[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18964]


[[Page Unknown]]

[Federal Register: August 4, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20434; 812-8814]

 

Notice of Application for Exemption

July 28, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: MFS Variable Insurance Trust (the ``Trust'') and 
Massachusetts Financial Services Company (``MFS'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from the provisions of Sections 9(a), 13(a), 
15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder.

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of the Trust and shares of any other 
investment company that is designed to fund insurance products and for 
which MFS, or any of its affiliates, may serve as investment advisor, 
administrator, manager, principal underwriter or sponsor (collectively, 
with the Trust, 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 (the 
``Participating Insurance Companies''); and (b) qualified pension and 
retirement plans outside of the separate account context (the 
``Plans'').

FILING DATES: The application was filed on February 5, 1994. Amendment 
number one to the application was filed on June 14, 1994, and amendment 
number two to the application was filed on June 22, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application 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 
Commission by 5:30 p.m. on August 22, 1994 and accompanied by proof of 
service on the Applicants in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the interest, the reason for the request and the issues contested. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC 
20549. Applicants: Robert J. Zutz, Kirkpatrick & Lockhart, 1800 M 
Street, NW., Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Michael V. Wible, Special 
Counsel, both at (202) 942-0670, Office of Insurance Products, Division 
of Investment Management.

SUPPLEMENTARY INFORMATION: Following is a summary of the application, 
the complete application is available for a fee from the Public 
Reference Branch of the SEC.

 Applicants' Representations

    1. The Trust, a Massachusetts business trust, is registered under 
the 1940 Act as an open-end, diversified management investment company 
of the series type. The Trust commenced operations on or about June 2, 
1994.
    2. The Trust will offer the following twelve separately managed 
portfolios: the MFS OTC Series; MFS Growth Series; MFS Research Series; 
MFS Growth With Income Series; MFS Total Return Series; MFS Utilities 
Series; MFS High Income Series; MFS World Governments Series; MFS 
Strategic Fixed Income Series; MFS Bond Series; MFS Limited Maturity 
Series; and MFS Money Market Series. The application states that, 
except for the MFS OTC Series, the MFS Utilities Series, the MFS World 
Governments Series and the MFS Strategic Fixed Income Series, each of 
the portfolios of the Trust will be diversified. Applicants incorporate 
by reference into the application the registration statement (File No. 
33-74668) on Form N-1A of the Trust.
    3. MFS serves as the investment advisor to the portfolios of the 
Trust. MFS is a subsidiary of Sun Life Assurance Company of Canada 
(U.S.), which is a subsidiary of Sun Life Assurance Company of Canada.
    4. Applicants state that once the order requested in the 
application is granted, the Trust intends to offer shares of each of 
its existing and future portfolios to separate accounts of insurance 
companies in addition to the separate accounts established by Century 
Life of America (``Century Life'') or its affiliates (the ``Accounts'') 
to serve as investment vehicles for variable annuity and/or variable 
life insurance contracts (the ``Contracts''). The Trust may also offer 
shares of its portfolios directly to the Plans outside of the separate 
account context.
    5. The application states that each Participating Insurance Company 
will have the legal obligation of satisfying all applicable 
requirements under both state and federal law. Applicants state that it 
is anticipated that Participating Insurance Companies will rely on Rule 
6e-2 or Rule 6e-3(T) under the 1940 Act, although some may rely on 
individual exemptive orders as well, in connection with variable life 
insurance contracts. Applicants further state that the role of the 
Funds, in so far as the federal securities laws are applicable, will be 
limited to that of offering shares to the Accounts and meeting any 
conditions that the Commission may impose upon granting the order 
requested in the application.
    6. The application states that, due to changes in the tax law, the 
Funds have the opportunity to increase their asset base through sale of 
shares of the Funds to the Plans. The Plans may choose any of the Funds 
as the sole investment option, or, as one of several investment 
options. Shares of any of the Funds sold to a Plan would be held by the 
trustee of that Plan as required by Section 403(a) of the Employee 
Retirement Income Security Act of 1974 (``ERISA''). MFS will not serve 
as investment advisor to any of the Plans that purchase shares of the 
Funds. There will be no pass-through voting to participants in the 
Plans.

