[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]
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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.
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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