[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Notices]
[Pages 55336-55341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27390]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22290; No. 812-10190]


Variable Investment Trust, et al.

October 18, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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APPLICANTS: Variable Investment Trust (the ``Trust''), GE Investment 
Management Incorporated (``GEIM'') and certain life insurance companies 
and their separate accounts investing now or in the future in the 
Trust.

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for 
exemption 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.

SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
necessary to permit shares of the Trust and any other investment 
company that is offered to fund variable insurance products and for 
which GEIM, or any of its affiliates, may serve as investment adviser, 
administrator, manager, principal underwriter, or sponsor 
(collectively, ``Investment Companies'') to be sold to and held by the 
separate accounts (``Separate Accounts'') funding variable annuity and 
variable life insurance contracts (``Variable Contracts'') issued by 
affiliated or unaffiliated life insurance companies (``Participating 
Insurance Companies'') or qualified pension and retirement plans 
outside of the separate account context (``Qualified Plans'' or 
``Plans'').

FILING DATE: The application was filed on June 5, 1996, and amended and 
restated on October 11, 1996.

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 by writing to the Secretary of the 
Commission 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 November 12, 1996, and must be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Matthew J. 
Simpson, Esq., GE Investment Management Incorporated, 3003 Summer 
Street, Stamford, Connecticut 06905.

FOR FURTHER INFORMATION CONTACT: Kevin M. Kirchoff, Senior Counsel, 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 is available for a fee from the 
Public Reference Branch of the Commission.

Applicants' Representations

    1. The Trust is a Massachusetts business trust registered under the 
1940 Act as an open-end management investment company. The Trust 
currently consists of five separate investment portfolio 
(``Portfolios''), and may establish additional portfolios.
    2. GEIM, a wholly-owned subsidiary of General Electric Company, 
serves as investment adviser to each Portfolio of the Trust.
    3. The Investment Companies will serve as investment vehicles for 
various types of Variable Contracts. Shares of the Investment Companies 
will be offered to Separate Accounts of Participating Insurance 
Companies which enter into participation agreements with the Trust. 
These Separate Accounts may be registered with the Commission under the 
1940 Act or exempt from registration under Section 3(c)(1) thereof.
    4. Each participating Insurance Company will have the legal 
obligation of satisfying all applicable requirements under state law 
and the federal securities laws in connection with any Variable 
Contract issued by such company. The role of the Investment Companies 
under this arrangement will consist of offering shares to the Separate 
Accounts and fulfilling any conditions the Commission may impose upon 
granting the order requested in this application.
    5. The Trust desires to avail itself of the opportunity to increase 
its asset base through the sale of its shares to Qualified Plans, 
consistent with applicable tax law. The Qualified Plans may choose any 
of the Investment Companies as the sole investment option under the 
Qualified Plan or as one or several investment options. Participants in 
Qualified Plans may or may not be given an investment choice among 
available alternatives, depending on the Qualified Plan itself. Shares 
of any Investment Company sold to Qualified Plans would be held by the 
trustee(s) of such Qualified Plans as mandated by Section 403(a) of the 
Employee Retirement Income Security Act (``ERISA''). To the extent 
permitted under applicable law, GEIM may act as investment adviser to 
any of the Qualified Plans that will purchase shares of the Trust. 
Applicants note that pass-through voting is not required to be provided 
to participants in Qualified Plans under ERISA.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act exempting them from Sections 9(a), 13(a), 
15(a), and 15(b) thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder to the extent necessary to permit ``mixed'' and ``shared'' 
funding, as defined below.
    2. Section 6(c) authorizes the Commission to grant exemptions from 
the provisions of the 1940 Act, and rules thereunder, if and to the 
extent that an exemption is necessary or 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.
    3. Rule 6e-2(b)(15) provides partial exemptive relief from Sections 
9(a), 13(a), 15(a), and 15(b) of the 1940 Act to separate accounts 
registered under the 1940 Act as unit investment trusts to the extent 
necessary to offer and sell scheduled premium variable life insurance 
contracts. The relief provided by the rule also extends to the 
investment adviser, principal underwriter, and sponsor or depositor of 
a separate account.
    4. The exemptions granted by Rule 6e-2(b)(15) are available only to 
a management investment company underlying a separate account 
(``Underlying Fund'') that offers its shares exclusively to variable 
life insurance separate accounts of a life insurer, or of any other 
affiliated life insurance company, issuing scheduled premium variable 
life insurance contracts. The relief granted by Rule 6e-2(b)(15) is not 
available to a separate account issuing scheduled premium variable life 
insurance contracts if the Underlying Fund also offers its shares to a 
separate account issuing variable annuity or flexible premium variable 
life insurance contracts. The use of a common Underlying Fund as an 
investment vehicle for both variable

