[Federal Register Volume 68, Number 32 (Tuesday, February 18, 2003)]
[Notices]
[Pages 7827-7834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3829]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25931; File No. 812-12881]


Vision Group of Funds, et al.; Notice of Application

February 10, 2003.
AGENCY: The Securities and Exchange Commission (``SEC'' or the 
``Commission'').

[[Page 7828]]


ACTION: Notice of Application for Exemption under section 6(c) of the 
Investment Company Act of 1940, as amended (the ``1940 Act''), for an 
exemption 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.

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Applicants: Vision Group of Funds (the ``Trust'') and Manufacturers and 
Traders Company (``M&T Bank''), on behalf of M&T Asset Management 
(``M&T''), a business unit of M&T Bank.
SUMMARY OF APPLICATION: Applicants seek an order exempting the 
Applicants and certain life insurance companies and their separate 
accounts that currently invest or may hereafter invest in the Trust 
(and, to the extent necessary, any investment adviser, principal 
underwriter and depositor of such an account) 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, to the extent necessary to 
permit shares of the Trust and shares of any other investment company 
or portfolio that is designed to fund insurance products and for which 
M&T Bank or any of its affiliates may serve in the future as investment 
adviser, manager, principal underwriter, sponsor, or administrator 
(``Future Trusts'') (the Trust, together with Future Trusts, are the 
``Trusts'') to be sold to and held by: (i) Separate accounts funding 
variable annuity and variable life insurance contracts (collectively 
referred to herein as ``Variable Contracts'') issued by both affiliated 
and unaffiliated life insurance companies; (ii) qualified pension and 
retirement plans (``Qualified Plans'') outside of the separate account 
context; (iii) separate accounts that are not registered as investment 
companies under the 1940 Act pursuant to exemptions from registration 
under section 3(c) of the 1940 Act; (iv) M&T Bank or certain related 
corporations (collectively ``M&T Bank''); and (v) any other person 
permitted to hold shares of the Trusts pursuant to Treasury Regulation 
1.817-5 (``General Accounts''), including the general account of any 
life insurance company whose separate account holds, or will hold, 
shares of the Trusts or certain related corporations.

FILING DATES: The application was filed on September 9, 2002, and 
amended and restated on January 13, 2003.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 10, 2003 and should be accompanied by proof of 
service on Applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request and the issues contested. 
Persons may request notification of a hearing by writing to the 
Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, C. Grant Anderson, Esq., Reed Smith LLP, Federated 
Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-
3779.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra 
Bailes, 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 may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 Fifth Street, NW., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Trust is registered with the Commission as an open-end 
management investment company and is organized as a Delaware business 
trust. M&T is registered with the Commission as an investment adviser 
under the Investment Advisers Act of 1940, as amended, and serves as 
the investment adviser to the Trust. The Trust currently consists of 
twenty-one investment portfolios, including three investment portfolios 
that are sold only to separate accounts of insurance companies in 
conjunction with variable life and variable annuity contracts: Vision 
Large Cap Growth Fund II, Vision Large Cap Value Fund II and Vision 
Managed Allocation Fund--Moderate Growth II (each, a ``Fund,'' and 
collectively, the ``Funds''). The Trust or any Future Trusts may offer 
one or more additional investment portfolios in the future (also 
referred to as ``Funds'').
    2. Shares of the Funds will be offered to separate accounts of 
affiliated and unaffiliated insurance companies (each, a 
``Participating Insurance Company'') to serve as investment vehicles to 
fund Variable Contracts (as hereinafter defined). These separate 
accounts either will be registered as investment companies under the 
1940 Act or will be exempt from such registration pursuant to 
exemptions from registration under section 3(c) of the 1940 Act 
(individually, a ``Separate Account'' and collectively, the ``Separate 
Accounts''). Shares of the Portfolios may also be offered to Qualified 
Plans, M&T Bank or certain related corporations (collectively ``M&T 
Bank''), and any other person permitted to hold shares of the Trusts 
pursuant to Treasury Regulation 1.817-5 (``General Accounts''), 
including the general account of any life insurance company whose 
separate account holds, or will hold, shares of the Trusts or certain 
related corporations.
    3. The Participating Insurance Companies at the time of their 
investment in the Trusts either have or will establish their own 
Separate Accounts and design their own Variable Contracts. Each 
Participating Insurance Company has or will have the legal obligation 
of satisfying all applicable requirements under both state and federal 
law. Each Participating Insurance Company, on behalf of its Separate 
Accounts, has or will enter into an agreement with the Trusts 
concerning such Participating Insurance Company's participation in the 
Funds. The role of the Trusts under this agreement, insofar as the 
federal securities laws are applicable, will consist of, among other 
things, offering shares of the Trusts to the participating Separate 
Accounts and complying with any conditions that the Commission may 
impose upon granting the order requested herein.