Applicants' Legal Analysis

    1. In connection with the funding a scheduled premium variable life 
insurance contracts issued through a separate account registered under 
the 1940 Act as a unit investment trust (``UIT''), Rule 6e-2(b)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act. The relief provided by Rule 6e-2 is available to a 
separate account's investment advisor, principal underwriter, and 
sponsor or depositor. The exemptions granted by rule 6e-2(b)(15) are 
available only where the management investment company underlying the 
UIT offers its shares ``exclusively to variable life insurance separate 
accounts of the life insurer, or of any affiliated life insurance 
company.'' The use of a common management investment company as the 
underlying investment medium for both variable annuity and variable 
life insurance separate accounts of a single insurance company (or of 
two or more affiliated insurance companies) is referred to as ``mixed 
funding.'' The use of a common management investment company as the 
underlying investment medium for variable annuity and variable life 
insurance separate accounts of unaffiliated insurance companies is 
referred to as ``shared funding.'' ``Mixed and shared funding'' denotes 
the use of a common management investment company to fund the variable 
annuity and variable life insurance separate accounts of other 
affiliated and unaffiliated insurance companies. 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 
underlying fund that offers its shares to a variable annuity separate 
account of the same company or of any other affiliated or unaffiliated 
life insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed and 
shared funding.
    2. Applicants state that the relief granted by Rule 6e-2(b)(15) is 
not affected by the purchase of shares of the Funds by the Plans. 
Applicants note, however, that because the relief under Rule 6e-
2(b)(15) is available only where shares are offered exclusively to 
separate accounts, additional exemptive relief is necessary if shares 
of the Funds also are to be sold to Plans.
    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act. The exemptions 
granted to a separate account by Rule 6e-3(T)(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 shares ``exclusively to separate accounts of the life insurer, or 
of any affiliated life insurance company, offering either scheduled or 
flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company.'' Rule 6e-3(T) permits mixed 
funding. Rule 6e-3(T), however, does not permit shared funding.
    4. Applicants state that the relief granted by Rule 6e-3(T) is not 
affected by the purchase of shares of the Funds by the Plans. 
Applicants note, however, that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, additional exemptive relief is necessary if shares of the 
Funds are also to be sold to Plans.
    5. As noted, Applicants state that changes in the tax law have 
created the opportunity for the Funds to increase their asset base 
through the sale of Fund shares to the Plans. Applicants state that 
Section 817(h) of the Internal Revenue Code of 1986, as amended (the 
``Code''), imposes certain diversification standards on the underlying 
assets of the Contracts held in the Funds. The Code provides that such 
Contracts shall not be treated as an annuity contract or life insurance 
contract for any period in 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 which established diversification requirements for the 
investment portfolios underlying variable contracts. Treas. Reg. 
Sec. 1.817-5 (1989). The regulations provide that, 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. The regulations do, however, contain 
certain exceptions to this requirement, one of which allows shares in 
an investment company to be held by the trustee of 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 contracts. Treas. 
Reg. Sec. 1.817-5(f)(3)(iii).
    6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the 1940 Act preceded the issuance of these Treasury regulations. 
Applicants assert that, given the then current tax law, the sale of 
shares of the same investment company to both separate accounts and 
Plans could not have been envisioned at the time of the adoption of 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    7. Applicants therefore request relief from Sections 9(a), 13(a), 
15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder to the extent necessary to permit shares of the 
Funds to be offered and sold in connection with both mixed and shared 
funding.
    8. Section 9(a) of the 1940 Act provides that it is unlawful for 
any company to serve as investment advisor or principal underwriter of 
any registered open-end investment company if an affiliated person of 
that company is subject to a disqualification enumerated in Sections 
9(a) (1) or (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide 
exemptions from Section 9(a) under certain circumstances, subject to 
limitations on mixed and shared funding. The relief provided by Rules 
6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person disqualified 
under Section 9(a) to serve as an officer, director, or employee or the 
life insurer, or of any of its affiliates, so long as that person does 
not participate directly in the management or administration of the 
underlying fund. The relief provided by Rules 6e-2(b)(15)(ii) and 6e-
3(T)(b)(15)(ii) permits the life insurer to serve as the underlying 
fund's investment advisor or principal underwriter, provided that none 
of the insurer's personnel who are ineligible pursuant to Section 9(a) 
are participating in the management or administration of the fund.
    9. Applicants state that the partial relief from Section 9(a) found 
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount 
of monitoring necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of the 
Section. Applicant state that those 1940 Act rules recognize that it is 
not necessary for the protection of investors or the purposes fairly 
intended by the policy and provisions of the 1940 Act to apply the 
provisions of Section 9(a) to the many individuals in a large insurance 
company complex, most of whom will have no involvement in matters 
pertaining to investment companies within that organization. Applicants 