[[Page 55337]]

annuity contracts and scheduled or flexible premium variable life 
insurance contracts is referred to herein as ``mixed funding.''
    5. Additionally, the relief granted by Rule 6e-2(b)(15) is not 
available to separate accounts issuing scheduled premium variable life 
insurance contracts if the Underlying Fund also offers its shares to 
unaffiliated life insurance company separate accounts funding variable 
contracts. The use of a common fund as an underlying investment vehicle 
for separate accounts of unaffiliated insurance companies is referred 
to herein as ``shared funding.'' Moreover, because the relief granted 
by Rule 6e-2(b)(15) is available only where shares of the Underlying 
Fund are offered exclusively to separate accounts of insurance 
companies, additional exemptive relief is necessary if the shares of 
the Trust also are to be sold to Qualified Plans.
    6. Regarding the funding of flexible variable life insurance 
contracts issued through a separate account, Rule 6e-3(T)(b)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) 
of the 1940 Act. This exemptive relief extends to the investment 
adviser, principal underwriter, and sponsor or depositor of a separate 
account. These exemptions are available only where the Underlying Funds 
of the separate account 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 
* * * .'' Rule 6e-3(T), therefore, 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 to a flexible premium variable life insurance separate 
account that owns shares of a management company that also offers its 
shares to separate accounts of unaffiliated life insurance companies. 
Moreover, because the relief afforded by Rule 6e-3(T) is available only 
where shares of the Underlying Fund are offered exclusively to separate 
accounts of insurance companies, additional relief is necessary if 
shares of the Trust also are to be sold to Qualified Plans.
    7. Applicants state that changes in the tax law have created the 
opportunity for the Portfolios to increase their asset base through the 
sale of Portfolio shares to Qualified Plans. Applicants state that 
Section 817(h) of the Internal Revenue Code of 1986, as amended (the 
``Code''), imposes certain diversification standards on the assets 
underlying variable contracts, such as those in each Portfolio of the 
Trust. These diversification requirements are applied by taking into 
account the assets of the Underlying Fund if all the beneficial 
interests in the Underlying Fund are held by certain designated 
persons. On March 2, 1989, the Treasury Department issued regulations 
that adopted diversification requirements for Underlying Funds. Treas. 
Reg. Sec. 1.817-5 (1989). These regulations provide that, in order to 
meet the diversification requirements, all of the beneficial interests 
in the investment company must be held by the segregated asset accounts 
of one or more insurance companies. The regulations, however, contain 
certain exceptions to this requirement, one of which permits the 
trustee(s) of a qualified pension or retirement plan to hold shares of 
an investment company, the shares of which also are held by separate 
accounts of insurance companies, without adversely affecting the status 
of the investment company as an adequately diversified underlying 
investment vehicle for variable contracts issued through such 
segregated asset accounts. Treas. Reg. Sec. 1.817-5(f)(3)(iii).
    8. Applicants state that the promulgation of Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) preceded the issuance of regulations of the Treasury 
Department which made it possible for shares of an investment company 
to be held by the trustee(s) of qualified plans without adversely 
affecting the ability of shares in the same investment company also to 
be held by separate accounts of insurance companies in connection with 
their variable contracts. Thus, the sale of shares of the same 
investment company to separate accounts and qualified plans could not 
have been envisioned at the time of the adoption of Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) given the current tax law.
    9. Moreover, Applicants assert that if the Trust were to sell its 
share only to Qualified Plans, no exemptive relief would be necessary. 
Applicants state that none of the relief provided for in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) relates to qualified pension or retirement 
plans or to the ability of an Underlying Fund to sell its shares to 
such plans. It is only because the Separate Accounts investing in the 
Trust are themselves investment companies which are relying upon Rules 
6e-2 and 6e-3(T) and do not wish to be denied such relief if the 
Investment Companies sell shares to Qualified Plans that Applicants are 
applying for the requested relief.
    10. Section 9(a) of the 1940 Act makes it unlawful for any company 
to serve as an investment adviser to, or principal underwriter of, 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). Subparagraphs (b)(15) (i) and (ii) of Rules 6e-2 
and 6e-3(T) provide exemptions from Section 9(a) under certain 
circumstances, subject to limitations on mixed and shared funding. The 
relief provided by subparagraphs (b)(15)(i) of Rules 6e-2 and 6e-3(T) 
permits a person disqualified under Section 9(a) to serve as an office, 
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 
subparagraph (b)(15)(ii) of Rules 6e-2 and 6e-3(T) permits the life 
insurer to serve as the investment adviser or principal underwriter of 
an Underlying Fund, provided that none of the personnel of the insurer 
who are ineligible pursuant to Section 9(a) are participating in the 
management or administration of the fund.
    11. Applicants state that the partial relief granted under 
subparagraphs (b)(15) of Rules 6e-2 and 6e-3(T) from the requirements 
of Section 9(a), in effect, limits the monitoring of the personnel of 
an insurer 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 submit that Rules 6e-2 and 6e-3(T) 
reflect a recognition 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. The Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Investment Companies. Applicants, therefore, 
submit that there is no regulatory reason to apply the provisions of 
Section 9(a) to the many individuals in various Participating Insurance 
Companies.
    12. Subparagraphs (b)(15)(iii) of Rules 6e-2 and 6e-3(T) 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