Applicants' Legal Analysis

    1. Applicants and certain life insurance companies and their 
Separate Accounts that currently invest or may hereafter invest in the 
Trust (and, to the extent necessary, any investment adviser, principal 
underwriter and depositor of such an account) seek exemptive relief 
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, to the 
extent necessary to permit shares of the Trusts and shares of any 
Future Trusts to be sold to and held by: (a) Separate accounts funding 
Variable Contracts issued by both affiliated and unaffiliated life 
insurance companies; (b) Qualified Plans outside of the separate 
account context; (c) separate accounts that are not registered as 
investment companies under the 1940 Act pursuant to exemptions from 
registration under section 3(c) of the 1940 Act; (d) M&T Bank or 
certain related corporations (collectively ``M&T Bank''); and (e) any 
General Accounts, including the general account of any life insurance 
company

[[Page 7829]]

whose separate account holds, or will hold, shares of the Trusts or 
certain related corporations.
    2. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
as a unit investment trust (``UIT'') under the 1940 Act, Rule 6e-
2(b)(15) provides partial exemptions from sections 9(a), 13(a), 15(a) 
and 15(b) of the 1940 Act. The relief provided by Rule 6e-2 is also 
granted to the investment adviser, principal underwriter, and depositor 
of the separate account. Section 9(a)(2) of the 1940 Act makes it 
unlawful for any company to serve as an investment adviser or principal 
underwriter of any UIT, if an affiliated person of that company is 
subject to a disqualification enumerated in sections 9(a)(1) or (2) of 
the 1940 Act. Sections 13(a), 15(a) and 15(b) of the 1940 Act have been 
deemed by the Commission to require ``pass-through'' voting with 
respect to an underlying investment company's shares. Rule 6e-2(b)(15) 
provides these exemptions apply only where all of the assets of the UIT 
are shares of management investment companies ``which offer their 
shares exclusively to variable life insurance separate accounts of the 
life insurer or of any affiliated life insurance company.'' Therefore, 
the relief granted by Rule 6e-2(b)(15) is not available with respect to 
a scheduled premium life insurance separate account that owns shares of 
an underlying fund that also offers its shares to a variable annuity 
separate account or flexible premium variable life insurance separate 
account of the same company or any other affiliated insurance company. 
The use of a common management investment company as the underlying 
investment vehicle 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.''
    3. The relief granted by Rule 6e-2(b)(15) also 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 vehicle for variable 
annuity and/or variable life insurance separate accounts of 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    4. The relief under Rule 6e-2(b)(15) is available only where shares 
are offered exclusively to variable life insurance separate accounts of 
a life insurer or any affiliated life insurance company, additional 
exemptive relief is necessary if the shares of the Funds are also to be 
sold to Qualified Plans or other eligible holders of shares, as 
described above. Applicants note that if shares of the Funds are sold 
only to Qualified Plans, exemptive relief under Rule 6e-2 would not be 
necessary. The relief provided for under this section does not relate 
to Qualified Plans or to a registered investment company's ability to 
sell its shares to Qualified Plans. The use of a common management 
investment company as the underlying investment vehicle for variable 
annuity and variable life separate accounts of affiliated and 
unaffiliated insurance companies, and for Qualified Plans, is referred 
to herein as ``extended mixed and shared funding.''
    5. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from 
sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act. The exemptions 
