[Federal Register Volume 61, Number 7 (Wednesday, January 10, 1996)]
[Notices]
[Pages 750-754]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-368]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21651; File No. 812-9674]


M Fund, Inc., et al.

January 3, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: M. Fund, Inc. (``Company'') and M Financial Investment 
Advisers, Inc. (``Adviser'').

RELEVANT ACT SECTIONS: Order requested under Section 6(c) 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 granting exemptions to 
the extent necessary to permit shares of any current or future series 
of the Company and shares of any other investment company that is 
offered as a funding medium for insurance products, and for which the 
Adviser or any of its affiliates may in the future serve as manager, 
investment adviser, administrator, principal underwriter or sponsor 
(the Company and such other investment companies are hereinafter 
referred to collectively as the ``Funds''), to be sold and held by: (i) 
variable annuity and variable life insurance company separate accounts 
of both affiliated and unaffiliated life insurance companies 
(``Participating Insurance Companies''); and (ii) certain qualified 
pension and retirement plans outside the separate account context 
(``Plans'').

FILING DATE: The Application was filed on July 18, 1995, and amended on 
October 19, 1995. Applicants will amend during the notice period to 
make certain representations herein.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the Secretary of the SEC and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on January 29, 
1996, and should be accompanied by proof of service on Applicants in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
Secretary of the SEC.

ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, M Fund Inc., c/o David F. Byrne, President, River 
Park Center, 205 S.E. Spokane Street, Portland, Oregon 97202.

FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Patrice M. Pitts, Special 
Counsel, Office of Insurance Products, Division of Investment 
Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application. The complete Application may be obtained for a fee from 
the Public Reference Branch of the SEC.

Applicants' Representations

    1. The Company is a Maryland corporation registered under the 1940 
Act as an open-end diversified management investment company. The 
Company currently is composed of four separate portfolios; additional 
portfolios may be added in the future.
    2. The Adviser for each of the Company's portfolios is a Colorado 
corporation registered with the SEC under the Investment Advisers Act 
of 1940. The Adviser is wholly-owned by the Management Partnership, an 
Oregon general partnership. The Adviser has engaged other registered 
investment advisers (``Sub-Advisers'') to conduct the investment 
programs of each portfolio and has entered into investment sub-advisory 
agreements with each Sub-adviser. The Sub-advisers are not affiliated 
with the Adviser or the Company.
    3. The Company intends to offer its shares to variable annuity and 
variable life separate accounts (``Separate Accounts'') of both 
affiliated and unaffiliated insurance companies in support of variable 
annuity and variable life insurance contracts (``Contracts''). 
Insurance companies whose separate accounts will own shares of one or 
more portfolios of the Funds are referred to herein as ``Participating 
Insurance Companies.'' Each Participating Insurance Company will have 
the legal obligation of satisfying all requirements applicable to it 
under the federal securities laws in connection with any variable 
contract which it issues.
    4. The Company also intends to offer one or more portfolios of its 
shares directly to Plans. The Funds' shares sold to Plans which are 
subject to the Employee Retirement Income Security Act of 1984, as 
amended, may be held by the trustee(s) of the Plan.
    5. The Adviser has no plans to offer investment advisory services 
to Plans or Plan participants, and will not act as investment adviser 
to any of the Plans that will purchase shares of the Company.

Applicants' 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 (``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 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 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 (``Underlying Fund'') 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 that use of a common management 
investment company to fund the variable annuity and variable life 
insurance separate accounts of 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 