[[Page 55338]]

shares held by a separate account, to permit the insurance company to 
disregard the voting instructions of it variable contract owners in 
certain limited circumstances.
    13. Voting instructions may be disregarded under subparagraphs 
(b)(15)(iii)(A) of Rules 6e-2 and 6e-3(T) if they would cause the 
Underlying Fund to make, or refrain from making, certain investments 
which would result in changes to the subclassification or investment 
objectives of the Underlying Fund, or to approve or disapprove any 
contract between a fund and its investment advisers, 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.
    14. Under subparagraph (b)(15)(iii)(B) of Rule 6e-2 and 
subparagraph (b)(15)(iii)(A)(2) of Rule 6e-3(T), an insurance company 
may disregard the voting instructions of variable contract owners if 
such owners initiate any change in the investment objectives, principal 
underwriter, or investment adviser of the Underlying Fund, 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.
    15. Applicants assert that the proposed sale of shares of the Trust 
to Qualified Plans does not affect the relief requested. As previously 
noted, Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) permit an insurer 
to disregard variable contract owner voting instructions in certain 
circumstances. Offering shares of the Trust to Qualified Plans would 
not affect the circumstances and conditions under which any veto right 
would be exercised by a Participating Insurance Company. Furthermore, 
as stated above, shares of the Trust sold to Qualified Plans would be 
held by the trustee(s) of such Plans as mandated by Section 403(a) of 
ERISA. Section 403(a) 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 of such fiduciary 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 under Section 402(c)(3) of 
ERISA. Unless one of the two exceptions stated in Section 403(a) 
applies, the trustee(s) of the Qualified Plan has/have the exclusive 
authority and responsibility for voting proxies. When 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 trustee(s) or the named fiduciary. In any 
event, Applicants assert that pass-through voting by the participants 
in such Qualified Plans is not required. 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 Qualified Plans.
    16. Applicants state that no increased conflicts of interest would 
be presented by the granting of the requested relief. Applicants submit 
that shared funding by unaffiliated insurance companies 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. In this 
regard, Applicants assert that a particular state insurance regulatory 
body could require action that is inconsistent with the requirements of 
other states in which the insurance company offers its variable 
contracts. Accordingly, Applicants submit that the fact that different 
insurers may be domiciled in different states does not create a 
significantly different or enlarged problem.
    17. Applicants state further that, under paragraph (b)(15) of Rules 
6e-2 and 6e-3(T), the right of an insurance company to disregard the 
voting instructions of Variable Contract owners does not raise any 
issues different from those raised by the authority of state insurance 
administrators over separate accounts, and that affiliation does not 
eliminate the potential, if any, for divergent judgements as to the 
advisability or legality of a change in investment policies, principal 
underwriter, or investment adviser. Applicants state that the potential 
for disagreement is limited by the requirements in Rules 6e-2 and 6e-
3(T) that the disregard of voting instructions by an insurance company 
be reasonable and based on specific good faith determinations. If a 
decision of a Participating Insurance Company to disregard the 
instructions of Variable Contract owners represents a minority position 
or would preclude a majority vote approving a particular change, 
however, such Participating Insurance Company may be required, at the 
election of the relevant Investment Company, to withdraw the investment 
of its Separate Account in such Investment Company. No charge or 
penalty will be imposed as a result of such withdrawal.
    18. Applicants state that there is no reason why the investment 
policies of the Investment Companies with mixed funding would or should 
be materially different from what they would or should be if the 
Investment Companies funded only variable annuity contracts or variable 
life insurance policies. Each type of insurance product is designed as 
a long-term investment program. Moreover, Applicants assert that the 
Investment Companies will continue to be managed in an attempt to 
achieve their investment objectives, and not to favor any particular 
Participating Insurance Company or type of insurance product. 
Applicants, therefore, argue that there is no reason to believe that 
conflicts of interest would result from mixed funding.
    19. In addition, Applicants assert that the sale of shares of the 
Trust to Qualified Plans will not increase the potential for material 
irreconcilable conflicts of interest between or among different types 
of investors. Section 817 is the only section in the Code in which 
separate accounts are discussed. Section 817(h) imposes certain 
diversification standards on the underlying assets of variable annuity 
and variable life insurance contracts. Treasury Regulation Sec. 1.817-
5(f)(iii) specifically permits ``qualified pension or retirement 
plans'' and separate accounts to share the same underlying management 
investment company. Applicants, therefore, have concluded that neither 
the Code, nor the Treasury regulations or revenue rulings thereunder, 
present any inherent conflicts of interest between or among qualified 
pension or retirement plan participants and variable contract owners if 
qualified pension and retirement plans and variable annuity and 
variable life separate accounts invest in the same management 
investment company.
    20. Applicants assert that while there are differences in the 
manner in which distributions are taxed for variable annuity and 
variable life insurance contracts and Qualified Plans, these tax 
consequences do not raise any conflicts of interest. When distributions 
are 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 Investment Companies at 
their respective net asset value. The Qualified Plan then will make 
distributions in accordance with the terms of the Plan, and a 
Participating Insurance Company will surrender values from the Separate 
Account into the general account to

