[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Notices]
[Pages 60424-60428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29862]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23516; File No. 812-11128]


The Wright Managed Blue Chip Series Trust, et al.; Notice of 
Application

November 2, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940 (the ``1940 Act'') granting exemptive 
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.

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

    Summary of Application: Applicants seek an order to permit shares 
of The Wright Managed Blue Chip Series Trust and any similar investment 
companies for which Wright Investors' Service, Inc., or any of its 
affiliates may in the future serve as 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 
participating life insurance companies; and (2) qualified pension and 
retirement plans outside of the separate account context (``Qualified 
Plans'' or ``Plans'').
    Applicants: The Wright Managed Blue Chip Series Trust (the 
``Trust'') and Wright Investors' Service, Inc. (``Wright'' or ``the 
Adviser'').
    Filing Dates: The application was filed on April 27, 1998, and 
amended on August 6, 1998, and October 9, 1998.
    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 Commission 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 November 27, 1998, and must be 
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 
this issues contested, Persons may request notification of the date of 
a hearing by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
Applicants, c/o Mr. A. M. Moody III, Wright Investors' Service, Inc., 
1000 Lafayette Boulevard, Bridgeport, Connecticut 06604.

FOR FURTHER INFORMATION CONTACT: Keith E. Carpenter, Senior Counsel, or 
Kevin M. Kirchoff, Branch Chief, 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 SEC, 450 Fifth Street, NW, Washington, 
DC (tel. (202) 942-8090).

Applicants' Representations

    1. the Trust is organized as a Massachusetts business trust and is 
registered under the 1940 Act as an open-end management investment 
company. It currently consists of three separate investment portfolios 
(``Portfolios''), each with its own investment objectives and policies.
    2. Wright, a registered investment adviser under the Investment 
Adviser Act of 1940, is the investment adviser for each Portfolio.
    3. the Trust will offer shares of its Portfolios to separate 
accounts of insurance companies to serve as the investment medium for 
variable annuity contracts and variable life insurance policies, as 
well as to qualified pension and retirement accounts and other 
appropriate investors.
    4. The Trust and any other similar investment companies that the 
Adviser 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 trusts (``Separate Accounts'') and that serve as investment 
vehicles for variable insurance contracts issued by affiliated and 
unaffiliated participating 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 
reference in this paragraph are collectively referred to as ``Variable 
Contracts.'' insurance companies whose separate account or accounts 
would own share of the Funds are referred to as ``participating 
insurance companies.'')
    5. The Funds also intend to offer shares directly to Qualified 
Plans

[[Page 60425]]

described in Treasury Regulation Sec. 1.817-5(f)(3)(iii).

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act granting exemptive relief 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 transactions, 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). Therefore, the relief granted by Rule 6e-2(b)(15) 
is not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an underlying fund that 
also offers its shares to a variable annuity or a flexible premium 
variable life insurance separate account of the same company or of any 
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 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 its shares to separate accounts 
funding Variable Contracts of one or more unaffiliated life insurance 
companies. The use of a common management investment company as the 
underlying investment medium for variable life insurance separate 
accounts of one insurance company and separate accounts funding 
Variable Contracts of one or more unaffiliated life insurance companies 
is referred to as ``shared funding.''
    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 to 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 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 affiliated life insurance company'' (emphasis 
supplied). Therefore, Rule 6e-3(T)(b)(15) permits mixed funding but 
does not permit shared funding.
    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 person 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) provides 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 by 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 
the eligibility restrictions of Section 9(a) 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 the 1940 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 owners' 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. Rules 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

[[Page 60426]]

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. Applicants assert that 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 proposals 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, corresponding provisions 
of Rule 6e-3(T) 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 such 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 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 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 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 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 of state insurance administrators over separate 
accounts. Applicants note that Rules 6e-2 and 6e-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 a 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 produce 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 taxed 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 of 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

[[Page 60427]]

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 if 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 sharesof 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 portfolios 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 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 (``Board'') of each of the 
Funds will 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. 
However, if this condition is not met by reason of the death, 
disqualification, or bona fide resignation of any trustee(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 note 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 participation agreement with a Fund (collectively, 
``Participating Parties'') and the Adviser will report any potential or 
existing conflicts of which it becomes aware to the Board of the 
relevant Fund. Participating Parties and the Adviser 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 under their 
participation agreements and these agreements will 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, that a material irreconcilable 
conflict exists, the relevant Participating Parties will, at their 
expense and to the extent reasonably practicable (as determined by a 
majority of the disinterested trustees), take whatever steps are 
necessary to remedy or eliminate the material irreconcilable conflict. 
These steps may include: (a) withdrawing the assets allocable to some 
or all of the Separate Accounts of the participating insurance 
companies from the affected Fund or any series thereof and reinvesting 
these 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) withdrawing the assets allocable to some or 
all of the participating Qualified Plans from the

[[Page 60428]]

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 change or penalty will be imposed as a 
result of the 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 will be a 
contractual obligation of all Participating Parties under their 
participation agreements and these responsibilities will be carried out 
with a view only to the interests of the contract owners and 
participating in Qualified Plans, as applicable.
    5. For the purposes of condition (4), a majority of the 
disinterested members of the Board of the affected Fund will determine 
whether or not any proposed action adequately remedies any material 
irreconcilable conflict, but in no event will the Fund or the Adviser 
be required to establish a new funding medium for any Variable Contract 
or Qualified Plan. No participating insurance company will 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 material 
irreconcilable conflict.
    6. A Board's determination of the existence of a material 
irreconcilable conflict and its implications will be make known 
promptly in writing to the Adviser 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 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 participation 
agreements. Each participating insurance company will vote Fund shares 
held by Separate Accounts for which it has not received voting 
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, will be 
the persons having a voting interest in the Fund's shares). 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 Trust is not, and the Funds may not 
be, 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 election of Trustees 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 will disclose in its registration 
statement that: (a) shares of the 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 differences in 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 might at some time 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 often than annually, the Participating Parties and/or 
the Adviser will 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. These reports, materials, and data will 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 the Boards will be contractual obligations of all 
Participating Parties under the participation agreements.
    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 Adviser 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, and these minutes or other records 
will be made available to the Commission upon request.
    12. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or 
Rule 6e-3 is adopted, to provide exemptive relief from any provision of 
the 1940 Act or the rules thereunder with respect to mixed or shared 
funding on terms and conditions materially different from those of any 
exemptions granted in the order requested in this application, then the 
Funds and/or the Participating Parties, as appropriate, will 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 these 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 
execute a participation agreement with the Fund. A Qualified Plan will 
execute an application containing an acknowledgement of this condition 
at the time of its initial purchase of shares of each Fund.

Conclusion

    For the reasons summarized 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-29862 Filed 11-6-98; 8:45 am]
BILLING CODE 8010-01-M