[Federal Register Volume 61, Number 229 (Tuesday, November 26, 1996)]
[Notices]
[Pages 60130-60135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30084]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22341; File No. 812-10198]


Wanger Advisors Trust, et al.

November 19, 1996.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

-----------------------------------------------------------------------

APPLICANTS: Wanger Advisors Trust (the ``Trust'') and Wanger Asset 
Management, L.P. (the ``Adviser'').
RELEVANT 1940 ACT SECTIONS AND RULES: Order requested under Section 
6(c) of the 1940 Act from the provisions of Sections 9(a), 13(a), 15(a) 
and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder.

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of the Trust and shares of any other 
investment company or series thereof that is designed to fund variable 
insurance products and for which the Adviser, or any of its affiliates, 
may serve now or in the future as investment adviser, administrator, 
manager, principal underwriter or sponsor (collectively, with the 
Trust, the ``Funds'') to be sold to and held by: (a) The variable 
annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies (the 
``Participating Insurance Companies''); and (b) certain qualified 
pension and retirement plans outside of the separate account context 
(the ``Qualified Plans'').

FILING DATES: The application was filed on June 12, 1996, and amended 
and restated on November 15, 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 on this application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on December 16, 1996, and accompanied by proof 
of service on the Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request and the 
issues contested. Persons may request notification of the date of a 
hearing by writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: Wanger Asset Management, L.P., 227 West Monroe 
Street, Suite 3000, Chicago, IL 60606, with copies to Janet D. Olsen, 
Bell, Boyd & Lloyd, Three First National Plaza, Suite 3300, Chicago, IL 
60602.

FOR FURTHER INFORMATION CONTACT:
Megan L. Dunphy, Law Clerk, or Patrice Pitts, Branch Chief, Office of 
Insurance Products, Division of Investment Management, at (202) 942-
0670.

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

Applicants' Representations

    1. The Trust is a Massachusetts business trust which is registered 
under the 1940 Act as an open-end, management investment company. 
Currently, the Trust consists of two separate portfolios: Wanger U.S. 
Small Cap Advisor and Wanger International Small Cap Advisor (each a 
``Portfolio'' and together the ``Portfolios''). The Trust may offer 
additional portfolios in the future. The Trust's initial registration 
statement on Form N-1A was declared effective on March 10, 1995.
    2. The Adviser is registered with the SEC under the Investment 
Advisers Act of 1940, and is the investment adviser for each Portfolio. 
The Adviser is a Delaware limited partnership. The general partner of 
the Adviser is Wanger Asset Management, Ltd., a Delaware corporation.
    3. The Trust currently offers its shares to, and its shares are 
held by: (a) separate accounts registered with the SEC under the 1940 
Act as unit investment trusts of life insurance company affiliates of 
Phoenix Home Life Mutual Insurance Company, Safeco Life Insurance 
Company and First Providian Life and Health Insurance Company 
(collectively, the ``Companies'') and (b) Qualified Plans. The Trust 
serves as the investment vehicle for variable annuity contracts issued 
by the Companies.
    4. The Funds intend to offer and sell their shares to variable 
annuity and variable life separate accounts (``Separate Accounts'') of 
Participating Insurance Companies, including the Companies and 
insurance companies that are affiliated or unaffiliated therewith to 
serve as an investment vehicle for various types of insurance

[[Page 60131]]