[[Page 751]]
life insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed 
funding as well as shared funding.
    2. Applicants state that because the relief under Rule 6e-2(b)(15) 
is available only where shares are offered exclusively to separate 
accounts of insurance companies, 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.'' Thus, Rule 6e-3(T) permits mixed 
funding, but does not permit shared funding.
    4. Applicants state that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, additional relief is necessary if shares of the Funds also 
are to be sold to Plans.
    5. Furthermore, Applicants also state that Section 817(h) of the 
Internal Revenue Code of 1986, as amended (the ``Code''), imposes 
certain diversification requirements on the underlying assets of the 
Contracts held in the Fund. The Code provides that such Contracts shall 
not be treated as a Contract for any period in which the underlying 
assets are not, in accordance with regulations prescribed by the 
Treasury Department, adequately diversified. The Treasury Department 
issued regulations (Treas. Reg. 1.817-5) on March 2, 1989 which 
establish diversification requirements for the investment portfolios 
underlying Contracts. In order to meet the diversification 
requirements, all of the beneficial interests in the investment company 
must be held by the segregated asset accounts of one or more insurance 
companies. 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 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 
and 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 the Rules.
    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 an investment adviser to, or principal 
underwriter for, any registered open-end investment company if an 
affiliated person of that company is subject to a disqualification 
enumerated in Section 9(a)(1) or (2) of the 1940 Act. Rules 6e-
2(b)(15)(i) and (ii), and 6e-3(T)(b)(15)(i) and (ii), provide 
exemptions from Section 9(a) under certain circumstances, subject to 
the 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 insurance company, 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 Underlying 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 of the 1940 
Act to that which is appropriate in light of the policy and purposes of 
that Section. Applicants state that those Rules recognize that it is 
not necessary for the protection of investors or the purposes fairly 
intended by the policy and provisions of the 1940 Act to apply the 
provisions of Section 9(a) to the many individuals employed by the 
Participating Insurance Companies, 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. Applicants 
further assert that there is no regulatory purpose in extending the 
monitoring requirements because of investment by Plans.
    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 Participating Insurance Companies 
will provide pass-through voting privileges to all Contract owners so 
long as the SEC 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)(1) provide that the insurance company may disregard 
the voting instructions of its Contract owners with respect to the 
investments of an Underlying Fund, or any contract between a fund and 
its investment adviser, when required to do so by an insurance 
regulatory authority. Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that an insurance company may disregard 
voting instructions of its Contract owners if the Contract owners 
initiate any change in the investment company's investment policies, 
principal underwriter, or any investment adviser, 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. The offer and sale of the Funds' shares to Plans will not have 
any impact on the relief requested in this regard. Applicants state 
that shares of the Funds sold to Plans will be held by the trustees of 
such Plans, as required by Section 403(a) of ERISA. Section 403(a) also 
provides that the trustees must have exclusive authority and discretion 
to manage and control the Plan with certain exceptions not relevant 
herein. Accordingly, Plan trustees have exclusive authority and 
responsibility for voting proxies on behalf of a Plan.

[[Page 752]]