[[Page 55339]]

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 rights to Variable 
Contract owners and participants in the Qualified Plans. In connection 
with any meeting of shareholders, the Trust will inform each 
shareholder, including each Separate Account and Qualified Plan, of the 
information necessary for the meeting, including their respective share 
of ownership in the Investment Companies. A Participating Insurance 
Company will solicit voting instructions in accordance with the ``pass-
through'' voting requirement. Qualified Plans and Separate Accounts 
each will have the opportunity to exercise voting rights with respect 
to their shares in the Investment Companies, although only the Separate 
Accounts are required to pass through their vote to contract owners. 
The voting rights provided to Qualified Plans with respect to shares of 
the Trust would be no different from the voting rights that are 
provided to Qualified Plans with respect to shares of mutual funds sold 
to the general public.
    22. Applicants argue that the ability of the Investment Companies 
to sell their shares directly to Qualified Plans does not create a 
``senior security'' as defined by Section 18(g) of the 1940 Act. As 
noted above, regardless of the rights and benefits of participants 
under Qualified Plans, or Variable Contract owners under Variable 
Contracts, the Qualified Plans and the Separate Accounts have rights 
only with respect to their respective shares of the Investment 
Companies. They can redeem such shares only at their net asset value. 
No shareholder of the Investment Companies has any preference over any 
other shareholder with respect to distribution of assets or payment of 
dividends.
    23. Applicants have determined that no conflicts of interest exist 
between the Variable Contract owners of the Separate Accounts and 
Qualified Plan participants with respect to the veto powers over 
investment objectives of state insurance commissioners. The basic 
premise of corporate democracy and shareholder voting is that not all 
shareholders may agree with a particular proposal. State insurance 
commissioners have been given veto power in recognition of the fact 
that insurance companies usually cannot simply redeem their separate 
accounts out of one Underlying Fund and invest in another. Generally, 
time-consuming complex transactions must be undertaken to accomplish 
such redemptions and transfers. Conversely, the trustee(s) of Qualified 
Plans or the participants in participant directed Qualified Plans could 
make the decision quickly and could implement the redemption of their 
shares from the Investment Companies and reinvest in another funding 
vehicle without the same regulatory impediments or, as is the case with 
most Qualified Plans, even hold cash pending suitable investment.
    24. Applicants state that they do not see any greater potential for 
material irreconcilable conflicts arising between the interests of 
participants under the Qualified Plans and owners of Variable Contracts 
funded through Separate Accounts from possible future changes in the 
federal tax laws than that which already exists between Variable 
Contract owners.
    25. Applicants assert that the requested relief is appropriate and 
in the public interest because the relief will promote competitiveness 
in the variable life insurance market. Various factors have limited the 
number of insurance companies that offer variable insurance contracts. 
These factors include the costs of organizing and operating a funding 
medium, the lack of expertise with respect to investment management, 
and the lack of name recognition by the public of certain insurers as 
investment experts to whom the public feels comfortable entrusting 
their investments. Applicants argue that use of Investment Companies as 
common investment vehicles for Variable Contracts helps to alleviate 
these concerns because Participating Insurance Companies benefit not 
only from the investment and administrative expertise of the investment 
adviser of the Trust, but also from the cost efficiencies and 
investment flexibility afforded by a large pool of funds. Making the 
Portfolios available for mixed and shared funding may encourage more 
insurance companies to offer variable insurance contracts and, 
accordingly, could result in increased competition with respect to both 
variable insurance contract design and pricing, which can be expected 
to result in more product variation and lower charges. Mixed and shared 
funding also would benefit variable insurance contract owners by 
eliminating a significant portion of the costs of establishing and 
administering separate mutual funds. Furthermore, Applicants assert 
that the sale of shares of the Investment Companies to Qualified Plans, 
in addition to Separate Accounts of Participating Insurance Companies, 
would result in an increased amount of assets available for investment 
by the Investment Companies. This may benefit Variable Contract owners 
by promoting economies of scale, by permitting increased safety of 
investments through greater diversification, and by making the addition 
of new portfolios more feasible.
    26. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding. Separate accounts organized as 
unit investment trusts historically have been employed to accumulate 
shares of mutual funds which have not been affiliated with the 
depositor or sponsor of the separate account, and Applicants believe 
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 Trustees or Directors of each 
Investment Company (``Board'') shall consist of persons who are not 
``interested persons'' of such investment company, 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 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 as the Commission may prescribe by 
order upon application.
    2. The Boards will monitor the Investment Companies for the 
existence of any material irreconcilable conflict between the contract 
holders of all Separate Accounts and of participants of Qualified Plans 
investing in the respective Investment Companies, and determine what 
action, if any, should be taken in response to such conflicts. 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 the Investment Companies are being managed; (e) a 
difference among voting instructions given by Variable Contract owners; 
(f) a decision by a Participating Insurance Company to disregard the 
voting instructions of Variable Contract