products. These products may include variable annuity contracts, single 
premium variable life insurance contracts, scheduled premium variable 
life insurance contracts, and flexible premium variable life insurance 
contracts (collectively, the ``Contracts''). The Funds also intend to 
offer their shares directly to Qualified Plans.
    5. Each Participating Insurance Company will enter into a 
participation agreement with the Trust or Fund in which such 
Participating Insurance Company invests. 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. The Funds will fulfill any 
conditions that the Commission may impose upon granting the order 
requested in the application.
    6. The Adviser may act as an investment advisor, trustee or 
custodian to Qualified Plans which invest in the Trust. The Adviser is 
not permitted to advise such Qualified Plans to invest in the Trust, 
although the independent fiduciaries of such Qualified Plans may choose 
to invest in the Trust.
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 exemptions granted by Rule 6e-2(b)(15) 
are available only where a management investment company underlying a 
UIT (``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 
separate account of the same company or of any affiliated or 
unaffiliated 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 affiliated life insurance company 
is referred to herein as ``mixed funding.''
    2. 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 annuity or variable life insurance 
separate accounts of unaffiliated life insurance companies. The use of 
a common management investment company as the underlying investment 
medium for separate accounts of unaffiliated insurance companies is 
referred to herein as ``shared funding.'' ``Mixed and share funding'' 
denotes the use of a common management investment company to fund the 
variable annuity and variable life insurance separate accounts of 
affiliated and unaffiliated insurance companies. Rule 6e-2(b)(15) 
precludes mixed funding as well as shared funding.
    3. 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 are also to be sold to Qualified 
Plans.
    4. In connection with flexible premium variable life insurance 
contracts issued through a UIT, Rule 6e-3(T)(b)(15) provides partial 
exemptions from Section 9(a), and from Sections 13(a), 15(a), and 15(b) 
of the 1940 Act. The exemptions granted by Rule 6e-3(T)(b)(15) are 
available only where a UIT's underlying fund offers its shares 
``exclusively to separate accounts of the life insurer, or any 
affiliated life insurance company, offering either scheduled premium 
variable life insurance contracts or flexible premium variable life 
insurance 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)(b)(15) 
permits mixed funding for flexible premium variable life insurance, but 
does not permit shared funding.
    5. Applicants state that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts of insurance companies, additional exemptive relief is 
necessary if shares of the Funds are also to be sold to Qualified 
Plans.
    6. Applicants therefore request that the Commission 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 to the extent necessary to 
permit mixed and shared funding.
    7. Section 9(a) of the 1940 Act provides that it is unlawful for 
any company to serve as investment adviser or principal underwriter of 
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 (a)(2). 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 
limits the amount of monitoring necessary to ensure compliance with 
Section 9 to that which is appropriate in light of the policy and 
purposes of that Section. Applicants state that Rules 6e-2 and 6e-3(T) 
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 individuals in a large 
insurance company complex, most of whom will have no involvement in 
matters pertaining to investment companies that fund the Separate 
Accounts that are managed, administered, or invested in by that 
organization. Applicants note that the Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Funds. Accordingly, Applicants assert that there 
is no regulatory reason to apply the requirements 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 funding media for variable contracts. 
Additionally, Applicants state that the relief requested should not be 
affected by the sale of shares of the Funds to Qualified Plans.
    8. Applicants state that 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.
    9. Applicants state that Rules 6e-2(b)(15)(iii)(A) and 6e-3 
(T)(b)(15)(iii)(A)(1) provide that an insurance company may disregard 
voting instructions of its contract owners with respect to the 
investments of any underlying investment company or any contract 
between an investment company 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 the Rules).
    10. Applicants state that Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the

[[Page 60132]]

insurance company may disregard the voting instructions of contract 
owners in favor of any change in such company's investment objectives, 
principal underwriter, or any investment adviser (subject to the other 
provisions of paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and (C) of the 
Rules).
    11. Applicants maintain, therefore, that in adopting Rule 6e-2 the 
Commission expressly recognized that such exemptions from pass-through 
voting requirements are necessary ``to assure the solvency of the life 
insurer and performance of its contractual obligations by enabling an 
insurance regulatory authority or the life insurer to act when certain 
proposals reasonably could be expected to increase the risks undertaken 
by the life insurer.'' \1\ Applicants state that flexible premium 
variable life insurance contracts and variable annuity contracts are 
subject to substantially the same state insurance regulatory authority 
and, therefore, the corresponding provisions of Rule 6e-3(T) 
undoubtedly were adopted in recognition of the same considerations as 
the Commission applied in adopting Rule 6e-2. Applicants argue that 
these considerations are no less important or necessary when an 
insurance company funds its separate account on a mixed and shared 
funding basis, and that such funding does not compromise the goals of 
the insurance regulatory authorities or of the Commission.
---------------------------------------------------------------------------

