[Federal Register Volume 60, Number 99 (Tuesday, May 23, 1995)]
[Notices]
[Pages 27366-27371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12521]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21068; File No. 812-9438]


Smith Barney/Travelers Series Fund, et al.

May 15, 1995.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the 
``SEC'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: Smith Barney/Travelers Series Fund(``SB/T Fund''), Smith 
Barney Series Fund (``Series Fund''), and certain life insurance 
companies and their separate accounts investing now or in the future in 
the SB/T Fund or the Series Fund.

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from the provisions of Section 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 SB/T Fund, the Series Fund and all 
future open-end investment companies for which Smith Barney Mutual Fund 
Management, Inc., or any affiliate thereof, serves as investment 
adviser, manager, principal underwriter, or sponsor and whose shares 
are sold to separate accounts of insurance companies and qualified 
person and retirement plans the ``Future Funds'') (the SB/T Fund, the 
Series Fund and the Future Funds collectively are referred to as the 
``Funds'') to be sold to and held by: (a) Variable annuity and variable 
life insurance separate accounts of both affiliated and unaffiliated 
life insurance companies (``Participating Insurance Companies''); and 
(b) qualified pension and retirement plans outside of the separate 
account context (``Qualified Plans'').

FILING DATES: The application was filed on January 18, 1995, and 
amended on May 5, 1995.

HEARING AND NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on June 9, 
1995, and should be accompanied by proof of service on Applicants in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the requester's interest, 
the reason for the request and the issues contested. Persons may 
request notification of a hearing by writing to the Secretary of the 
SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: Christina T. Sydor, Esquire, Smith Barney, Inc., 388 
Greenwich Street, Twenty-Second Floor, New York, New York 10013.

FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Wendy Finck Friedlander, Deputy Chief, 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 SEC's Public 
Reference Branch.

Applicants' Representations

    1. The SB/T Fund, a Maryland corporation incorporated on February 
22, 1994, is registered under the 1940 Act as an open-end, diversified 
management investment company. The SB/T Fund consists of eleven 
portfolios: The Smith Barney Income and Growth Portfolio, the Alliance 
Growth Portfolio, the American Capital Enterprise Portfolio, the Smith 
Barney International Equity Portfolio, the Smith Barney Pacific Basin 
Portfolio, the TBC Managed Income Portfolio, the Putnam Diversified 
Income Portfolio, the G.T. Global Strategic Income Portfolio, the Smith 
Barney High Income Portfolio, the MFS Total Return Portfolio, and the 
Smith Barney Money Market Portfolio. Additional portfolios may be added 
in the future.
    2. The Series Fund, a Massachusetts business trust organized on May 
13, 1991, is registered under the 1940 Act as an open-end, diversified 
management investment company. The Series Fund consists of ten separate 
portfolios (together with the portfolios of the
SB/T Fund and Future Funds, the ``Portfolios''): the Money Market 
Portfolio, the Intermediate High Grade Portfolio, the Diversified 
Strategic Income Portfolio, the Equity Income Portfolio, the Equity 
Index Portfolio, the Growth & Global Income Portfolio, the Appreciation 
Portfolio, the Total Return Portfolio, the Emerging Growth Portfolio, 
and the International Equity Portfolio. Additional portfolios may be 
added in the future.
    3. Smith Barney Mutual Funds Management, Inc. (``SBMFM'') is the 
investment adviser for the SB/T Fund, and is a wholly-owned subsidiary 
of Smith Barney Holdings, Incorporated. Smith Barney Holdings, Inc. is 
a wholly-owned subsidiary of Travelers Group, which is a financial 
services holding company engaged, through its subsidiaries, principally 
in four business segments: investment services, consumer finance 
services, life insurance services, and property and casualty insurance 
services.
    4. SBMFM also is the investment adviser for all the Series Fund 
Portfolios except the Equity Index Portfolio and the Emerging Growth 
Fund Portfolio. PanAgora Asset Management, Inc. is the investment 
adviser for the Equity Index [[Page 27367]] Portfolio, and is 50% owned 
by Nippon Life Insurance Company and 50% owned by Lehman Brothers, 
Inc., which is a wholly-owned subsidiary of Lehman Brothers Holdings, 
Inc. American Capital Asset Management, Inc., is the investment adviser 
for the Emerging Growth Fund Portfolio and is a wholly-owned subsidiary 
of American Capital Management & Research, Inc., which is an indirect 
wholly-owned subsidiary of VKM Holdings. SBMFM, PanAgora Asset 
Management, Inc. and American Capital Asset Management, Inc. 
(collectively, the ``Advisers'') are registered as investment advisers 
under the Investment Advisers Act of 1940.
    5. Shares of the SB/T Fund currently are sold to a separate account 
(the ``Travelers Separate Account'') of The Travelers Insurance Company 
(``The Travelers'') which funds benefits under variable contracts 
issued through that separate account. Shares of the Series Fund 
currently are sold to the Travelers Separate Account and to separate 
accounts of the IDS Life Insurance Company and the IDS Life Insurance 
Company of New York which fund benefits under variable contracts issued 
by those companies.
    6. Applicants state that, upon the granting of the order requested 
in this application, the Funds intend to offer shares of their existing 
Portfolios and future investment portfolios to separate accounts of 
Participating Insurance Companies (the ``Separate Accounts'') to serve 
as the investment vehicle for various types of insurance products, 
which may include variable annuity contracts, single premium variable 
life insurance contracts, scheduled premium variable life insurance 
contracts and flexible premium variable life insurance contracts.