note that the Participating Insurance Companies are not expected to 
play any role in the management or administration of the Funds. 
Therefore, Applicants assert, applying the restrictions of Section 9(a) 
serves no regulatory purpose. The application states that the relief 
requested will not be affected by the proposed sale of shares of the 
Funds to the Plans. The insulation of the Trust from individuals 
disqualified under the 1940 Act remains in place. Applicants assert 
that, since the Plans are not investment companies and will not be 
deemed affiliated by virtue of their share holdings, no additional 
relief is necessary.
    10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act assume the existence of a pass-through voting requirement with 
respect to management investment company shares held by a separate 
account. The application states that the Participating Insurance 
Companies will provide pass-through voting privileges to all Contract 
owners so long as the Commission interprets the 1940 Act to require 
such privileges.
    11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming observance of the 
limitations on mixed and shared funding imposed by the 1940 Act and the 
rules thereunder.
    Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that 
the insurance company may disregard voting instructions of its contract 
owners with respect to the investments of an underlying fund, or any 
contract between a fund and its investment advisor, when required to do 
so by an insurance regulatory authority.
    Rules 6e-2(b)(15)(iii)(b) and 6e-3(T)(b)(15)(iii)(B) provide that 
the insurance company may disregard voting instructions of its contract 
owners if the contract owners initiate any change in the company's 
investment policies, principal underwriter, or any investment advisor, 
provided that disregarding such voting instructions is reasonable and 
subject to the other provisions of paragraphs (b)(15)(ii) and 
(b)(7)(ii) (B) and (C) of each rule.
    12. Applicants represent that the right of the Participating 
Insurance Companies to disregard voting instructions of Contract owners 
provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not raise any 
issues different from those raised by the authority of state insurance 
administrators over separate accounts. Under the rules, an insurer can 
disregard voting instructions only with respect to certain specified 
items. Affiliation does not eliminate the potential, if any exists, for 
divergent judgments as to the advisability or legality of a change in 
investment policies, principal underwriter, or investment advisor 
initiated by contract owners. The potential for disagreement is limited 
by the requirements in Rules 6e-2 and 6e-3(T) that the insurance 
company's disregard of voting instructions be both reasonable and based 
on specific good faith determinations.
    13. Applicants further represent that the Funds' sale of shares to 
the Plans does not impact the relief requested in this regard. As noted 
previously by Applicants, shares of the Funds sold to Plans would be 
held by the trustees of such Plans as required by Section 403(a) of 
ERISA. Section 403(a) also provides that the trustee(s) must have 
exclusive authority and discretion to manage and control the Plan with 
two exceptions: (a) when the Plan expressly provides that the 
trustee(s) is (are) subject to the direction of a named fiduciary who 
is not a trustee, in which case the trustee(s) is (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 
mangers pursuant to Section 402(c)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, Plan trustees have the 
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary appoints an investment manger, 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 named fiduciary. In 
any event, there is no pass-through voting to the participants in such 
Plans. According, Applicants note that, unlike the case with insurance 
company separate accounts, the issue of the resolution of material 
irreconcilable conflicts with respect to voting is not present with 
Plans because such Plans are not entitled to pass-through voting 
privileges.
    14. Applicants state that no increased conflicts of interest would 
be present by the granting of the requested relief. Applicants assert 
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. Applicants note that where 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 insurance regulators in one or 
more other states in which other Participating Insurance Companies are 
domiciled. Applicants state that the possibility, however, is no 
different and no greater than exists where, as is currently permitted, 
a single insurer and its affiliates offer their insurance products in 
several states.
    15. Applicants argue that affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. In any event, the conditions (adapted from the conditions 
included in Rule 6e-3(T)(b)(15)) discussed below are designed to 
safeguard against any adverse effects that different state insurance 
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 Fund.
    16. Applicants also argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company properly may disregard voting 
instructions of Contract owners. Potential disagreement is limited by 
the requirement that a disregard of voting instructions be both 
reasonable and based on specified good faith determinations. However, 
if a Participating Insurance Company's decision to disregard Contract 
owner 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 investment in that Fund. No charge or penalty 
will be imposed as a result of such withdrawal.
    17. Applicants state that there is no reason why the investment 
policies of a Fund with mixed funding would or should be materially 
different from what those policies would or should be if such 
investment company or series thereof funded only variable annuity or 
only variable life insurance contracts. Applicants therefore argue that 
there is no reason to believe that conflicts of interest would result 
from mixed funding. Moreover, Applicants represent that the Funds will 
not be managed to favor or disfavor any particular insurer or type of 
Contact.
    18. Applicants note that no single investment strategy can be 
identified as appropriate to a particular insurance product. Each pool 
of variable annuity and variable life insurance contract owners is 
