[Federal Register Volume 62, Number 116 (Tuesday, June 17, 1997)]
[Notices]
[Pages 32839-32844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-22698; File No. 812-10494]


Pioneer Variable Contracts Trust, et al.

June 10, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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APPLICANTS: Pioneer Variable Contracts Trust (the ``Trust'') and 
Pioneering Management Corporation (``Pioneer'' or the ``Manager'').

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

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of the Trust and all similar investment 
companies that Pioneer or any of its affiliates may in the future serve 
as manager, investment adviser, administrator, principal underwriter or 
sponsor to be sold to and held by: (1) separate accounts funding 
variable annuity and variable life insurance contracts issued by both 
affiliated and unaffiliated life insurance companies; and (2) qualified 
pension and retirement plans outside of the separate account context 
(``Qualified Plans'' or ``Plans'').

FILING DATE: The application was filed on January 14, 1997, and amended 
on April 28, 1997.

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

[[Page 32840]]

to the Secretary of the SEC and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on July 7, 1997, and accompanied by proof of 
service on the Applicants in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the interest, the reason for the request and the issues contested. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, c/o Robert P. Nault, Esq., Pioneering Management 
Corporation, 60 State Street, 19th Floor, Boston, MA 02109. Copies to 
Jeffrey S. Puretz, Esq., Dechert Price & Rhoads, 1500 K Street, NW., 
Suite 500, Washington, DC 20005.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Attorney, or Mark C. 
Amorosi, 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 organized as a Delaware business trust and is 
registered under the 1940 Act as an open-end management investment 
company. It currently consists of eight separate investment portfolios 
(``Series''), each with its own investment objective or objectives and 
policies.
    2. Pioneer, a corporation organized under the laws of the State of 
Delaware and registered as an investment adviser under the Investment 
Advisers Act of 1940, serves as investment adviser to each Series.
    3. The Trust currently offers shares of its Series to separate 
accounts of Allmerica Financial Life Insurance and Annuity Company 
(``Allmerica'') and First Allmerica Financial Life Insurance Company 
(``First Allmerica'') to serve as the investment medium for variable 
annuity contracts issued by Allmerica and First Allmerica.
    4. The Trust and any other similar investment companies that 
Pioneer or any of its affiliates may manage or serve as investment 
adviser, administrator, principal underwriter or sponsor for in the 
future (the Trust and such similar investment companies are 
collectively referred to herein as the ``Funds'') would offer shares to 
separate accounts that are registered under the 1940 Act as unit 
investment trust (``Separate Accounts'') and that serve as investment 
vehicles for variable insurance contracts issued by affiliated and 
unaffiliated life insurance companies. Variable insurance contracts may 
include variable annuity contracts, variable life insurance contracts 
and variable group life insurance contracts. Separate accounts to which 
the shares of the Funds would in the future be offered also include 
separate accounts that are not registered as investment companies under 
the 1940 Act pursuant to the exceptions from registration in Sections 
3(c)(1) and 3(c)(11) of the 1940 Act. In addition, the Funds may offer 
shares to separate accounts serving as investment vehicles for other 
types of insurance products, which may include variable annuity 
contracts, scheduled premium variable life insurance contracts, single 
premium variable life insurance contracts, modified single premium 
variable life insurance contracts, and flexible premium variable life 
insurance contracts. (All insurance contracts referenced in this 
paragraph are collectively referred in herein as ``Variable 
Contracts.'' Insurance companies whose separate account or accounts 
would own shares of the Funds are referred to herein as ``participating 
insurance companies.'')
    5. The Funds also intend to offer shares directly to Qualified 
Plans described in Treasury Regulation Sec. 1.817-6(f)(3)(iii).