Applicant's Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 
provides partial exemptions from Section 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act. The relief provides by Rule 6e-2 is also available to 
a separate account's investment adviser, 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 
unit investment trust (``underlying fund'') offers its shares 
``exclusively to variable life insurance separate accounts of the life 
insurer, or of any affiliated life insurance company.'' Therefore, the 
relief granted by Rule 6e-2(b)(15) is not available with respect to a 
scheduled premium variable life insurance separate account that owns 
shares of an underlying fund that also offers its shares to a variable 
annuity or a flexible premium variable life insurance separate account 
of the same company or of any other 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 the same life insurance company or of any affiliate life 
insurance company is referred to herein as ``mixed funding.''
    2. In addition, 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 also 
offers its shares to separate accounts funding variable contracts of 
one or more unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment medium for 
variable life insurance separate accounts of one insurance company and 
separate accounts funding variable contracts of one or more 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. Applicants state that the relief granted by Rule 6e-2(b)(15) is 
not affected by the purchase of shares of a Fund by the Qualified 
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 Qualified Plans.
    4. In connection with the funding of flexible premium variable life 
insurance contracts issued through a unit investment trust, Rule 6e-
3(T)(b)(15) provides partial exemptions from Sections 9(a), 15(a), and 
15(b) of the 1940 Act. The relief provided by Rule 6e-3(T) also is 
available to a separate account's investment adviser, principal 
underwriter, and sponsor or depositor. The exemptions granted by Rule 
6e-3(T) are available only where the unit investment trust's underlying 
fund offers its shares ``exclusively to separate accounts of the life 
insurer or of any affiliated life insurance company, offering either 
scheduled contracts 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 * * * '' Therefore, Rule 6e-
3(T) permits mixed funding with respect to a flexible premium variable 
life insurance separate account subject to certain conditions. However, 
Rule 6e-3(T) does not permit shared funding because the relief granted 
by Rule 6e-3(T)(b)(15) is not available with respect to a flexible 
premium variable life insurance separate account that owns shares of a 
management company that also offers its shares to separate accounts 
(including variable annuity and flexible premium and scheduled premium 
variable life insurance separate accounts) of unaffiliated life 
insurance companies.
    5. Applicants state that the relief granted by Rule 6e-3(T) is not 
affected by the purchase of shares of the Funds by the Qualified 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 Qualified Plans.
    6. Applicants state that changes in the tax law have created the 
opportunity for each Fund to increase its asset base through the sale 
of shares of the Fund to Qualified Plans. Applicants state the 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 annuity contracts or life insurance contracts 
for any period in which the investments are not, in accordance with 
regulations prescribed by the Department of the Treasury, adequately 
diversified. On March 2, 1989, the Department of the Treasury 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 also to be held by the separate accounts of 
insurance companies in connection with their variable contracts. Treas. 
Reg. Sec. 1.817-5(f)(3)(iii).
    7. Applicants state that the promulgation of Rules 6e-2 and Rule 
6e-3(T) under the 1940 Act preceded the insurance of these Treasury 
regulations. Applicants assert that, given the then current tax law, 
the sale of shares of the same investment [[Page 27368]] company to 
both separate accounts and qualified pension and retirement plans could 
not have been envisioned at the time of the adoption of Rules 6e-
2(b)(15) and 6e-3(T)(b)(15).
    8. Applicants therefore request that the Commission, under its 
authority in Section 6(c) of the 1940 Act, grant 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 for themselves and for variable life 
insurance separate accounts of the Participating Insurance Companies, 
and the principal underwriters and depositors of such separate 
accounts, to the extent necessary to permit mixed funding and shared 
funding.
    9. Section 9(a) of the 1940 Act makes it unlawful for any company 
