefits business with resulting agreements subject to Court approval using similar Order to Show Cause procedure No order is being made at this time regarding proposed termination bonuses for certain corporate officers me Order continues to provide indemnification to persons who were the directors officers and employees of Mutual Senef it on July 1.6 1991 but the Court stated that this provision was subject to further consideration The Court further established procedures for persons fUing an App1.LCetin for Hardship Distribution as well as for all otherS seeking to file applications for relief to firs seek relief from thaRehab-ilitator Application for Hardship Distrtbutionforms may be requested by calling 1-800-435-7887 end the completed application form should be sent to the appropriate address listed on the form Applicants for other than HardshiP Distribution relief should send their applications to Barbara Pryor Waugh Assistant Coissiorter Division of Enforcement nd Consumer -- 1c

CN
I_II .3 THLI tiI_ITI_IiL BtlEF IT 12 pj 27 2E 12/12 protection bew Jersey Departhent of Insurance 20 West Sata Street 9th Tloor CN 325 Trenton NJ 0862S IfreliS Rehabilitator iS unSatiSfactO the applicant for hardshiP ay file verifIed PQtition and order to stow cause captioned re Rehabi1itatiQ of Mutual Benefit Life Ce. ardsip Review by Naie of Petitioner superior ccurt Of Jersey CbancorY Divisiofl Mercer County .rAeral EqiitY cket No C...9002.09 unsatisfied applicant for othe relief xnay file Verified Petition proposed order to Show cause with supporting certifications and brief captioned hIfl.r Rehabilitation of Mutual Benefit Life Ins Co. Petiticfl for R.li.f Review by Name of Petitioner 8uporior Court Of NeW Jersey Chancery Division Mercer County oeneral EcXuity Part C9100109 Either typ of petition must be i1ed wthin thirty 30 days from receipt of the RehabilitatorB doci3ion along vith the filing fee.of $135 payable to the Clerk of. the superior Court of NJ The filing shall be made directlY vitith Court as follOWS Mon Paul superior Court of New Jersey 210 South broad Street 5th Floor Trenton NJ 08625 Contemporaneous with the filing copies of the Petition and supporting documents must be served upon harOn i1 ApUty ttorneY Ge.neTa Richard HugheS Justice Ccm3.aX CNl11 Trenton New Jersey 08625 and e. MeiLd Cole Schotz Bernstein tleisel and Forman Court Plaza North 25 Main Street P.O Box 800 Hackensack New Jersey 076020800 --