composed of individuals of diverse financial status, age, insurance and 
investment goals. Those diversities are of greater significance than 
any difference in insurance products. An investment company supporting 
even one type of insurance product must accommodate those diverse 
factors.
    19. Applicants further note that Section 817(h) of the Code is the 
only section in the Code where separate accounts are discussed. Section 
817(h) imposes certain diversification standards on the underlying 
assets of variable annuity contracts and variable life contracts held 
in the portfolios of management investment companies. Treasury 
Regulation 1.817-5(f)(3)(iii), which established diversification 
requirements for such portfolios, specifically permits, among other 
things, ``qualified pension or retirement plans'' and separate accounts 
to share the same underlying management investment company. Therefore, 
neither the Code, the Treasury regulations nor the revenue rulings 
thereunder present any inherent conflicts of interest if Plans, 
variable annuity separate accounts and variable life insurance separate 
accounts all invest in the same management investment company.
    20. While there are differences in the manner in which 
distributions are taxed for variable annuity contracts, variable life 
insurance contracts and Plans, Applicants state that the tax 
consequences do not raise any conflicts of interest. When distributions 
are to be made, and the separate account or the Plan is unable to net 
purchase payments to make the distributions, that separate account or 
the Plan will redeem shares of the Trust at net asset value. The plan 
will then make distributions in accordance with the terms of the Plan. 
The life insurance company will surrender values from the separate 
account into the general account to make distributions in accordance 
with the terms of the variable contract.
    21. With respect to voting rights, applicants state that it is 
possible to provide an equitable means of giving such voting rights to 
Contract owners and to Plans. Applicants represent that the transfer 
agent for the Trust will inform each Participating Insurance Company of 
each Account's share of ownership in the Trust, as well as inform the 
trustees of the Plans of their holdings. Each Participating Insurance 
Company will then solicit voting instructions in accordance with Rules 
6e-2 and 6e-3(T).
    22. Applicants argue that the ability of Funds to sell their 
respective shares directly to Plans does not create a ``senior 
security'', as such term is defined under Section 18(g) of the 1940 
Act, with respect to any Contract owner vis-a-vis a participant under a 
Plan. Regardless of the rights and benefits of participants and 
Contract owners under the respective Plans and Contracts, the Plans and 
the Accounts have rights only with respect to their shares of the 
Trust. Such shares may be redeemed only at net asset value. No 
shareholder of any of the Funds has any preference over any other 
shareholder with respect to distribution of assets or payment of 
dividends.
    23. Finally, applicants state that there are no conflicts between 
Contract owners and participants under the Plans with respect to the 
state insurance commissioners' veto powers (direct with respect to 
variable life insurance and indirect with respect to variable 
annuities) over investment objectives. The basic premise of shareholder 
voting is that not all shareholders may agree that there are any 
inherent conflicts of interest between shareholders. The state 
insurance commissioners have been given the veto power in recognition 
of the fact that insurance companies cannot simply redeem their 
separate accounts out of one fund and invest those monies in another 
fund. To accomplish such redemption and transfers, complex time 
consuming transactions must be undertaken. Conversely, trustees of 
Plans can make the decision quickly and implement redemption of shares 
from a Fund and reinvest the monies in another funding vehicle without 
the same regulatory impediments or, as is the case with most Plans, 
hold cash pending suitable investment. Based on the foregoing, 
Applicants represent that even should there arise issues where the 
interests of Contract owners and the interests of Plans conflict, the 
issues can be almost immediately resolved because trustees of the Plans 
can, independently, redeem shares out of the Trust.
    24. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. According to Applicants, these factors include: 
The cost of organizing and operating an investment funding medium; the 
lack of expertise with respect to investment management (particularly 
with respect to stock and money market investments); and the lack of 
public name recognition of certain insurers as investment 
professionals. Applicants argue that use of the Funds as common 
investment media for the Contracts would ameliorate these concerns. 
Participating Insurance Companies would benefit from the investment and 
administrative expertise of MFS as well as from the cost efficiencies 
and investment flexibility afforded by a large pool of funds. 
Applicants state that making the Funds available for mixed and shared 
funding will encourage more insurance companies to offer variable 
contracts such as the Contracts which will then increase competition 
with respect to both the design and the pricing of variable contracts. 
This can be expected to result in greater product variation and lower 
charges. Thus, Applicants argue that Contract owners would benefit 
because mixed and shared funding will eliminate a significant amount of 
the costs of establishing and administering separate funds. Moreover, 
Applicants assert that sales of shares of the Funds to Plans should 
increase the amount of assets available for investment by the Funds. 
This should, in turn, promote economies of scale, permit increased 
safety of investments through greater diversification, and make the 
addition of new portfolios to the Trust more feasible.
    25. Applicants believe that there is no significant legal 
impediment to permitting mixed and shared funding. Additionally, 
Applicants note the previous issuance of an order permitting mixed and 
shared funding where shares of a trust were sold directly to qualified 
plans.