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act granting exemptions 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: (a) permit 
``mixed'' and ``shared'' funding as defined below; and (b) allow shares 
of the Funds to be sold to and held by Qualified Plans.
    2. Section 6(c) authorizes the Commission, by order upon 
application, to conditionally or unconditionally exempt any person, 
security, or transaction, or class or classes of persons, securities, 
or transaction, from any provision of the 1940 Act, or the rules or 
regulations thereunder, if and to the extent that such 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. In connection with the funding of scheduled premium variable 
life insurance contracts issued through Separate Accounts, Rule 6e-
2(b)(15) under the 1940 Act 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 the management investment 
company underlying the Separate Account (``underlying fund'') offers 
its shares ``exclusively to variable life insurance separate accounts 
of the life insurer, or of any affiliated life insurance company'' 
(emphasis supplied).\1\ Therefore, the relief granted by Rule 6e-
2(b)(15) is not available with respect to a scheduled premium variable 
life insurance separate account that owns shares of an underlying fund 
that also offers its shares to a variable annuity or a flexible premium 
variable life insurance separate account of the same company of any 
affiliated life insurance company. The use of a common management 
investment company as the underlying investment medium for both 
variable annuity and variable life insurance separate accounts of the 
same life insurance company or of any affiliated life insurance company 
is referred to herein as ``mixed funding.'' In addition, the relief 
granted by Rule 6e-2(b)(15) is not available with respect to a 
scheduled premium variable life insurance separate account that owns 
shares of an underlying fund that also offers it shares to separate 
accounts funding Variable Contracts of one or more unaffiliated life 
insurance companies. The use of a common management investment company 
as the underlying investment medium for variable life insurance 
separate accounts of one insurance company and separate accounts 
funding Variable Contracts of one or more unaffiliated life insurance 
companies is referred to herein as ``shared funding.''
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    \1\ The exemptions provided by Rule 6e-2 also are available to 
the investment adviser, principal underwriter, and sponsor or 
depositor of the separate account.
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    4. The relief granted by Rule 6e-2(b)(15) is in no way affected by 
the purchase of shares of the Funds by Qualified Plans. However, 
because the relief under Rule 6e-2(b)(15) is available only where 
shares are offered exclusively to separate accounts, additional 
exemptive relief is necessary if the shares of the Funds are also to be 
sold in Plans.
    5. In connection with the funding of flexible premium variable life 
insurance contracts issued through a Separate Account, Rule 6e-
3(T)(b)(15) under the 1940 Act provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act. The exemptions 
granted by Rule 6e-3(T) are available

[[Page 32841]]

only where the Separate Account's underlying fund offers its shares 
``exclusively to separate accounts of the life insurer, or of 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 
affiliate life insurance company'' (emphasis supplied).\2\ Therefore, 
Rule 6e-3(T)(b)(15) permits mixed funding but does not permit shared 
funding.
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    \2\ The exemptions provided by Rule 6e-3(T) also are available 
to the investment adviser, principal, underwriter, and sponsor or 
depositor of the separate account.
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    6. The relief granted by Rule 6e-3(T) also is in no way affected by 
the purchase of shares of the Funds by Qualified Plans. However, 
because the relief under Rule 6e-3(T) is available only where shares 
are offered exclusively to separate accounts, additional exemptive 
relief is necessary if the shares of the Funds are also to be sold to 
Plans.
    7. Section 9(a) of the 1940 Act provides that it is unlawful for 
any persons to serve as an investment adviser to or principal 
underwriter for any registered open-end investment company if an 
affiliated person of that person is subject to a disqualification 
enumerated in Section 9(a) (1) or (2). Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) provide exemptions from Section 9(a) under certain 
circumstances, subject to the limitations on mixed and shared funding. 
These exemptions limit the application of the eligibility restrictions 
to affiliated individuals or companies that directly participate in the 
management of the underlying fund.
    8. Applicants state that the partial relief from Section 9(a) 
provided the Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits 
the amount of monitoring necessary to ensure compliance with Section 9 
to that which is appropriate in light of the policy and purposes of 
Section 9. 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 in an insurance 
company complex, most of whom typically will have no involvement in 
matters pertaining to investment companies in that organization. 
Applicants assert, therefore, that there is no regulatory purpose in 
extending the monitoring requirements to embrace a full application of 
Section 9(a)'s eligibility restrictions because of mixed funding or 
shared funding.
    9. Applicants state that the relief requested herein will not be 
affected by the proposed sale of shares of the Funds to Qualified Plans 
because the Qualified Plans are not investment companies and will not 
be deemed to be affiliates by virtue of their shareholdings in the 
Funds.
    10. Sections 13(a), 15(a) and 15(b) of the1940 Act require ``pass-
through'' voting with respect to management investment company shares 
held by a separate account. Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide partial exemptions from the pass-through 
voting requirement. More specifically, the Rules 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 and subject to certain 
requirements. In addition, Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard 
contract owner's voting instructions if the contract owners initiate 
any change in such company's investment policies, principal 
underwriter, or any investment adviser (provided that disregarding such 
voting instructions is reasonable and subject to other provisions of 
Rules 6e-2 and 6e-3(T)).
    11. Rule 6e-2 recognizes that a variable life insurance contract 
has important elements unique to insurance contracts, and is subject to 
extensive state regulation. In adopting Rule 6e-2(b)(15)(iii), the 
Commission expressly recognized that state insurance regulators have 
authority, pursuant to state insurance laws or regulations, to 
disapprove or require changes in investment policies, investment 
advisers, or principal underwriters. The Commission also expressly 
recognized that state insurance regulators have authority to require an 
insurer to draw from its general account to cover costs imposed upon 
the insurer by a change approved by contract owners over the insurer's 
objection. the Commission therefore deemed such exemptions 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 proposal reasonably could be 
expected to increase the risks undertaken by the life insurer.'' In 
this respect, flexible premium variable life insurance contracts are 
identical to scheduled premium variable life insurance contracts; 
therefore, Rule 6e-3(T)'s corresponding provisions undoubtedly were 
adopted in recognition of the same factors.
    12. Applicants further represent that the Funds' sale of shares to 
Qualified Plans will not have any impact on the relief requested in 
this regard. Shares of the Funds sold to such Plans would be held by 
the trustees of said Plans as mandated by Section 403(a) of the 
Employee Retirement Income Security Act (``ERISA''). Section 403(a) 
also provides that the trustee(s) must have exclusive authority and 
discretion to manage and control the assets of the plan with two 
exceptions: (a) when the plan expressly provides that the trustee(s) is 
subject to the direction of a named fiduciary who is not a trustee, in 
which case the trustee(s) is subject to proper directions made in 
accordance with the term 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 the named fiduciary. In any event, there is no pass-
through voting to the participants in such plans. Accordingly, 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 submit that shared funding does not present any 
issues that do not already exist where a single insurance company is 
licensed to do business in several or all states. In this regard, 
Applicants state 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 policies. 
Accordingly, Applicants submit that the fact that different insurers 
may be domiciled in different states does not create a significantly 
different or enlarged problem.
    14. Applicants submit that the conditions discussed below (which 
are adapted from the conditions included in Rule 6e-3(T)(b)(15)) are 
designed to safeguard against and provide procedures for resolving any 
adverse effects that differences among state regulatory requirements 
may produce. If a particular state insurance regulator's