to serve as an investment adviser to, or principal underwriter for, any 
registered open-end investment company if an affiliated person of that 
company is subject to any disqualification specified in Sections 
9(a)(1) or 9(a)(2), Rule 6e-2(b)(15)(i) and (ii) and Rule 6e-
3(T)(b)(15)(i) and (ii) 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 of the life insurer, or 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 adviser or 
principal underwriter provided that none of the insurer's personnel who 
are ineligible pursuant to Section 9(a) participate in the management 
or administration of the fund.
    10. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9(a), in 
effect, limits the monitoring of an insurer's personnel that would 
otherwise be necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of Section 9. 
Applicants state that Rules 6e-2 and 6e-3(T) recognize that it is not 
necessary for the protection of investors or for the purposes of the 
1940 Act to apply the provisions of Section 9(a) to the many 
individuals in an insurance company complex, most of whom typically 
will have no involvement in matters pertaining to an investment company 
in that organization. Applicants submit that there is no regulatory 
reason to apply the provisions of Section 9(a) to the many individuals 
in various unaffiliated insurance companies (or affiliated companies of 
Participating Insurance Companies) that may utilize the Funds as the 
funding medium for variable contracts. The application states that the 
relief requested will not be affected by the proposed sale of shares of 
the Funds to Qualified Plans. The insulation of the Funds from 
individuals disqualified under the 1940 Act remains in place. 
Applicants assert that, since the Qualified Plans are not investment 
companies and will not be deemed affiliated by virtue of their 
shareholdings, no additional relief is necessary.
    11. 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.
    12. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial 
exemptions from Sections 13(a), 15(a), and 15(b) of the 1940 Act to the 
extent that those sections have been deemed by the Commission to 
require ``pass-through'' voting with respect to management investment 
company shares held by a separate account, to permit the insurance 
company to disregard the voting instructions of its contract owners in 
certain limited circumstances.
    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 in connection with the voting of shares of an underlying fund if 
such instructions would require such shares to be voted to cause such 
companies to make, or refrain from making, certain investments which 
would result in changes in the subclassification or investment 
objectives of such companies, or to approve or disapprove any contract 
between a Fund and its investment adviser, when required to do so by an 
insurance regulatory authority, subject to the provisions of paragraphs 
(b)(5)(i) and (b)(7)(ii)(A) of each Rule.
    Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that 
the insurance company may disregard contract owners' voting 
instructions if the contract owners initiate any change in such 
company's investment policies or any principal underwriter or 
investment adviser, provided that disregarding such voting instructions 
is reasonable and subject to the other provisions of paragraphs 
(b)(5)(ii) and (b)(7)(ii) (B) and (C) of each Rule.
    13. Applicants further represent that the sale of shares by a Fund 
to the Qualified Plans does not impact relief requested in this regard. 
Shares of the Funds sold to Qualified Plans would be held by the 
trustees of the Qualified 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 Qualified Plan with 
two exceptions: (a) When the Qualified 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 Qualified 
Plan and not contrary to ERISA; and (b) when the authority to manage, 
acquire or dispose of assets of the Qualified Plan is delegated to one 
or more investment managers pursuant to Section 402(c)(3) of ERISA. 
Unless one of the two exceptions stated in Section 403(a) applies, 
Qualified Plan trustees have the exclusive authority and responsibility 
for voting proxies. Where a named fiduciary appoints an investment 
manager, the investment manager has the responsibility to vote the 
shares held unless the right to vote such shares is reserved to the 
trustees or to the named fiduciary. In any event, there is no pass-
through voting to the participants in Qualified Plans. Accordingly, 
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 respect to 
Qualified Plans because they are not entitled to pass-through voting 
privileges.
    14. Applicants state that no increase conflicts of interest would 