    \1\ Investment Company Act Release No. 9104 (Dec. 30, 1975), 8 
SEC Docket 932 (proposing Rule 6e-2).
---------------------------------------------------------------------------

    12. Applicants further represent that the Funds' sale of shares to 
the Qualified Plans should not affect the relief requested in this 
regard. Shares of the Funds sold to Qualified Plans are held by the 
trustees of the Qualified Plans as mandated by Section 403(a) of the 
Employee Retirement Income Security Act of 1974 (``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 plan expressly provides that the trustee(s) is 
(are) subject to the direction of a named fiduciary who is not a 
trustee, in which case the trustee(s) is (are) subject to proper 
directions made in accordance with the terms of the plan and not 
contrary to ERISA; and (b) when the authority to manage, acquire or 
dispose of assets of the plan is delegated to one or more investment 
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, plan trustees have the 
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary appoints an investment 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 such 
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 Qualified Plans.
    13. Applicants state that no increased conflicts of interest would 
be presented by the granting of the requested relief. Applicants note 
that where insurers 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 from 
that which exists when a single insurer is licensed to do business in 
several states.
    14. Applicants further submit that affiliation does not reduce the 
potential for differences among state regulatory requirements. In any 
event, the conditions discussed below are designed 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.
    15. Applicants also argue that affiliation does not eliminate the 
potential for divergent judgments as to the advisability or legality of 
a change in investment policies, principal underwriter, or investment 
adviser initiated by owners of the Contracts. 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.
    16. Applicants state that there is no reason why the investment 
policies of a Fund with mixed funding would or should be materially 
different from what those policies would or should be if such 
investment company or series thereof funded only variable annuity or 
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. Applicants note that Section 817(h) of the Internal Revenue 
Code of 1986, as amended (the ``Code''), imposes certain 
diversification standards on the underlying assets of variable annuity 
contracts and variable life insurance contracts held in the portfolios 
of variable annuity contracts and variable life insurance 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 ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company. Therefore, Applicants have 
concluded that neither the Code, nor 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.
    18. Applicants further note that while there are differences in the 
manner in which distributions from variable contracts and Qualified 
Plans are taxed, these differences do not raise any conflicts of 
interest. When distributions are to be made, and a Separate Account or 
Qualified Plan is unable to net purchase payments to make the 
distributions, the Separate Account and Qualified Plan will redeem 
shares of the Funds at their respective net asset values. A Qualified 
Plan will make distributions in accordance with the terms of the 
Qualified Plan. A Participating Insurance Company will surrender values 
from the Separate Account in accordance with the terms of the variable 
contract.
    19. Applicants submit that there is no greater potential for 
material irreconcilable conflicts arising between the interests of 
participants under the Qualified Plans and contract owners of Separate 
Accounts from possible future changes in the federal tax laws than that 
which already exists between variableannuity contract owners and 
variable life insurance contract owners.

[[Page 60133]]