granted by Rule 6e-3(T)(b)(15) are available only where all the assets 
of the separate account consist of the shares of one or more registered 
management investment companies that offer to sell their shares 
``exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance companies, offering either scheduled 
contracts or flexible contracts, or both; or which also offer their 
shares to variable annuity separate accounts of the life insurer or of 
an affiliated life insurance company or which offer their shares to any 
such life insurance company in consideration solely for advances made 
by the life insurer in connection with the operation of the separate 
account.'' Therefore, Rule 6e-3(T)(b)(15) permits mixed funding but 
does not permit shared funding. The exemptions are also granted to the 
investment adviser, principal underwriter and depositor of the separate 
account.
    6. The relief under Rule 6e-3(T) is available only where shares are 
offered exclusively to variable life insurance separate accounts of a 
life insurer or any affiliated life insurance company, and additional 
exemptive relief is necessary if the shares of the Funds are also to be 
sold to Qualified Plans or other eligible holders of shares as 
described above. Applicants note that if shares of the Funds were sold 
only to Qualified Plans, exemptive relief under Rule 6e-3(T)(b)(15) 
would not be necessary. The relief provided for under this section does 
not relate to Qualified Plans or to a registered investment company's 
ability to sell its shares to Qualified Plans.
    7. Applicants maintain, as discussed below, that there is no policy 
reason for the sale of the Funds' shares to Qualified Plans, to M&T 
Bank, or General Accounts to result in a prohibition against, or 
otherwise limit, a Participating Insurance Company from relying on the 
relief provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). However, 
because the relief under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) is 
available only when shares are offered exclusively to separate 
accounts, additional exemptive relief may be necessary if the shares of 
the Funds are also to be sold to Qualified Plans, M&T Bank or General 
Accounts. Applicants therefore request relief in order to have the 
participating insurance companies enjoy the benefits of the relief 
granted in Rules 6e-2(b)(15) and 6e-3(T)(b)(15). Applicants note that 
if the Funds' shares were to be sold only to Qualified Plans, M&T Bank, 
General Accounts and/or separate accounts funding variable annuity 
contracts, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would be 
unnecessary. The relief provided for under Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) does not relate to Qualified Plans, M&T Bank, or General 
Accounts, or to a registered investment company's ability to sell its 
shares to such purchasers.
    8. Applicants also note that the promulgation of Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) preceded the issuance of the Regulations that made 
it possible for shares of an investment company portfolio to be held by 
the trustee of a Qualified Plan without adversely affecting the ability 
of shares in the same investment company portfolio also to be held by 
the separate accounts of insurance companies in connection with their 
Variable Contracts. Thus, the sale of shares of the same portfolio to 
both separate accounts and Qualified Plans was not contemplated at the 
time of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    9. Consistent with the Commission's authority under section 6(c) of 
the 1940 Act to grant exemptive orders to a class or classes of persons 
and transactions, this Application requests relief for the class 
consisting of insurers and Separate Accounts that will invest in the 
Funds, and to the extent necessary, Qualified Plans, other eligible 
holders of shares and investment advisers, principal underwriters and 
depositors of such accounts.
    10. Section 9(a)(3) of the 1940 Act provides that it is unlawful 
for any