be presented 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 or all 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 a single 
[[Page 27369]] 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 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 the Participating Insurance Company's 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 of 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 Portfolios 
will be managed to attempt to achieve the investment objective(s) of 
such Portfolio and not to favor or disfavor any particular insurer or 
type of variable contract.
    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. An investment company supporting even one type of 
insurance product must accommodate those diverse factors in order to 
attract and retain purchasers.
    19. Applicants further note that Section 817 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 Qualified 
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 conflicts and Qualified Plans. Applicants state that the tax 
consequences do not raise any conflicts of interests with respect to 
the use of the Funds. When distributions are to be made, and the 
separate account or the Qualified Plan is unable to net purchase 
payments to make the distributions, the separate account or the 
Qualified Plan will redeem shares of the affected Fund at their net 
asset value. The Qualified Plan will then make distributions in 
accordance with the terms of the Qualified 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 Qualified Plans. Applicants represent that the 
transfer agent for each Fund will inform each Participating Insurance 
Company of its share ownership in each Separate Account, as well as 
inform the trustees of the Qualified 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 shares 
directly to Qualified Plans does not create a ``senior security'', as 
such term is defined under Section 18(g) of the 1940 Act, with respect 
to any variable annuity or variable life contract owner as opposed to a 
participant under a Qualified Plan. Regardless of the rights and 
benefits of participants and contract owners under the respective 
Qualified Plans and contracts, the Qualified Plans and the separate 
accounts have rights only with respect to their respective shares of 
the Funds. Such shares may be redeemed only at net asset value. No 
shareholder of any Fund has any preference over any other shareholder 
of that Fund with respect to distribution of assets or payment of 
dividends.
    23. Finally, Applicants assert that there are no conflicts between 
contract owners and participants under the Qualified 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 with a particular 
proposal. 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 redemptions and transfers, complex, 
time consuming transactions must be undertaken. Conversely, trustees of 
Qualified 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 Qualified 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 Qualified 
Plans conflict, the issues can be resolved almost immediately because 
trustees of the Qualified Plans can, independently, redeem shares out 
of the Funds.
    24. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. These factors include the cost of organizing and 
operating an investment funding medium, the lack of expertise with 
respect to investment management 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. Applicants submit that mixed 
funding and shared funding should benefit variable contract owners by: 
(a) [[Page 27370]] Eliminating a significant portion of the costs of 
establishing and administering separate funds; (b) allowing for a 
greater amount of assets available for investment by the Funds, thereby 
promoting economies of scale, permitting greater safety through greater 
diversification, and/or making the addition of new portfolios more 
feasible; and (c) encouraging more insurance companies to offer 
variable contracts, resulting in increased competition with respect to 
both variable contract design and pricing, which can be expected to 
result in more product variation and lower charges. Each Fund will be 
managed to attempt to achieve its investment objectives and not to 
favor or disfavor any particular Participating Insurance Company or 
type of insurance product.
    25. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding. Applicants state that separate 
accounts organized as unit investment trusts have historically been 
employed to accumulate shares of mutual funds which have not been 
affiliated with the depositor or sponsor of the separate account. 
Applicants also assert that mixed and shared funding will have no 
adverse federal income tax consequences.