    13. 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 different Participating 
Insurance Companies are domiciled in different states, it is possible 
that the state insurance regulatory body in a state in which one 
Participating Insurance Company is domiciled could require action that 
is inconsistent with the requirements of insurance regulators in one or 
more other states in which other Participating Insurance Companies are 
domiciled. Applicants submit that this possibility is no different or 
greater than exists where a single insurer and its affiliates offer 
their insurance products in several states.
    14. Applicants further submit that affiliation does not reduce the 
potential 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 these differences may produce. If a particular 
state insurance regulator's decision conflicts with the majority of 
other state regulators, the affected insurer may be required to 
withdraw its separate account's investment in the relevant Funds.
    15. Applicants also argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company could disregard Contract owner voting 
instructions. 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 separate account's investment in that 
Fund. No charge or penalty will be imposed as a result of such a 
withdrawal.
    16. Applicants submit 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 
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 insurance company or 
type of Contract.
    17. Furthermore, Applicants have concluded that since the Code 
imposes certain diversification requirements on Underlying Fund assets 
and Treasury Regulation 1.817-5(f)(3)(iii) specifically permits 
``qualified pension or retirement plans'' and separate accounts to 
share the same underlying management investment company, no inherent 
conflicts of interest are present if Plans and Separate Accounts all 
invest in the same management investment company.
    18. Applicants note that while there are differences in the manner 
in which distributions are taxed for variable annuity contract, 
variable life insurance contracts and Plans, these 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, the Separate Account or the Plan will redeem 
shares of the Funds at their respective net asset value. The Plan will 
then make distributions in accordance with the terms of the Plan. The 
life insurance company will make distributions in accordance with the 
terms of the Contract.
    19. In connection with any meeting of shareholders, the Funds will 
inform each shareholder, including each Separate Account and Plan, of 
information necessary for the meeting. A Participating Insurance 
Company will then solicit voting instructions consistent with the 
``pass-through'' voting requirement. Separate Accounts and Plans will 
each have the opportunity to exercise voting rights with respect to 
their shares in the Funds, although the Separate Accounts are required 
to follow the pass-through voting procedure.
    20. Applicants state that there are no conflicts of interest 
between Contract owners and participants under the Plans with respect 
to state insurance commissioners' veto powers over investment 
objectives. State insurance commissioners have been given the veto 
power to prevent insurance companies indiscriminately redeeming their 
separate accounts out of one fund and investing those monies in another 
fund. Generally, to accomplish such redemptions and transfers, complex 
and time-consuming transactions must be undertaken. Conversely, 
trustees of Plans or the participants in participant-directed 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, even 
hold cash pending a suitable investment. Based on the foregoing, 
Applicants represent that even where the interests of Contract owners 
and the interests of Plans and Plan participants conflict, the issues 
can be almost immediately resolved in that trustees of the Plans can, 
independently, redeem shares out of the Funds.
    21. Applicants submit that there is no greater potential for 
material irreconcilable conflicts arising between the interests of 
participants under Plans and Contract owners of Separate Accounts from 
possible future changes in the federal tax laws than that which already 
exists between variable annuity contract owners and variable life 
insurance contract owners.
    22. Finally, Applicants argue that the ability of the 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 Contact owner as opposed to 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 separate accounts have rights only with respect to their shares of 
the Funds. 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 distributions of assets or payment of 
dividends.
    23. 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 managers (principally with 
respect to stock and money market investments); and the lack of public 
name recognition as investment experts. Specifically, Applicants state 
that smaller life insurance companies may not find it economically 
feasible, or within their investment or administrative expertise, to 
enter the Contract business on their own. Applicants argue the use of 
the Funds as common investment media for the Contracts would ease these 
concerns. Participating Insurance Companies would benefit not only from 
the investment and administrative expertise of the Adviser, but also 
from 

[[Page 753]]
the cost efficiencies and investment flexibility afforded by a large 
pool of funds.
    24. Applicants state that making the Funds available for mixed and 
shared funding may encourage more insurance companies to offer variable 
contracts such as the Contracts which may then increase competition 
with respect to both the design and the pricing of variable contracts. 
Applicants submit that this can be expected to result in greater 
product variation and lower charges.
    25. Applicants argue that Contract owners would benefit because 
mixed and shared funding will eliminate a significant portion 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 such Funds. 
This should, in turn, promote economies of scale, permit increased 
safety of investments through greater diversification, and make the 
addition of new portfolios more feasible.
    26. Applicants believe that there is no significant legal 
impediment to permitting mixed and shared funding. Additionally, 
Applicants note the previous insurance of orders permitting mixed and 
shared funding where shares of a fund were sold directly to qualified 
plans such as the Plans.