[[Page 7830]]

company to serve as investment adviser or principal underwriter of any 
registered open-end investment company if an affiliated person of that 
company is subject to a disqualification enumerated in sections 9(a)(1) 
or (2). Rules 6e-2(b)(15)(i) and (ii) and Rules 6e-3(T)(b)(15)(i) and 
(ii) under the 1940 Act provide exemptions from section 9(a) under 
certain circumstances, subject to the limitations discussed above on 
mixed and shared funding. These exemptions limit the application of the 
eligibility restrictions to affiliated individuals or companies that 
directly participate in management of the underlying management 
company.
    11. The partial relief granted in Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) under the 1940 Act from the requirements of section 9 of 
the 1940 Act, 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. Those 1940 Act 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 individuals in a large 
insurance company complex, most of whom will have no involvement in 
matters pertaining to investment companies in that organization. The 
Participating Insurance Companies and Qualified Plans are not expected 
to play any role in the management of the Trusts. Those individuals who 
participate in the management of the Trusts will remain the same 
regardless of which Separate Accounts or Qualified Plans invests in the 
Trusts. Applying the monitoring requirements of section 9(a) of the 
1940 Act because of investment by separate accounts of other insurers 
or Qualified Plans would be unjustified and would not serve any 
regulatory purpose. Furthermore, the increased monitoring costs could 
reduce the net rates of return realized by contract owners.
    12. Moreover, since the Qualified Plans, M&T Bank and General 
Accounts are not themselves investment companies, and therefore are not 
subject to section 9 of the 1940 Act and will not be deemed affiliates 
solely by virtue of their shareholdings, no additional relief is 
necessary.
    13. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming the limitations on 
mixed and shared funding are observed. Rules 6e-2(b)(15)(iii)(A) and 
6e-3(T)(b)(15)(iii)(A) 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 such a fund 
and its investment adviser, when required to do so by an insurance 
regulatory authority (subject to the provisions of paragraphs (b)(5)(i) 
and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T), respectively, under the 
1940 Act). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
provide that the insurance company may disregard the voting 
instructions of its contract owners if the contract owners initiate any 
change in an underlying fund's investment policies, principal 
underwriter, or any investment adviser (provided that disregarding such 
voting instructions is reasonable and subject to the other provisions 
of paragraphs (b)(5)(ii), (b)(7)(ii)(B), and (b)(7)(ii)(C), 
respectively, of Rules 6e-2 and 6e-3(T) under the 1940 Act).
    14. Rule 6e-2 under the 1940 Act recognizes that a variable life 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and is subject to extensive state 
regulation of insurance. 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 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, the corresponding provisions of Rule 6e-3(T) under the 1940 
Act undoubtedly were adopted in recognition of the same factors.
    15. Applicants state that the sale of Fund shares to Qualified 
Plans, M&T Bank and General Accounts will not have any impact on the 
relief requested herein. With respect to the Qualified Plans, which are 
not registered as investment companies under the 1940 Act, there is no 
requirement to pass through voting rights to Qualified Plan 
participants. Indeed, to the contrary, applicable law expressly 
reserves voting rights associated with Qualified Plan assets to certain 
specified persons. Under section 403(a) of ERISA, shares of a portfolio 
of a fund sold to a Qualified Plan must be held by the trustees of the 
Qualified Plan. Section 403(a) also provides that the trustee(s) must 
have exclusive authority and discretion to manage and control the 
Qualified Plan with two exceptions: (a) When the Qualified Plan 
expressly provides that the trustee(s) are subject to the direction of 
a named fiduciary who is not a trustee, in which case the trustees are 
subject to proper directions made in accordance with the terms of the 
Qualified Plan and not contrary to ERISA, and (b) when the authority to 
manage, acquire, or dispose of assets of the Qualified Plan is 
delegated to one or more investment managers pursuant to section 
402(c)(3) of ERISA. Unless one of the above two exceptions stated in 
section 403(a) applies, Qualified Plan trustees have the exclusive 
authority and responsibility for voting proxies.
    16. Where a named fiduciary to a Qualified Plan 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. The Qualified Plans may have 
their trustee(s) or other fiduciaries exercise voting rights 
attributable to investment securities held by the Qualified Plans in 
their discretion. Some of the Qualified Plans, however, may provide for 
the trustee(s), an investment adviser (or advisers), or another named 
fiduciary to exercise voting rights in accordance with instructions 
from participants. Similarly, M&T Bank and General Accounts are not 
subject to any pass-through voting requirements. Accordingly, unlike 
the case with insurance company separate accounts, the issue of 
resolution of material irreconcilable conflicts with respect to voting 
is not present with Qualified Plans, M&T Bank or General Accounts.
    17. Where a Qualified Plan does not provide participants with the 
right to give voting instructions, the trustee or named fiduciary has 
responsibility to vote the shares held by the Qualified Plan. In this 
circumstance, the trustee has a fiduciary duty to vote the shares in 
the best interest of the Qualified Plan participants. Accordingly, even 
if M&T Bank or an affiliate of M&T Bank were to serve in the capacity 
of trustee or named fiduciary with voting responsibilities, M&T Bank or 
the affiliates would have a fiduciary duty to

