[Federal Register Volume 68, Number 89 (Thursday, May 8, 2003)]
[Notices]
[Pages 24766-24775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11412]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26041; File No. 812-12900]


Manufacturers Investment Trust, et al.; Notice of Application

May 1, 2003.
AGENCY: Securities and Exchange Commission (the ``Commission'' or 
``SEC'').

ACTION: Notice of Application pursuant to section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an order granting 
exemption from the provisions of sections 9(a), 13(a), 15(a) and 15(b) 
of the Act and Rules 6e-2(b)(l5) and 6e-3(T)(b)(15) thereunder.

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APPLICANTS: Manufacturers Investment Trust (``MIT'') and Manufacturers 
Securities Services, LLC (``MSS'' or the ``Adviser'') (collectively, 
``Applicants'').

SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
necessary to permit shares of existing series of MIT (``Existing 
Funds'') and shares of Future Funds (as defined below) to be sold to 
and held by: (1) Separate accounts (``separate accounts'') funding 
variable life insurance contracts and variable annuity contracts 
(collectively, ``variable contracts'') issued by both affiliated and 
unaffiliated life insurance companies; (2) qualified pension and 
retirement plans (``Qualified Plans'') (as defined below) outside of 
the separate account context; (3) the investment adviser or any 
subadviser to an Existing Fund or Future Fund (each, a ``Fund''; 
collectively, the ``Funds''), certain affiliated persons of each such 
adviser or subadviser and all other persons described in Treasury 
Regulation 1.817-5(f)(3)(ii) (collectively, ``Other Investors''); and 
(4) the general account of any Participating Insurance Company (as 
defined below), certain affiliated persons of each such Participating 
Insurance Company and all other persons described in Treasury 
Regulation 1.817-5(f)(3)(i) (collectively, the ``General Accounts'').

FILING DATE: The Application was filed on November 12, 2002 and amended 
on April 11, 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 May 29, 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 interests, 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. 
Applicants, c/o John W. Blouch, Esq., Jones & Blouch L.L.P., 1025 
Thomas Jefferson St., NW., Suite 410 East, Washington, DC 20007-5252; 
copy to Betsy A. Seel, Esq., Assistant Vice President and Senior 
Counsel, Manulife Financial, 73 Tremont St., Boston, MA 02108-3915.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra 
Y. Bailes, Branch Chief, at (202) 942-0670 (Division of Investment 
Management, Office of Insurance Products).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application. The complete Application is available for a fee from the 
Commission's Public Reference Branch, 450 Fifth St., NW., Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. As used herein: (a) A ``Future Fund'' is any investment company 
(or series thereof), other than an Existing Fund, that is designed to 
be sold to separate accounts and for which MSS or any affiliated person 
of MSS serves as investment adviser, subadviser, manager, 
administrator, principal underwriter or sponsor; (b) a ``Qualified 
Plan'' means any trust, plan, account, contract or annuity described in 
sections 401(a), 403(a), 403(b), 408(a), 408(b), 408(p), 408A, 414(d), 
457(b), 408(k), or 501(c)(18) of the Internal Revenue Code of 1986, as 
amended (the ``Code''), and any other trust, plan, account, contract or 
annuity that is determined to be within the scope of Treasury 
Regulation 1.817-5(f)(3)(iii); and (c) a ``Participating Insurance 
Company'' means any insurance company that purchases or will purchase 
shares of the Funds to serve as the investment media for variable 
contracts issued through its separate accounts.
    2. MIT is a Massachusetts business trust that is registered as an 
open-end management investment company under the Act. Under 
Massachusetts law and MIT's Agreement and Declaration of Trust, MIT is 
managed by its Board of Trustees. MIT is a series trust comprising 
sixty-seven Existing Funds, each of which has its own investment 
objectives and policies. MIT may add additional Funds in the future. 
Shares of MIT are registered under the Securities Act of 1933, as 
amended (the ``1933 Act''). Shares of MIT are not offered directly to 
the public but only to separate accounts of The Manufacturers Life 
Insurance Company (U.S.A.) (``Manulife USA''), a Michigan stock life 
insurance company, and The Manufacturers Life Insurance Company of New 
York (``Manulife New York''), a New York stock life insurance company 
(collectively, the ``Insurance Companies''), as the underlying 
investment media for variable contracts issued by such companies. The 
Insurance Companies are indirect, wholly-owned subsidiaries of The 
Manufacturers Life Insurance Company, a stock insurance company 
organized under the laws of Canada (``Manulife''). Manulife Financial 
Corporation (``MFC''), a publicly-traded company based in Toronto, 
Canada, is the holding company of Manulife and its subsidiaries, 
collectively known as