Applicants' Conditions

    Applicants have consented to the following conditions if the 
requested order is granted:
    1. A majority of the Board of Trustees or Board of Directors of 
each Fund (each, a ``Board'') shall consist of persons who are not 
``interested persons'' of the Fund, as defined by Section 2(a)(19) of 
the 1940 Act and the rules thereunder and as modified by any applicable 
orders of the Commission, except that, if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
trustee or director, then the operation of this condition shall be 
suspended: (a) for a period of 45 days if the vacancy or vacancies may 
be filled by the Board; (b) for a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (c) for 
such longer period as the Commission may prescribe by order upon 
application.
    2. Each Board will monitor its Fund for the existence of any 
material irreconcilable conflict between the interests of the Contract 
owners of all of the Accounts investing in the Fund. A material 
irreconcilable conflict may arise for a variety of reasons, including: 
(a) an action by any state insurance regulatory authority; (b) a change 
in applicable federal or state insurance, tax, or securities laws or 
regulations, or a public ruling, private letter ruling, no-action or 
interpretative letter, or any similar action by insurance, tax, or 
securities regulatory authorities; (c) an administrative or judicial 
decision in any relevant proceeding; (d) the manner in which the 
investments of the Fund are managed; (e) a difference in voting 
instructions given by owners of variable annuity contracts and owners 
of variable life insurance contracts; or (f) a decision by an insurer 
to disregard the voting instructions of Contract owners.
    3. The Participating Insurance Companies and MFS (or any other 
investment advisor of a Fund) will report any potential or existing 
conflicts to the Board. Participating Insurance Companies and MFS (or 
any other investment advisor of a Fund) 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, 
including information as to a decision by a Participating Insurance 
Company to disregard voting instructions of Contract owners. The 
responsibility to report such information and conflicts and to assist 
the Board will be a contractual obligation of the Participating 
Insurance Companies under the agreements governing participation in the 
Funds and these responsibilities will be carried out with a view only 
to the interests of Contract owners.
    4. If it is determined by a majority of the Board, or by a majority 
of its disinterested trustees or directors, that an irreconcilable 
material conflict exists, the relevant Participating Insurance 
Companies shall, at their expense and to the extent reasonably 
practicable, take steps necessary to remedy or eliminate the 
irreconcilable material conflict, including: (a) withdrawing the assets 
allocable to some or all of the Accounts from the Fund and reinvesting 
such assets in a different investment medium including another 
portfolio of the Fund or another Fund, or submitting the question as to 
whether such segregation should be implemented to a vote of all 
affected contract owners; and, as appropriate, segregating the assets 
of any appropriate group (i.e., variable annuity contract owners or 
variable life insurance contract owners) that votes in favor of such 
segregation, or offering to the affected variable contract owners the 
option of making such a change; and (b) establishing a new registered 
management investment company or managed separate account.
    The responsibility to take remedial action in the event of a Board 
determination of a material irreconcilable conflict and to bear the 
cost of such remedial action shall be a contractual obligation of all 
Participating Insurance Companies under the agreements governing their 
participation in the Funds. The responsibility to take such remedial 
action shall be carried out with a view only to the interests of 
Contract owners. For purposes of this Condition Four, a majority of the 
disinterested members of the applicable Board shall determine whether 
any proposed action adequately remedies any material irreconcilable 
conflict, but, in no event will the Fund or MFS be required to 
establish a new funding medium for any Contract. Further, no 
Participating Insurance Company shall be required by this Condition 
Four to establish a new funding medium for any Contract if any offer to 