[[Page 7831]]

vote those shares in the best interest of the Qualified Plan 
participants.
    18. In addition, even if a Qualified Plan were to hold a 
controlling interest in a Fund, Applicants do not believe that such 
control would disadvantage other investors in such Fund to any greater 
extent than is the case when any institutional shareholder holds a 
majority of the voting securities of any open-end management investment 
company. In this regard, Applicants submit that investment in a Fund by 
a Qualified Plan will not create any of the voting complications 
occasioned by mixed funding or shared funding. Unlike mixed funding or 
shared funding, Qualified Plan investor voting rights cannot be 
frustrated by veto rights of insurers or state regulators.
    19. Where a Qualified Plan provides participants with the right to 
give voting instructions, Applicants see no reason to believe that 
participants in Qualified Plans generally or those in a particular 
Qualified Plan, either as a single group or in combination with 
participants in other Qualified Plans, would vote in a manner that 
would disadvantage Variable Contract holders. The purchase of shares of 
Funds by Qualified Plans that provide voting rights does not present 
any complications not otherwise occasioned by mixed or shared funding.
    20. The prohibitions on mixed and shared funding might reflect 
concern regarding possible different investment motivations among 
investors. When Rule 6e-2 under the 1940 Act was adopted, variable 
annuity separate accounts could invest in mutual funds whose shares 
also were offered to the general public. Therefore, the Commission 
staff contemplated underlying funds with public shareholders, as well 
as with variable life insurance separate account shareholders. The 
Commission staff may have been concerned with the potentially different 
investment motivations of public shareholders and variable life 
insurance contract owners. There also may have been some concern with 
respect to the problems of permitting a state insurance regulatory 
authority to affect the operations of a publicly available mutual fund 
and to affect the investment decisions of public shareholders.
    21. For reasons unrelated to the 1940 Act, however, Internal 
Revenue Service Revenue Ruling 81-225 (Sept. 25, 1981) effectively 
deprived variable annuities funded by publicly available mutual funds 
of their tax-benefited status. The Tax Reform Act of 1984 codified the 
prohibition against the use of publicly available mutual funds as an 
investment vehicle for Variable Contracts (including variable life 
contracts). Section 817(h) of the Code in effect requires that the 
investments made by variable annuity and variable life insurance 
separate accounts be ``adequately diversified.'' if a separate account 
is organized as a UIT that invests in a single fund or series, the 
diversification test will be applied at the underlying fund level, 
rather than at the separate account level, but only if ``all of the 
beneficial interests'' in the underlying fund ``are held by one or more 
insurance companies (or affiliated companies) in their general account 
or in segregated asset accounts * * * .'' Accordingly, a UIT separate 
account that invests solely in a publicly available mutual fund will 
not be adequately diversified. In addition, any underlying mutual fund, 
including any Fund, that sells shares to separate accounts, in effect, 
would be precluded from also selling its shares to the public. 
Consequently, there will be no public shareholders of any Fund.
    22. Shared funding by unaffiliated insurance companies does not 
present any issues that do not already exist where a single insurance 
company is licensed to do business in several or all states. 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. The fact that different insurers 
may be domiciled in different states does not create a significantly 
different or enlarged problem.
    23. Shared funding by unaffiliated insurers, in this respect, is no 
different than the use of the same investment company as the funding 
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) under the 1940 Act permit. Affiliated insurers may be 
domiciled in different states and be subject to differing state law 
requirements. Affiliation does not reduce the potential, if any exists, 
for differences in state regulatory requirements. In any event, the 
conditions set forth 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 Trust. This 
requirement will be provided for in agreements that will be entered 
into by Participating Insurance Companies with respect to their 
participation in the relevant Fund.
    24. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act give 
the insurance company the right to disregard the voting instructions of 
the contract owners. This right does not raise any issues different 
from those raised by the authority of state insurance administrators 
over separate accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an 
insurer can disregard contract owner voting instructions only with 
respect to certain specified items. Affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to the 
advisability or legality of a change in investment policies, principal 
underwriter, or investment adviser initiated by contract owners. The 
potential for disagreement is limited by the requirements in Rules 6e-2 
and 6e-3(T) under the 1940 Act that the insurance company's disregard 
of voting instructions be reasonable and based on specific good-faith 
determinations.
    25. A particular insurer's disregard of voting instructions, 
nevertheless, could conflict with the majority of contract owners' 
voting instructions. The insurer's action possibly could be different 
than the determination of all or some of the other insurers (including 
affiliated insurers) that the voting instructions of contract owners 
should prevail, and either could preclude a majority vote approving the 
change or could represent a minority view. If the insurer's judgment 
represents a minority position or would preclude a majority vote, then 
the insurer may be required, at the affected Trust's election, to 
withdraw its Separate Account's investment in such Fund. No charge or 
penalty will be imposed as a result of such withdrawal. This 
requirement will be provided for in the agreements entered into with 
respect to participation by the Participating Insurance Companies in 
each Fund.
    26. Each Fund will be managed to attempt to achieve the investment 
objective or objectives of such Fund, and not to favor or disfavor any 
particular Participating Insurance Company or type of insurance 
product. There is no reason to believe that different features of 
various types of contracts, including the ``minimum death benefit'' 
guarantee under certain variable life insurance contracts, will lead to 
different investment policies for different types of Variable 
Contracts. To the extent that the degree of risk may differ as between 
variable annuity contracts and variable life insurance policies, the 
different insurance charges imposed, in effect, adjust any such 
differences and equalize the insurers' exposure in either case.
    27. Applicants do not believe that the sale of the shares of the 
Funds to

[[Page 7832]]