Applicants' Conditions

    Applicants have consented to the following conditions if the order 
requested in the application is granted:
    1. A majority of the Board of Directors of each Fund (each a 
``Board'') will consist of persons who are not ``interested persons'' 
thereof, 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 
(``disinterested directors''), 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: (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. The Boards will monitor their respective Funds for the existence 
of any material irreconcilable conflict between the interests of 
Contract owners of all Separate Accounts and participants under Plans 
investing in the respective Funds. An irreconcilable material 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 any 
portfolio of Funds are being managed; (e) a difference in voting 
instructions given by Contract owners; (f) a decision by a 
Participating Insurance Company to disregard the voting instructions of 
Contract owners; and (g) if applicable, a decision by a Participating 
Plan (as defined below) to disregard the voting instructions of Plan 
participants.
    3. The Adviser (or any other investment adviser of a Fund), any 
Participating Insurance Company, and any Plan that executes a Fund 
participation agreement upon becoming an owner of 10% or more of the 
assets of the Fund (referred to hereafter as a ``Participating 
Plans''), will report any potential or existing conflicts to the Board. 
The Adviser, Participating Insurance Companies and Participating Plans 
will be responsible for assisting the Board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This includes, but is not limited to, an obligation by each 
Participating Insurance Company to inform the Board whenever Contract 
owner voting instructions are disregarded and an obligation by each 
Participating Plan to inform the Board whenever Plan participant voting 
instructions disregard Plan participant voting instructions. The 
responsibility to report such information and conflicts and to assist 
the Board will be a contractual obligation of all Participating 
Insurance Companies and Participating Plans investing in the Funds 
under their agreements governing participation in each Fund, and such 
agreements will provide that these responsibilities will be carried out 
with a view only to the interests of Contract owners and Plan 
participants, as applicable.
    4. If it is determined by a majority of the Board of a Fund, or a 
majority of its disinterested directors, that a material irreconcilable 
conflict exists with respect to a portfolio of a Fund, a Participating 
Insurance Company or Participating Plan will, at its expense and to the 
extent reasonably practical (as determined by a majority of the 
disinterested directors of that Fund), 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 portfolio thereof and 
reinvesting such assets in a different investment medium, which may 
include another portfolio of that Fund or another Fund; (b) submitting 
the question of 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., Contract owners of one or 
more Participating Insurance Companies) that votes in favor of such 
segregation, or offering to the affected Contract owners the option of 
making such a change; and (c) establishing a new registered management 
investment company. 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 in that Fund (or any 
portfolio thereof), and no charge or penalty will be imposed as a 
result of such withdrawal. If a material irreconcilable conflict arises 
because of a Participating Plan's decision to disregard a minority 
position or would preclude a majority vote, the Participating Plan may 
be required, at the election of the Fund, to withdraw its investment in 
that Fund (or any portfolio thereof), and no charge or penalty will be 
imposed as a result of such withdrawal. To the extent permitted by 
applicable law, the responsibility of taking remedial action in the 
event of a Board determination of an irreconcilable material conflict 
and bearing the cost of such remedial action will be a contractual 
obligation of all Participating Insurance Companies and Participating 
Plans under their agreements governing participation in the Funds, and 
these responsibilities will be carried out with a view only to the 
interest of Contract owners and Plan participants, as applicable.
    5. For purposes of Condition Four, a majority of the disinterested 
directors of the applicable Board will determine whether any proposed 
action adequately remedies any irreconcilable material conflict, but in 
no event will the Fund or the Adviser (or any other investment adviser 
of a Fund) be required to establish a new funding medium for any 
Contract. No Participating Insurance 