[[Page 55340]]

owners; or (g) as appropriate, a decision by a Qualified Plan to 
disregard the voting instructions of Qualified Plan participants.
    3. Participating Insurance Companies and GEIM, or any other 
investment manager of an Investment Company, and any Qualified Plan 
that executes a fund participation agreement upon becoming an owner of 
10 percent or more of the assets of the Investment Company 
(collectively, ``Participants'') will report any potential or existing 
conflicts, of which they become aware, to the relevant Board. 
Participants will be obligated to assist the Board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for it to consider any issues raised. 
This responsibility includes, but is not limited to, an obligation by 
each Participating Insurance Company to inform the relevant Board 
whenever the voting instructions of Variable Contract owners are 
disregarded. The responsibility to report such information and 
conflicts and to assist the Board will be a contractual obligation of 
all Participants investing in an Investment Company under their 
participation agreements, and those participation agreements shall 
provide that such responsibilities will be carried out with a view only 
to the interests of the Variable Contract owners or, as appropriate, 
Qualified Plan participants.
    4. If a majority of a Board, or a majority of its disinterested 
members (``Independent Members''), determines that a material 
irreconcilable conflict exists, the relevant Participant shall, at its 
expense and to the extent reasonably practicable (as determined by a 
majority of Independent Members), take whatever steps are necessary to 
remedy or eliminate the irreconcilable material conflict, including: 
(a) Withdrawing the assets allocable to some or all of the Separate 
Accounts from the Portfolios and reinvesting those assets in a 
different investment medium, which may include another portfolio of the 
relevant Investment Company; (b) in the case of Participating Insurance 
Companies, submitting the question whether such segregation should be 
implemented to a vote of all affected Variable 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; and (c) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of the decision of a Participating Insurance Company to disregard the 
voting instructions of Variable Contract owners, and that decision 
represents a minority position or would preclude a majority vote, such 
Participating Insurance Company may be required, at the election of the 
relevant Investment Company, to withdraw the investment of its Separate 
Account therein. No charge or penalty will be imposed as a result of 
such withdrawal. Likewise, and as appropriate, if a material 
irreconcilable conflict arises because of a Qualified Plan's decision 
to disregard Plan participant voting instructions, and that decision 
represents a minority position or would preclude a majority vote, the 
Qualified Plan may be required, at the election of the relevant 
Investment Company, to withdraw its investment in the Investment 
Company; no charge or penalty will be imposed as a result of such 
withdrawal. The responsibility to take remedial action in the event of 
a determination by a Board that an irreconcilable material conflict 
exists and to bear the cost of such remedial action shall be a 
contractual obligation of all Participants under their participation 
agreements governing participation in the Investment Companies, and 
these responsibilities will be carried out with a view only to the 
interests of Variable Contract owners or, as appropriate Qualified Plan 
participants.
    5. A majority of Independent Members shall determine whether any 
proposed action adequately remedies any irreconcilable material 
conflict, but in no event will the relevant Investment Company or GEIM 
(or any other investment adviser of the Investment Companies) be 
required to establish a new funding medium for any variable contract. 
No Participating Insurance Company shall be required by this condition 
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 Variable Contract 
owners materially affected by the irreconcilable material conflict.
    6. The determination by a Board of the existence of an 
irreconcilable material conflict and its implications shall be made 
known promptly in writing to all Participants.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all contract owners so long as the Commission 