[[Page 32842]]

decision conflicts with the majority of other state regulators, then 
the affected insurer will be required to withdraw its separate 
account's investment in the affected Fund. This requirement will be 
provided for in agreements that will be entered into by participating 
insurance companies with respect to their participation in the Funds.
    15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit an insurance 
company to disregard contract owners' voting instructions. Applicants 
submit that this does not raise any issues different from those raised 
by the authority to state insurance administrators over separate 
accounts. Applicants note that Rules 6e-2 and6e-3(T) both require that 
disregard of voting instructions by an insurance company be reasonable 
and based on specific good faith determinations. If the insurer's 
judgment represents a minority position or would preclude a majority 
vote, the insurer may be required, at a Fund's election, to withdraw 
its separate account's investment in such Fund. No charge or penalty 
would be imposed as a result of such withdrawal.
    16. Applicants submit that there is no reason why the investment 
policies of the Funds providing mixed funding would or should be 
materially different from what those policies would or should be if the 
Funds funded only variable annuity contracts or variable life insurance 
policies, whether flexible premium or scheduled premium policies. In 
this regard, Applicants note that each type of variable insurance 
product is designed as long-term investment program. In addition, each 
Fund will be managed to attempt to achieve the Fund's investment 
objective or objectives, and not to favor or disfavor any particular 
participating insurer or type of variable insurance product.
    17. Furthermore, Applicants submit that no one investment strategy 
can be identified as appropriate to a particular insurance product. 
Each pool of variable annuity and variable life insurance contract 
owners is composed of individuals of diverse financial status, age, 
insurance and investment goals. An underlying fund supporting even one 
type of insurance product must accommodate these diverse factors in 
order to attract and retain purchasers.
    18. 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 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, the Treasury Regulations, nor Revenue Rulings thereunder 
present any inherent conflicts of interest if Qualified Plans, variable 
annuity separate accounts and variable life separate accounts all 
invest in the same management investment company.
    19. Applicants note that while there are differences in the manner 
in which distributions are taxes for variable annuity contracts, 
variable life insurance contracts and Qualified Plans, the tax 
consequences do not raise any conflicts of interest. When distributions 
are to be made, and the Separate Account or the Qualified Plan is 
unable to net purchase payments to make the distributions, the Separate 
Account or the Plan will redeem shares of the Funds at their respective 
net asset value. The Qualified Plan will then make distributions in 
accordance with the terms of the Plan, and the life insurance company 
will make distributions in accordance with the terms of the Variable 
Contract.
    20. With respect to voting rights, Applicants submit that it is 
possible to provide an equitable means or giving such voting rights to 
Separate Account contract owners and to the trustees of Qualified 
Plans. Applicants represent that the transfer agent for the Funds will 
inform each participating insurance company of its share ownership in 
each Separate Account, as well as inform the trustees of Qualified 
Plans of their holdings. Each participating insurance company will then 
solicit voting instructions in accordance with the ``pass-through'' 
voting requirements of Rules 6e-2 and 6e-3(T).
    21. Applicants argue that the ability of the Funds to sell their 
respective 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 
participant under a Qualified Plan. Regardless of the rights and 
benefits of participants under the Qualified Plans, or contract owners 
under Variable Contracts, the Qualified Plans and the Separate Accounts 
have rights only with respect to their respective shares of the Funds. 
Such shares may be redeemed only at their net asset value. No 
shareholder of any of the Funds will have 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 the 
contract owners of the Separate Accounts and the participants under the 
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 cannot simply redeem shares of one underlying fund 
held by their separate accounts and invest in another underlying fund. 
Complex and time-consuming transactions must be undertaken to 
accomplish such redemptions and transfers. On the other hand, trustees 
of Qualified Plans can make the decision quickly and implement the 
redemption of their shares from the Funds and reinvest 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 if there should 
arise issues where the interests of contract owners and the interests 
of Qualified Plans are in conflict, the issues can be resolved almost 
immediately because the trustees of the Qualified Plans can, on their 
own, redeem the shares out of the Funds.
    23. Applicants submit that various factors have limited the number 
of insurance companies that offer variable annuities and variable life 
insurance policies. 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 of 
certain insurers as investment experts. Applicants submit that use of 
the Funds as a common investment medium for Variable Contracts would 
help alleviate these concerns. Applicants submit that mixed and shared 
funding also should benefit variable contract owners by: eliminating a 
significant portion of the costs of establishing and administering 
separate funds; creating 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 series more feasible; and encouraging more 
insurance companies to offer Variable Contracts, which should result in 
increased competition with respect to both the design and pricing of 
Variable Contracts, which, in turn, can be