do so has been declined by a vote of a majority of the affected 
Contract owners.
    5. The Board's determination of the existence of an irreconcilable 
material conflict and its implications shall be made known promptly and 
in writing to all Participating Insurance Companies.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Contract owners so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
Contract owners. Accordingly, the Participating Insurance Companies 
will vote shares of the Fund held in their Accounts in a manner 
consistent with voting instructions timely received from Contract 
owners. Participating Insurance Companies will be responsible for 
assuring that each of their Accounts calculates voting privileges in a 
manner consistent with other Participating Insurance Companies. The 
obligation to calculate voting privileges in a manner consistent with 
all other Accounts will be a contractual obligation of all 
Participating Insurance Companies under the agreements governing their 
participation in the Funds. Each Participating Insurance Company will 
vote shares for which it has not received voting instructions as well 
as shares attributable to it in the same proportion as it votes shares 
for which it has received instructions.
    7. All reports received by the Board of potential or existing 
conflicts, and all Board action with regard to: (a) determining the 
existence of a conflict; (b) notifying Participating Insurance 
Companies of a conflict; and (c) determining whether any proposed 
action adequately remedies a conflict, will be properly recorded in the 
minutes of the Board or other appropriate records. Such minutes or 
other records shall be made available to the Commission upon request.
    8. Each Fund will notify all Participating Insurance Companies that 
separate account prospectus disclosure regarding potential risks of 
mixed and shared funding may be appropriate. Each Fund shall disclose 
in its prospectus that: (a) shares of the Fund are offered in 
connection with mixed and shared funding; (b) material conflicts may 
arise from mixed and shared funding arrangements; and (c) the Board 
will monitor for the existence of any material conflicts and determine 
what action, if any, should be taken in response to such conflicts.
    9. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders, and, in particular, each Fund will 
either provide for annual meetings (except to the extent that the 
Commission may interpret Section 16 of the 1940 Act not to require such 
meetings) or comply with Section 16(c) of the 1940 Act, (although the 
Funds are not within the trusts described in Section 16(c) of the 1940 
Act) as well as with Section 16(a), and, if applicable, Section 16(b) 
of the 1940 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 trustees and with whatever rules the 
Commission may promulgate with respect thereto.
    10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive 
relief from any provision of the 1940 Act or the rules thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Funds and the Participating Insurance Companies, 
as appropriate, shall take such steps as may be necessary to comply 
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to 
the extent applicable.
    11. No less than annually, the Participating Insurance Companies 
and/or MFS (or any other investment advisor of a Fund) shall submit to 
the Boards such reports, materials, or data as the Board may reasonably 
request so that the Boards may carry out fully the obligations imposed 
by the conditions contained in the application. Such reports, 
materials, and data shall be submitted more frequently if deemed 
appropriate by the Boards. The obligations of the Participating 
Insurance Companies to provide these reports, materials, and data to 
the Boards shall be a contractual obligation of all Participating 
Insurance Companies under the agreements governing participation in the 
Funds.
    12. If a Plan should become an owner of 10% or more of the assets 
of a Fund, such Plan will execute a fund participation agreement with 
the applicable Fund. A Plan will execute an application containing an 
acknowledgment of this condition upon such Plan's initial purchase of 
shares of any Fund.

Conclusion

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

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18964 Filed 8-3-94; 8:45 am]
BILLING CODE 8010-01-M