    20. In connection with any meeting of shareholders, Applicants 
represent that the Funds will inform each shareholder, including each 
Separate Account and Qualified Plan, of information necessary for the 
meeting, including their respective share of ownership in the 
respective Funds. A Participating Insurance Company will then solicit 
voting instructions consistent with the ``pass-through'' voting 
requirement.
    21. Applicants state that the ability of the 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 Contract owner as opposed to a Qualified Plan 
participant. Regardless of the rights and benefits of participants 
under Qualified Plans or contract owners under variable contracts, the 
Qualified Plans and the Separate Accounts only have rights with respect 
to their respective shares of the Funds. They can redeem such shares 
only at their net asset value. No shareholder of the Funds has any 
preference over any other shareholder with respect to distribution of 
assets or payment of dividends.
    22. Applicants submit that there are no conflicts between contract 
owners of Separate Accounts and participants under Qualified Plans with 
respect to the state insurance commissioners' veto powers over 
investment objectives. The state insurance commissioners have been 
given the veto power in recognition of the fact that insurance 
companies usually cannot simply redeem their separate accounts out of 
one fund and invest in another. Generally, time-consuming, complex 
transactions must be undertaken to accomplish such redemptions and 
transfers. Conversely, the trustees of Qualified Plans or the 
participants in participant-directed Qualified Plans can make the 
decision quickly and implement the redemption of their shares from the 
Funds and reinvest in another funding vehicle, or even hold cash 
pending suitable investment, without the same regulatory impediments. 
Based on the foregoing, Applicants have concluded that even if there 
should arise issues where the interests of contract owners and the 
interests of Qualified Plans are in conflict, the issues can be almost 
immediately resolved in that the trustees of (or participants in) the 
Qualified Plans can, on their own, redeem the shares out of the Funds.
    23. Applicants state that various factors have kept insurance 
companies from offering variable annuity contracts and variable life 
insurance contracts. These factors include the costs of organizing and 
operating a funding medium, the lack of expertise with respect to 
investment management (principally with respect to stock and money 
market investments), and the lack of name recognition by the public as 
investment professionals. Applicants argue that use of a Fund as a 
common investment medium for variable contracts would alleviate these 
concerns. Applicants submit that mixed and shared funding would benefit 
Contract owners by: eliminating a significant portion of the costs of 
establishing and administering separate funds; allowing for a greater 
amount of assets available for investment by the Funds, thereby 
promoting economies of scale which permit increased safety of 
investments through greater diversification and make the addition of 
new portfolios more feasible; and encouraging more insurance companies 
to offer variable contracts which may result in increased competition 
with respect to both variable contract design and pricing, which, in 
turn, may be expected to result in more product variation and lower 
charges.

Applicants' Conditions

    If the requested Order is granted, Applicants consent to the 
following conditions:
    1. A majority of the Board of Trustees or Directors of each Fund 
(each, a ``Board'') will consist of persons who are not ``interested 
persons'' of that Fund, as defined by Section 2(a)(19) of the 1940 Act 
and the rules thereunder and as modified by any applicable orders of 
the Commission, except that if this condition is not met by reason of 
the death, disqualification, or bona fide resignation of any trustee(s) 
or director(s), then the operation of this condition will 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 among the interests of contract 
owners of all Separate Accounts and the interests of participants under 
Qualified Plans investing in the respective Funds, 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) 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 the Funds are being 
managed; (e) a difference in voting instructions given by variable 
annuity contract owners and variable life insurance contract owners; 
(f) a decision by a Participating Insurance Company to disregard the 
voting instructions of contract owners; or (g) as applicable, a 
decision by a Qualified Plan to disregard the voting instructions of 
Qualified Plan participants.
    3. The Adviser (or any other investment adviser of a Fund), any 
Participating Insurance Company, and any Qualified Plan that executes a 
Fund participation agreement upon becoming an owner of ten percent 
(10%) or more of the assets of the Fund (referred to herein as a 
``Participating Plan''), 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 responsibility includes, but is not 
limited to, an obligation of each Participating Insurance Company and 
the Adviser to inform the Board whenever the Participating Insurance 
Company has determined to disregard contract owners' voting 
instructions, and, if pass-through voting is applicable, an obligation 
of the Adviser and a Qualified Plan, to inform the Board whenever the 
Qualified Plan has determined to disregard voting instructions of 
Qualified Plan participants. The responsibility to report such 
information and conflicts and to assist the Board will be contractual 
obligations of the Adviser and 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, as applicable, Qualified Plan 
participants.
    4. If a majority of the Board of a Fund, or a majority of its 
disinterested members, determines that a material irreconcilable 
conflict exists, the Adviser and the relevant Participating Insurance 
Companies and Participating Plans shall, as appropriate and at their