Qualified Plans will increase the potential for material irreconcilable 
conflicts of interest between or among different types of investors. In 
particular, Applicants see very little potential for such conflicts 
beyond those which would otherwise exist between variable annuity and 
variable life insurance contract owners. Moreover, in considering the 
appropriateness of the requested relief, Applicants have analyzed the 
following issues to assure themselves that there were either no 
conflicts of interest or that there existed the ability by the affected 
parties to resolve the issues without harm to the contract owners in 
the Separate Accounts or to the participants under the Qualified Plans.
    28. Applicants considered whether there are any issues raised under 
the Code, Regulations, or Revenue Rulings thereunder, if Qualified 
Plans, variable annuity separate accounts, and variable life insurance 
separate accounts all invest in the same underlying fund. As noted 
above, section 817(h) of the Code imposes certain diversification 
standards on the underlying assets of Variable Contracts held in an 
underlying mutual fund. The Code provides that a Variable Contract 
shall not be treated as an annuity contract or life insurance, as 
applicable, for any period (and any subsequent period) for which the 
investments are not, in accordance with regulations prescribed by the 
Treasury Department, adequately diversified.
    29. Regulations issued under section 817(h) provide that, in order 
to meet the statutory diversification requirements, all of the 
beneficial interests in the investment company must be held by the 
segregated asset accounts of one or more insurance companies. However, 
the Regulations contain certain exceptions to this requirement, one of 
which allows shares in an underlying mutual fund to be held by the 
trustees of a qualified pension or retirement plan without adversely 
affecting the ability of such shares also to be held by separate 
accounts of insurance companies in connection with their Variable 
Contracts. (Treas. Reg. 1.817-5(f)(3)(iii)) Thus, the Regulations 
specifically permit ``qualified pension or retirement plans'' and 
separate accounts to invest in the same underlying fund. For this 
reason, Applicants have concluded that neither the Code, nor 
Regulations, nor Revenue Rulings thereunder, present any inherent 
conflicts of interest if the Qualified Plans and Separate Accounts all 
invest in the same Fund.
    30. Applicants note that while there are differences in the manner 
in which distributions from Variable Contracts and Qualified Plans are 
taxed, these differences will have no impact on the Trusts. When 
distributions are to be made, and a Separate Account or Qualified Plan 
is unable to net purchase payments to make the distributions, the 
Separate Account and Qualified Plan will redeem shares of the relevant 
Fund at their respective net asset value in conformity with Rule 22c-1 
under the 1940 Act (without the imposition of any sales charge) to 
provide proceeds to meet distribution needs. A Participating Insurance 
Company then will make distributions in accordance with the terms of 
its Variable Contract, and a Qualified Plan then will make 
distributions in accordance with the terms of the Qualified Plan.
    31. Applicants state that there is analogous precedent for a 
situation in which the same funding vehicle was used for contract 
owners subject to different tax rules, without any apparent conflicts. 
Prior to the Tax Reform Act of 1984, a number of insurance companies 
offered variable annuity contracts on both a qualified and non-
qualified basis through the same separate account. Underlying reserves 
of both qualified and non-qualified contracts therefore were commingled 
in the same separate account. However, long-term capital gains incurred 
in such separate accounts were taxed on a different basis than short-
term gains and other income with respect to the reserves underlying 
non-qualified contracts. A tax reserve at the estimated tax rate was 
established in the separate account affecting only the non-qualified 
reserves. To the best of Applicants' knowledge, that practice was never 
found to have violated any fiduciary standards. Accordingly, Applicants 
have concluded that the tax consequences of distributions with respect 
to Participating Insurance Companies and Qualified Plans do not raise 
any conflicts of interest with respect to the use of the Funds.
    32. In connection with any meeting of shareholders, the soliciting 
Trust will inform each shareholder, including each Separate Account, 
Qualified Plan, M&T Bank and General Account, of information necessary 
for the meeting, including their respective share of ownership in the 
relevant Fund. Each Participating Insurance Company then will solicit 
voting instructions in accordance with Rules 6e-2 and 6e-3(T), as 
applicable, and its agreement with the Funds concerning participation 
in the relevant Fund. Shares of a Fund that are held by M&T Bank and 
any General Account will be voted in the same proportion as all 
variable contract owners having voting rights with respect to that 
Fund. However, M&T Bank and any General Account will vote their shares 
in such other manner as the Commission may require. Shares held by 
Qualified Plans will be voted in accordance with applicable law. The 
voting rights provided to Qualified Plans with respect to shares of a 
Fund would be no different from the voting rights that are provided to 
Qualified Plans with respect to shares of funds sold to the general 
public. Furthermore, if a material irreconcilable conflict arises 
because of a Qualified Plan's decision to disregard Qualified Plan 
participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude a majority vote, the 
Qualified Plan may be required, at the election of the affected Trust, 
to withdraw its investment in such Fund, and no charge or penalty will 
be imposed as a result of such withdrawal.
    33. Applicants reviewed whether a ``senior security,'' as such term 
is defined under section 18(g) of the 1940 Act, is created with respect 
to any Variable Contract owner as opposed to a participant under a 
Qualified Plan, M&T Bank or a General Account. Applicants concluded 
that the ability of the Trusts to sell shares of their Funds directly 
to Qualified Plans, M&T Bank or a General Account does not create a 
senior security. ``Senior security'' is defined under section 18(g) of 
the 1940 Act to include ``any stock of a class having priority over any 
other class as to distribution of assets or payment of dividends.'' As 
noted above, regardless of the rights and benefits of participants 
under Qualified Plans, or contract owners under Variable Contracts, the 
Qualified Plans, M&T Bank, General Accounts and the Separate Accounts 
only have rights with respect to their respective shares of the Fund. 
They only can redeem such shares at net asset value. No shareholder of 
a Fund has any preference over any other shareholder with respect to 
distribution of assets or payment of dividends.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. A majority of the Board of Trustees (the ``Board'') of the Trust 
will consist of persons who are not ``interested persons'' of the 
Trust, 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 or Trustees, 
then the operation of this condition will