continues to interpret the 1940 Act as requiring pass-through voting 
privileges for variable insurance contract owners. Accordingly, when 
appropriate, such a Participating Insurance Company will vote shares of 
a Portfolio held in its Separate Accounts in a manner consistent with 
timely voting instructions received from Variable Contract owners. A 
Participating Insurance Company also will vote shares of a Portfolio 
held in its Separate Accounts for which no timely voting instructions 
from Variable Contract owners are received, as well as shares it owns, 
in the same proportion as those shares for which voting instructions 
are received. Participating Insurance Companies shall be responsible 
for assuring that each of their Separate Accounts investing in an 
Investment Company 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 
Separate Accounts investing in an Investment Company shall be a 
contractual obligation of all Participating Insurance Companies under 
their participation agreements with the Investment Companies. Each 
Qualified Plan will vote as required by applicable law and governing 
Plan documents.
    8. Each Investment Company will notify all Participants that 
prospectus disclosure regarding potential risks of mixed and shared 
funding may be appropriate. Each Investment Company shall disclose in 
its prospectus that: (a) Its shares may be offered to insurance company 
separate accounts of both variable annuity and variable life insurance 
contracts and to Qualified Plans; (b) because of differences in tax 
treatment or other considerations, the interests of Variable Contract 
owners investing in the Investment Company and the interests of 
Qualified Plans investing in the Investment Company may conflict; and 
(c) its Board will monitor for any material conflicts and determine 
what action, if any, should be taken.
    9. All reports received by the Board regarding potential or 
existing conflicts, and all action of the Board 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 
meetings of the Board or other appropriate records. Such minutes or 
other records shall be made available to the Commission upon request.
    10. If, and to the extent that, Rule 6e-2 or Rule 6e-3(T) is 
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any 
provision of the 1940 Act or the rules thereunder with respect

[[Page 55341]]

to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested, then the 
Investment Companies 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, and Rule 6e-3, as adopted, to the extent such 
rules are applicable.
    11. Each Investment Company 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 
Investment Companies), and, in particular, will comply with Section 
16(a) and, if and when applicable, Section 16(b). Further, each 
Investment Company will act in accordance with the interpretation of 
the Commission of the requirements of Section 16(a) with respect to 
periodic elections of directors and with whatever rules the Commission 
may adopt with respect thereto.
    12. The Participants shall submit to the Boards, at least annually, 
such reports, materials or data as the Boards may reasonably request so 
that the Boards may carry out fully the obligations imposed upon them 
by these stated conditions. Such reports, materials, and data shall be 
submitted more frequently if deemed appropriate by the Boards. The 
obligations of the Participants to provide these reports, materials, 
and data upon reasonable request of the Boards shall be a contractual 
obligation of the Participant under its participation agreement with an 
Investment Company.
    13. None of the Investment Companies will accept a purchase order 
from a Plan if such purchase would make the Plan an owner of 10 percent 
or more of the assets of an Investment Company, unless such Qualified 
Plan executes a fund participation agreement with such Investment 
Company. A qualified Plan will execute an application containing an 
acknowledgment of this condition upon its initial purchase of the 
shares of an Investment Company.

Conclusion

    For the reasons stated above, Applicants assert that the requested 
exemptions 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, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27390 Filed 10-24-96; 8:45 am]
BILLING CODE 8010-01-M