[[Page 754]]
Company will be required by Condition Four to establish a new funding 
medium for any Contract if a majority of Contract owners materially and 
adversely affected by the irreconcilable material conflict vote to 
decline such offer. No Participating Plan will be required by Condition 
Four to establish a new funding medium for such Plan if (a) a majority 
of Plan participants materially and adversely affected by the material 
irreconcilable material conflict vote to decline such offer, or (b) 
pursuant to governing Plan documents and applicable law, the 
Participating Plan makes such decision without a Plan participant vote.
    6. The Adviser, all Participating Insurance Companies, and 
Participating Plans will be promptly informed, in writing, of the 
Board's determination that an irreconcilable material conflict exists, 
and its implications.
    7. Participating Insurance Companies will provide pass-through 
voting privileges of Fund shares to all Contract owners so long as the 
SEC interprets the 1940 Act to require pass-through voting privileges 
for Contract owners. Accordingly, Participating Insurance Companies 
will vote shares of the Funds held in their separate accounts in a 
manner consistent with timely voting instructions received from 
Contract owners. Each Participating Insurance Company will vote Fund 
shares held in its Separate Accounts for which it has not received 
timely voting instructions from Contract owners, as well as Fund shares 
held in its general account or otherwise attributable to it, in the 
same proportion as it votes Fund shares for which it has received 
instructions. Participating Insurance Companies will be responsible for 
assuring that each of their separate accounts investing in each Fund 
calculates voting privileges in a manner consistent with the separate 
accounts of other Participating Insurance Companies investing in that 
Fund. The obligation to calculate voting privileges in a manner 
consistent with all other Separate Accounts investing in each Fund will 
be a contractual obligation of all Participating Insurance Companies 
under their agreements governing participation in that Fund.
    8. All reports of potential or existing conflicts of interest 
received by a Board, and all Board action with regard to determining 
the existence of a conflict, notifying the Adviser, Participating 
Insurance Companies and Participating Plans of a conflict, and 
determining whether any proposed action adequately remedies a conflict, 
will be properly recorded in the minutes of the appropriate Board or 
other appropriate records, and such minutes or other records shall be 
made available to the SEC upon request.
    9. Each Fund will comply with all the provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, will be 
the persons having a voting interest in the shares of the Funds), and, 
in particular, each Fund will either provide for annual meetngs (except 
insofar as the SEC 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 Fund is not one of the trusts described in Section 16(c) 
of the 1940 Act) as well as Section 16(a) of the 1940 Act and, if 
applicable, Section 16(b) of the 1940 Act. Further, each Fund will act 
in accordance with the SEC's interpretation of the requirements of 
Section 16(a) with respect to periodic elections of directors and with 
whatever rules the SEC may promulgate with respect thereto.
    10. Each Fund will disclose in its prospectus that: (a) the Fund is 
intended to be the funding vehicle for Contracts offered by various 
Participating Insurance Companies and to Plans; (b) material 
irreconcilable conflicts may arise among various Contract owners and 
Plan participants; and (c) the Board will monitor events in order to 
identify the existence of any material irreconcilable conflict and 
determine what action, if any, should be taken in response to such 
conflict. Each Fund will notify all Participating Insurance Companies 
that separate account prospectus disclosure regarding potential risks 
of mixed and shared funding may be appropriate.
    11. If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940 
Act are amended (or if Rule 6e-3 under the 1940 Act is adopted) to 
provide exemptive relief from any provisions 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 the Applicants, then the Funds and the Participating 
Insurance Companies, as appropriate, will 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.
    12. No less than annually, the Adviser (and/or its affiliates), the 
Participating Insurance Companies and Participating Plans, will submit 
to the Board such reports, materials, or data as the Board may 
reasonably request so that the Board may carry out fully the 
obligations imposed upon it by the conditions contained in the 
application. Such reports, materials and data will be submitted more 
frequently if deemed appropriate by the Board. The obligations of the 
Participating Insurance Companies and Participating Plans to provide 
these reports, materials and data to the Board will be a contractual 
obligation of the Participating Insurance Companies and Participating 
Plans under their agreements governing their participation in the 
Funds.
    13. If a Plan or Plan participant should become an owner of 10% or 
more of the assets of a Fund, such Plan or Plan participant will 
execute a participation agreement with that Fund including the 
conditions set forth herein to the extent applicable. A Plan or Plan 
participant will execute an application containing an acknowledgement 
of this condition at the time of its initial purchase of shares of the 
Funds.

Conclusion

    For the reasons set forth above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and purposes 
fairly intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-368 Filed 1-9-96; 8:45 am]
BILLING CODE 8010-01-M