[[Page 7833]]

be suspended: (a) For a period of 90 days if the vacancy or vacancies 
may be filled by the Board; (b) for a period of 150 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 Board will monitor the Trust for the existence of any 
material irreconcilable conflict between the interests of the contract 
owners of all Separate Accounts and participants of all Qualified Plans 
investing in such Trust, and determine what action, if any should be 
taken in response to such conflicts. A material irreconcilable conflict 
may arise for a variety of reasons, including: (a) An action by any 
state insurance regulatory authority; (b) a change in applicable 
federal or state insurance tax, or securities laws or regulations, or a 
public ruling, private letter ruling, no-action or interpretative 
letter, or any similar action by insurance, tax, or securities 
regulatory authorities; (c) an administrative or judicial decision in 
any relevant proceeding; (d) the manner in which the investments of 
such Trust are being managed; (e) a difference in voting instructions 
given by variable annuity contract owners, variable life insurance 
contract owners, and trustees of the Qualified Plans; (f) a decision by 
a Participating Insurance Company to disregard the voting instructions 
of contract owners; or (g) if applicable, a decision by a Qualified 
Plan to disregard the voting instructions of Qualified Plan 
participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of general account assets in a Fund), 
M&T Bank, and any Qualified Plan that executes a participation 
agreement upon becoming an owner of 10 percent or more of the assets of 
any Fund (collectively, ``Participants'') will report any potential or 
existing conflicts to the Board. Participants will be responsible for 
assisting the Board in carrying out the Board's responsibilities under 
these conditions by providing the Board with all information reasonably 
necessary for the Board to consider any issues raised. This 
responsibility includes, but is not limited to, an obligation by each 
Participating Insurance Company to inform the Board whenever contract 
owner voting instructions are disregarded, and, if pass-through voting 
is applicable, an obligation by each Qualified Plan to inform the Board 
whenever it has determined to disregard Qualified Plan participant 
voting instructions. The responsibility to report such information and 
conflicts, and to assist the Board, will be a contractual obligation of 
all Participating Insurance Companies under their participation 
agreements with the Trust, and these responsibilities will be carried 
out with a view only to the interests of the contract owners. The 
responsibility to report such information and conflicts, and to assist 
the Board, also will be contractual obligations of all Qualified Plans 
with participation agreements, and such agreements will provide that 
these responsibilities will be carried out with a view only to the 
interests of Qualified Plan participants.
    4. If it is determined by a majority of the Board, or a majority of 
the disinterested Trustees of the Board, that a material irreconcilable 
conflict exists, then the relevant Participant will, at its 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, up to and 
including: (a) Withdrawing the assets allocable to some or all of the 
Separate Accounts from the relevant Fund and reinvesting such assets in 
a different investment vehicle including another Fund, or in the case 
of Participating Insurance Company Participants submitting the question 
as to 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 or life insurance 
contract owners of one or more Participating Insurance Companies) that 
votes in favor of such segregation, or offering to the affected 
contract owners the option of making such a change; and (b) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a decision by a Participating Insurance Company to disregard 
contract owner voting instructions, and that decision represents a 
minority position or would preclude a majority vote, then the insurer 
may be required, at the election of the Trust, to withdraw such 
insurer's Separate Account's investment in the Trust, and no charge or 
penalty will be imposed as a result of such withdrawal. If a material 
irreconcilable conflict arises because of a Qualified Plan's decision 
to disregard Qualified Plan participant voting instructions, if 
applicable, and that decision represents a minority position or would 
preclude a majority vote, the Qualified Plan may be required, at the 
election of the Fund, to withdraw its 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 will be a contractual obligation of all 
Participants under their agreements governing participation in the 
Trust, and these responsibilities will be carried out with a view only 
to the interests of contract owners and Qualified Plan participants.
    For purposes of this Condition 4, a majority of the disinterested 
members of the Board will determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but, in no 
event will the Trust, M&T Bank or an affiliate of M&T Bank, as 
relevant, be required to establish a new funding vehicle for any 
Variable Contract. No Participating Insurance Company will be required 
by this Condition 4 to establish a new funding vehicle for any Variable 
Contract if any offer to do so has been declined by vote of a majority 
of the contract owners materially and adversely affected by the 
material irreconcilable conflict. Further, no Qualified Plan will be 
required by this Condition 4 to establish a new funding vehicle for the 
Qualified Plan if: (a) A majority of the Qualified Plan participants 
materially and adversely affected by the irreconcilable material 
conflict vote to decline such offer, or (b) pursuant to documents 
governing the Qualified Plan, the Qualified Plan makes such decision 
without a Qualified Plan participant vote.
    5. The Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participants.
    6. As to Variable Contracts issued by Separate Accounts registered 
under the 1940 Act, Participating Insurance Companies will provide 
pass-through voting privileges to all Variable Contract owners as 
required by the 1940 Act as interpreted by the Commission. However, as 
to Variable Contracts issued by unregistered Separate Accounts, pass-
through voting privileges will be extended to contract owners to the 
extent granted by the issuing insurance company. Accordingly, such 
Participants, where applicable, will vote shares of the applicable Fund 
held in their Separate Accounts in a manner consistent with voting 
instructions timely received from Variable Contract owners. 
Participating Insurance Companies will be responsible for assuring that 
each Separate Account investing in a Fund calculates voting privileges 
in a manner consistent with other Participants.