[[Page 32843]]

expected to result in more product variation and lower charges.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Board of Trustees or Board of Directors (each 
a ``Board'') of each of the Funds shall consist of persons who are not 
``interested persons'' of the Funds, 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 shall 
be suspended: (a) for a period of 45 days if the vacancy or vacancies 
may be filled by the Board of Trustees or Directors; (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 the 
contract owners of all Separate Accounts investing in the Funds and all 
other persons investing in the Funds, including Qualified Plans. 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 Series of the Funds are being 
managed; (e) a difference in voting instructions given by variable 
annuity contract owners and variable life insurance contract owners; or 
(f) a decision by an insurer to disregard the voting instructions of 
contract owners.
    3. Participating insurance companies and any Qualified Plan that 
executes a fund participation agreement with a Fund (collectively, 
``Participating Parties'') and the Manager (or any affiliate thereof 
that may serve as advisor to a Fund) will report any potential or 
existing conflicts of which it becomes aware to the Board of the 
relevant Fund. Participating Parties and the Manager 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. The responsibility 
to report such information and conflicts and to assist the Board will 
be a contractual obligation of all Participating Parties in the Funds 
under their agreements governing participation in the Funds, and such 
agreements shall provide that these responsibilities will be carried 
out with a view only to the interests of the contract owners and 
Qualified Plan participants.
    4. If it is determined by a majority of the Board of a Fund, or a 
majority of its disinterested Trustees or Directors, that a material 
irreconcilable conflict exists, the relevant Participating Parties 
shall, at their expense and to the extent reasonably practicable (as 
determined by a majority of the disinterested Trustees or Directors), 
take whatever steps are necessary to remedy or eliminate the 
irreconcilable material conflict, up to and including: (a) In the case 
of the participating insurance companies, withdrawing the assets 
allocable to some or all of the Separate Accounts from the relevant 
Fund or any series therein and reinvesting such assets in a different 
investment medium (including another series, if any, of such Fund) or 
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., 
annuity contract owners, life insurance contract owners, or variable 
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; (b) in the case of 
participating Qualified Plans, withdrawing the assets allocable to some 
or all of the Qualified Plans from the relevant Fund and reinvesting 
those assets in a different investment medium; and (c) establishing a 
new registered management investment company or managed separate 
account. If a material irreconcilable conflict arises because of an 
insurer's decision to disregard contract owner voting instructions and 
that decision represents a minority position or would preclude a 
majority vote, the insurer may be required, at the Fund's election, to 
withdraw its Separate Account's investment in the 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 Board 
determination of a material irreconcilable conflict and to bear the 
cost of such remedial action shall be a contractual obligation of all 
Participating Parties under their agreements governing participation in 
the Funds, and these responsibilities will be carried out with a view 
only to the interests of the contract owners and participants in 
Qualified Plans, as applicable.
    5. For the purposes of condition 4, a majority of the disinterested 
members of the relevant Board shall determine whether or not any 
proposed action adequately remedies any material irreconcilable 
conflict, but in no event will the Fund or the Manager be required to 
establish a new funding medium for any Variable Contract or Qualified 
Plan. No participating insurance company shall be required by condition 
4 to establish a new funding medium for any Variable Contract if an 
offer to do so has been declined by vote of a majority of contract 
owners materially and adversely affected by the irreconcilable material 
conflict.
    6. A Board's determination of the existence of a material 
irreconcilable conflict and its implications shall be made known 
promptly in writing to the Manager and all Participating Parties.
    7. As to Variable Contracts issued by Separate Accounts, 
participating insurance companies will provide pass-through voting 
privileges to all participants so long as and to the extent that the 
Commission continues to interpret the 1940 Act to require pass-through 
voting privileges for Variable Contract owners. As to Variable 
Contracts issued by unregistered separate accounts, pass-through voting 
privileges will be extended to participants to the extent granted by 
the issuing insurance company. Participating insurance companies will 
be responsible for assuring that each of their registered Separate 
Accounts participating in a Fund calculate voting privileges as 
instructed by a Fund with the objective that each such participating 
insurance company calculate voting privileges in a manner consistent 
with that of other participating insurance companies. 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 a Fund. Each participating insurance company 
will vote shares held by Separate Accounts for which it has not 
received voting