Applicants' Conditions

    The Applicants have consented to the following conditions:
    1. A majority of the Board of Directors or Board of Trustees (as 
appropriate) (the ``Board'') of each Fund shall consist of persons who 
are not ``interested persons,'' as defined by Section 2(a)(19) of the 
1940 Act and Rules thereunder and as modified by any applicable orders 
of the Commission, except that, if this condition is not met by reason 
of death, disqualification, or bona fide resignation of any director or 
directors, then the operation of this condition shall be suspended: (i) 
For a period of 45 days, if the vacancy or vacancies may be filled by 
the Board; (ii) for a period of 60 days, if a vote of shareholders is 
required to fill the vacancy or vacancies; or (iii) for such longer 
period as the Commission may prescribe by order upon application.
    2. The Board of each fund will monitor its Fund for the existence 
of any material irreconcilable conflict between and among the interests 
of the contract owners of all Separate Accounts investing in the Fund. 
A material irreconcilable conflict may arise for a variety of reasons, 
including: (a) State insurance regulatory authority action; (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 
interpretive 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 any series are being managed; (e) a difference in voting 
instructions given by variable annuity and variable life insurance 
contract owners; or (f) a decision by a Participating Insurance Company 
to disregard contract owner voting instructions.
    3. Participating Insurance Companies, the Advisers and any 
Qualified Plan that executes a fund participation agreement upon 
becoming an owner of 10% or more of the assets of a Fund (the 
``Participants'') will report any potential or existing conflicts, of 
which they become aware, to the Board. Participants will be obligated 
to assist the appropriate Board in carrying out its responsibilities 
under these conditions by providing the Board with all information 
reasonably necessary for the Board to consider any issues raised. This 
responsibility includes, but is not limited to, an obligation by each 
Participating Insurance Company to inform the Board whenever contract 
owner voting instructions are disregarded. These responsibilities will 
be contractual obligations of all Participating Insurance Companies and 
Qualified Plans investing in a Fund under their agreements governing 
participation therein, and such agreements shall provide that such 
responsibilities will be carried out with a view only to the interests 
of the contract owners.
    4. If a majority of the Board, or a majority of the disinterested 
members of the Board, determine that a material irreconcilable conflict 
exists the relevant Participating Insurance Companies and Qualified 
Plans shall, at their expense and to the extent reasonably practicable 
(as determined by a majority of disinterested members of the Board), 
take whatever steps are necessary to remedy or eliminate the 
irreconcilable material conflict, up to and including: (a) Withdrawing 
the assets allocable to some or all of the Separate Accounts from the 
Fund or any series therein and reinvesting such assets in a different 
investment medium (including another series of the Fund), or submitting 
the question 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., annuity contract owners, life 
insurance contract owners, or variable contract owners of one or more 
Participating Insurance Company) that votes in favor of such 
segregation, or offering to the affected contract owners the option of 
making such a change; (b) withdrawing the assets allocable to some or 
all of the Qualified Plans from the affected Fund or any Portfolio of 
the Fund and reinvesting such assets in a different investment medium, 
including another Portfolio of the Fund; and (c) establishing a new 
registered management investment company or managed separate account. 
If a material irreconcilable conflict arises because of a Participating 
Insurance Company's decision to disregard contract owner voting 
instructions, and that decision represents a minority position or would 
preclude a majority vote, the Participating Insurance Company may be 
required, at the election of the Fund, to withdraw its Separate 
Account's investment therein, and no charge or penalty will be imposed 
as a result of such withdrawal. The responsibility to take remedial 
action in the event of a Board determination of an irreconcilable 
material conflict and to bear the cost of such remedial action shall be 
a contractual obligation of all Participating Insurance Companies and 
Qualified Plans under their agreements governing participation in the 
Fund and these responsibilities will be carried out with a view only to 
the interests of the contract owners and participants in the Qualified 
Plans.
    For the purposes of condition (4), a majority of disinterested 
members of the Board shall determine whether or not any proposed action 
adequately remedies any irreconcilable material conflict, but in no 
event will the Fund or the Advisers be required to establish a new 