[[Page 7834]]

    The obligation to calculate voting privileges as provided in the 
Application will be a contractual obligation of all Participating 
Insurance Companies under their agreement with the Trusts governing 
participation in a Fund. Each Participating Insurance Company will vote 
shares for which it has not received timely voting instructions, as 
well as shares it owns through its Separate Accounts, in the same 
proportion as it votes those shares for which it has received voting 
instructions. Each Qualified Plan will vote as required by applicable 
law and governing Qualified Plan documents.
    7. As long as the 1940 Act requires pass-through voting privileges 
to be provided to variable contract owners, M&T Bank or any of its 
affiliates, and any General Account will vote its shares of any Fund in 
the same proportion of all variable contract owners having voting 
rights with respect to that Fund; provided, however, that M&T Bank, any 
of its affiliates or any insurance company General Account shall vote 
its shares in such other manner as may be required by the Commission or 
its staff.
    8. The Trust will comply with all provisions of the 1940 Act 
requiring voting by shareholders, which for these purposes, shall be 
the persons having a voting interest in the shares of the respective 
Fund, and, in particular, the Trust will either provide for annual 
meetings (except to the extent that the Commission may interpret 
section 16 of the 1940 Act not to require such meetings) or comply with 
section 16(c) of the 1940 Act (although the Trust is not one of the 
funds of the type described in the section 16(c) of the 1940 Act), as 
well as with section 16(a) of the 1940 Act and, if and when applicable, 
section 16(b) of the 1940 Act. Further, the Fund will act in accordance 
with the Commission's interpretation of the requirements of section 
16(a) with respect to periodic elections of trustees and with whatever 
rules the Commission may promulgate with respect thereto.
    9. The Trust will notify all Participants that Separate Account 
prospectus disclosure or Qualified Plan prospectuses or other Qualified 
Plan disclosure documents regarding potential risks of mixed and shared 
funding may be appropriate. The Trust will disclose in its prospectus 
that (a) shares of the Trust may be offered to Separate Accounts of 
Variable Contracts and, if applicable, to Qualified Plans; (b) due to 
differences in tax treatment and other considerations, the interests of 
various contract owners participating in the Trust and the interests of 
Qualified Plans investing in the Trust, if applicable, may conflict; 
and (c) the Trust's Board will monitor events in order to identify the 
existence of any material irreconcilable conflicts and to determine 
what action, if any, should be taken in response to any such conflict.
    10. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 
1940 Act are amended, or proposed Rule 6e-3 under the 1940 Act is 
adopted, to provide exemptive relief from any provision of the 1940 
Act, or the rules promulgated thereunder, with respect to mixed or 
shared funding, on terms and conditions materially different from any 
exemptions granted in the order requested in the Application, then the 
Trust and/or Participating Insurance Companies, as appropriate, shall 
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), or Rule 6e-3, as such rules are applicable.
    11. The Participants, at least annually, will submit to the Board 
such reports, materials, or data as a Board reasonably may request so 
that the trustees of the Board may fully carry out the obligations 
imposed upon the Board by the conditions contained in the Application. 
Such reports, materials, and data will be submitted more frequently if 
deemed appropriate by the Board. The obligations of the Participants to 
provide these reports, materials, and data to the Board, when it so 
reasonably requests, will be a contractual obligation of all 
Participants under their agreements governing participation in the 
Funds.
    12. All reports of potential or existing conflicts received by the 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants of a conflict, and determining 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the Board or other appropriate 
records, and such minutes or other records shall be made available to 
the Commission upon request.
    13. The Trust will not accept a purchase order from a Qualified 
Plan if such purchase would make the Qualified Plan shareholder an 
owner of 10 percent or more of the assets of such Fund unless such 
Qualified Plan executes an agreement with the Trust governing 
participation in such Fund that includes the conditions set forth 
herein to the extent applicable. A Qualified Plan or Qualified Plan 
participant will execute an application containing an acknowledgment of 
this condition at the time of its initial purchase of shares of any 
Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3829 Filed 2-14-03; 8:45 am]
BILLING CODE 8010-01-P