[[Page 32844]]

instructions, as well as shares attributable to it, in the same 
proportion as it votes shares for which it has received voting 
instructions.
    8. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of a Fund), and in 
particular the Funds will either provide for annual meetings (except 
insofar as the Commission may interpret Section 16 not to require such 
meetings) or, if annual meetings are not held, 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 with Sections 
16(a) and, if and when applicable, 16(b). Further, the Funds will act 
in accordance with the Commission's interpretation of the requirements 
of Section 16(a) with respect to periodic elections of Trustees or 
Directors and with whatever rules the Commission may promulgate with 
respect thereto.
    9. The Funds will notify all participating insurance companies that 
prospectus disclosure regarding potential risks of mixed and shared 
funding may be appropriate. Each Fund shall disclosure in its 
registration statement that: (1) Shares of such Fund are offered to 
insurance company separate accounts offered by various participating 
insurance companies which fund both variable annuity and variable life 
insurance contracts, and to Qualified Plans; (b) due to the differences 
of tax treatment or other considerations, the interests of various 
contract owners participating in the Fund and the interests of 
Qualified Plans investing in the Fund may conflict; and (c) the Board 
will monitor for any material conflicts and determine what action, if 
any, should be taken in response to a conflict.
    10. No less than annually, the Participating Parties and/or the 
Manager shall submit to the Boards such reports, materials, or data as 
each Board may reasonably request so that the Boards may carry out 
fully the obligations imposed upon them by the conditions contained in 
the application. Such reports, materials, and data shall be submitted 
more frequently if deemed appropriate by the relevant Board. The 
obligations of the Participating Parties to provide these reports, 
materials, and data to a Board shall be a contractual obligation of all 
Participating Parties under the agreements governing their 
participation in the Funds.
    11. 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 Manager or Participating Parties 
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 shall 
be made available to the Commission upon request.
    12. If an to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or 
Rule 6e-3 is adopted, to provide exemptive relief from any provision of 
the 1940 Act or the rules thereunder with respect to mixed or shared 
funding on terms and conditions materially different from any 
exemptions granted in the order requested in the application, then the 
Funds and/or the Participating Parties, 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.
    13. In the event that a Qualified Plan should ever become an owner 
of 10% or more of the assets of a Fund, such Qualified Plan will 
executive a fund participation agreement with such Fund. A Qualified 
Plan will executive an application containing an acknowledgement of 
this condition at the time of its initial purchase of shares of the 
Fund.

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 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. 97-15770 Filed 6-16-97; 8:45 am]
BILLING CODE 8010-01-M