funding medium for any variable contract. No Participating Insurance 
Company shall be required by this condition (4) to establish a new 
funding medium for any variable contract if an offer to do so has been 
declined by a vote of a majority of contract owners materially affected 
by the irreconcilable material conflict.
    5. The determination by the Board of the existence of an 
irreconcilable material conflict and its implications shall be made 
known promptly in writing to all Participating Insurance Companies and 
Qualified Plans.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners so long as the 
Commission continues to interpret the 1940 Act to require pass-through 
voting privileges for variable contract owners. Accordingly, each 
Participating Insurance Company, where applicable, will vote shares of 
the [[Page 27371]] Fund held in its Separate Accounts in a manner 
consistent with timely voting instructions received from contract 
owners. Each Participating Insurance Company also will vote shares of 
each Fund held in its Separate Accounts for which no timely voting 
instructions from contract owners are received, as well as shares it 
owns, in the same proportion as those shares for which voting 
instructions are received. Each Participating Insurance Company shall 
be responsible for assuring that each of their Separate Accounts 
participating in the Fund calculates voting privileges in a manner 
consistent with all other Participants. The obligation to calculate 
voting privileges in a manner consistent with all other Separate 
Accounts investing in the Fund shall be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participation in the Fund.
    7. Each Fund will notify all Participants that prospectus 
disclosure regarding potential risks of mixed and shared funding may be 
appropriate. Each Fund shall disclose in its prospectus that: (a) Its 
shares are offered to qualified pension and retirement plans and to 
separate accounts which fund both annuity and life insurance contracts 
of both affiliated and unaffiliated Participating Insurance Companies; 
(b) material irreconcilable conflicts may arise from mixed and shared 
funding; and (c) the Board will monitor the Fund for any material 
conflicts and determine what action, if any, should be taken.
    8. All reports received by the Board regarding potential or 
existing conflicts, and all Board action with respect to determining 
the existence of a conflict, notifying Participants of a conflict, and 
determining whether any proposed action adequately remedies a conflict, 
will be properly recorded in the minutes of the Board or other 
appropriate records, and such minutes or other records shall be made 
available to the Commission upon request.
    9. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or 
Rule 6e-3 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, then the Funds and/or the 
Participants, as appropriate, shall take such steps as may be necessary 
to comply with Rule 6e-2 and Rule 6e-3(T), as amended, the Rule 6e-3, 
as adopted, to the extent such rules are applicable.
    10. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the Fund), and in 
particular each Fund will either provide for annual meetings (except 
insofar as the Commission may interpret Section 16 of the 1940 Act not 
to require such meetings) or comply with Section 16(c) (although the 
Funds are not within the trusts described in this section) as well as 
with Sections 16(a) and, if and when applicable, Section 16(b). 
Further, each Fund will act in accordance with the Commission's 
interpretation of the requirements of Section 16(a) with respect to 
periodic elections of directors (or trustees) and with whatever rules 
the Commission may promulgate with respect thereto.
    11. The Participants, at least annually, shall submit to the Board 
such reports, materials or data as the Board may reasonably request so 
that the Board may fully carry out the obligations imposed upon it by 
these stated conditions, and said reports, materials, and data shall be 
submitted more frequently if deemed appropriate by the Board. The 
obligations of the Participating Insurance Companies and Qualified 
Plans to provide these reports, materials, and data to the Board when 
it so reasonably requests shall be a contractual obligation of all 
Participating Insurance Companies and Qualified Plans under their 
agreements governing participation in the Funds.
    12. In the event that a Qualified Plan ever should become an owner 
of 10 percent or more of the assets of a Fund, such Qualified Plan will 
execute a fund participation agreement with the applicable Fund. A 
Qualified Plan shareholder will execute an application with each of the 
Funds, including Future Funds, that contains an acknowledgement of this 
condition at the time of the Qualified Plan's initial purchase of 
shares of the Fund.

Conclusion

    For the reasons stated above, Applicants believe that the requested 
exemptions, in accordance with the standards of Section 6(c), as 
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, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12521 Filed 5-22-95; 8:45 am]
BILLING CODE 8010-01-M