[[Page 60134]]

expense and to the extent reasonably practicable (as determined by a 
majority of the disinterested members of the Board), take whatever 
steps are necessary to remedy or eliminate the material irreconcilable 
conflict, including: (a) Withdrawing the assets allocable to some or 
all of the Separate Accounts from that Fund and reinvesting such assets 
in a different investment medium, which may include another portfolio 
of that 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., 
variable annuity contract owners, variable life insurance contract 
owners, or 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 (b) 
establishing a new registered management investment company (or series 
thereof) 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 Fund's 
election, to withdraw its Separate Account's investment in that Fund, 
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 plan participant voting 
instructions, if applicable, and that decision represents 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 
such Fund, 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 determination by a Board of a material irreconcilable conflict, will 
be a contractual obligation of the Adviser and 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 interests of Contracts owners and 
Qualified Plan participants, as applicable.
    5. For purposes of condition 4, a majority of the disinterested 
members of the relevant Board will determine whether any proposed 
action adequately remedies any material irreconcilable conflict, but in 
no event will the relevant Fund or the Adviser (or any other investment 
adviser of the Funds) be required to establish a new funding medium for 
any variable contract. No Participating Insurance Company shall be 
required by condition 4 to establish a new funding medium for any 
variable contracts if an offer to do so has been declined by vote of a 
majority of contract owners materially affected by the material 
irreconcilable conflict.
    6. A Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known 
promptly in writing to the Adviser and to all Participating Insurance 
Companies and all Participating Plans.
    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 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 no timely voting instructions from Contract owners are 
received, as well as Fund shares held in its general account or 
otherwise attributed to it, in the same proportion as those shares for 
which voting instructions are received. Participating Insurance 
Companies will be responsible for assuring that each of their Separate 
Accounts investing in a 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 a Fund will be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participation in that Fund. Each Participating Insurance Company will 
vote shares for which it has not received timely voting instruction, as 
well as shares it owns, in the same proportion as it votes those shares 
for which it has received voting instructions. Each Qualified Plan will 
vote as required by applicable law and governing Qualified Plan 
documents.
    8. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, will be 
the persons having a voting interest in shares of the Funds), 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) of the 1940 Act 
(although the Fund is not one of the trusts described in Section 16(c)) 
as well as with 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 Commission's interpretation of the requirements of 
Section 16(a) with respect to periodic elections of directors and with 
whatever rules the Commission may promulgate with respect thereto.
    9. Each Fund will notify all Participating Insurance Companies that 
separate account prospectus disclosure regarding potential risks of 
mixed and shared funding may be appropriate. Each Fund will disclose in 
its prospectus that: (a) The Fund is intended to be a funding vehicle 
for all types of variable annuity contracts and variable life insurance 
contracts offered by various Participating Insurance Companies and for 
Qualified Plans; (b) the interests of various Contract owners and 
Qualified Plans investing in the Funds may conflict; and (c) the Board 
will monitor its respective Fund for any material irreconcilable 
conflict and determine what action, if any, should be taken in response 
to such conflict.
    10. If and to the extent that Rule 6e-2 or 6e-3(T) under the 1940 
Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief 
from any provision of the 1940 Act or the rules promulgated thereunder 
with respect to mixed or shared funding on terms and conditions 
materially different from any exemptions granted in the order requested 
in this application, then the Funds and/or 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 such rules are applicable.
    11. At least annually, the Adviser, and the Participating Insurance 
Companies and Participating Plans will submit to the Boards 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 the conditions contained in this application. Such reports, 
materials, and data will be submitted more frequently if deemed 
appropriate by the relevant Board. The obligation to provide these 
reports, materials, and data to a Board, when it so reasonably 
requests, will be a contractual obligation of the Adviser and of all 
Participating Insurance Companies and Participating Plans

[[Page 60135]]

under their agreements governing participation in the Funds.
    12. All reports received by a Board of potential or existing 
conflicts, and all Board action with regard to determining the 
existence of a conflict, notifying the Adviser and 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 Board or other 
appropriate records. Such minutes or other records will be made 
available to the Commission upon request.
    13. None of the Funds will accept a purchase order from a Qualified 
Plan if, after the entry of the order, such purchase would make the 
Plan an owner of 10% or more of the assets of a Fund, unless such plan 
executes a fund participation agreement with such Fund. A Qualified 
Plan will execute an application containing an acknowledgment of this 
condition at the time of its initial purchase of shares of the Funds, 
or, if the Qualified Plan is already a Fund shareholder at the date of 
this application, prior to the date of entry of the Commission order 
pursuant thereto.

Conclusion

    For the reasons stated 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 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30084 Filed 11-25-96; 8:45 am]
BILLING CODE 8010-01-M