[[Page 24767]]

Manulife Financial. The separate accounts of the Insurance Companies 
include both separate accounts that are registered as investment 
companies under the Act (``registered separate accounts'') and separate 
accounts that are not registered as investment companies under the Act 
in reliance on the exemption provided by section 3(c)(11) of the Act.
    3. MSS is a Delaware limited liability company that is registered 
as an investment adviser under the Investment Advisers Act of 1940 (the 
``Advisers Act''). MSS is an indirect, wholly-owned subsidiary of 
Manulife USA. MSS currently serves as the investment adviser to MIT 
with respect to each of the Existing Funds. Pursuant to investment 
subadvisory agreements, MSS has retained a subadviser for each of the 
Existing Funds. Each such subadviser is registered as an investment 
adviser under the Advisers Act.
    4. Applicants propose that the Existing Funds and Future Funds be 
authorized to offer their shares to separate accounts of Participating 
Insurance Companies in order to serve as the investment media for 
variable contracts issued through such separate accounts. Each separate 
account is or will be established as a segregated asset account by a 
Participating Insurance Company pursuant to the insurance law of such 
company's domicile. As such, the assets of each are or will be the 
property of the Participating Insurance Company, and that portion of 
the assets of such an account equal to the reserves and other contract 
liabilities with respect to the account is not or will not be 
chargeable with liabilities arising from any other business that the 
Participating Insurance Company may conduct. The income, gains and 
losses, realized or unrealized, from such an account's assets are or 
will be credited to or charged against the account without regard to 
other income, gains or losses of the Participating Insurance Company. 
If a separate account is a registered separate account, it will be a 
``separate account'' as defined in Rule 0-1(e) (or any successor rule) 
under the Act and will be registered as a unit investment trust. For 
purposes of the Act, the Participating Insurance Company that 
establishes a registered separate account is the depositor or sponsor 
of the account as those terms have been interpreted by the Commission 
with respect to variable life insurance and variable annuity separate 
accounts.
    5. The Funds will sell their shares to registered separate accounts 
only if the Participating Insurance Company sponsoring such a separate 
account enters into a participation agreement with the Fund. The 
participation agreements will define the relationship between each Fund 
and each Participating Insurance Company and provide that, except where 
the agreement specifically provides otherwise, the Participating 
Insurance Company will remain responsible for establishing and 
maintaining any separate account covered by the agreement and for 
complying with all applicable requirements of federal and state laws 
pertaining to such separate accounts and to the sale and distribution 
of variable contracts issued through such separate accounts. The 
participation agreements will also provide that the obligations of the 
Funds with regard to compliance with the federal securities laws will, 
unless the agreement specifically provides otherwise, relate solely to 
offering and selling their shares to the separate accounts covered by 
the agreements.
    6. The use of a common management investment company (or series 
thereof) as an investment medium for both variable life insurance and 
variable annuity contracts of the same insurance company, or of two or 
more insurance companies that are affiliated persons of each other, is 
referred to herein as ``mixed funding.'' The use of a common management 
investment company (or series thereof) as an investment medium for 
variable life insurance and variable annuity contracts of two or more 
unaffiliated insurance companies is referred to herein as ``shared 
funding.''
    7. Applicants propose that Existing Funds and Future Funds be 
authorized to offer and sell their shares directly to Qualified Plans, 
Other Investors and General Accounts. As stated above, Qualified Plans 
are pension or retirement plans within the scope of Treasury Regulation 
1.817-5(f)(3)(iii). Other Investors will be persons described in 
Treasury Regulation 1.817-5(f)(3)(ii) which purchase Fund shares in 
connection with advances made in connection with the operation of 
separate accounts. General Accounts will be persons described in 
Treasury Regulation 1.817-5(f)(3)(i) which, if insurance companies, 
hold Fund shares in their general accounts.
    8. Applicants state that they expect that most of the Qualified 
Plans will be pension or retirement plans intended to qualify under 
sections 401(a) and 501(a) of the Code and that many of these Plans 
will include a cash or deferred arrangement (permitting salary 
reduction contributions) intended to qualify under section 401(k) of 
the Code. The Plans that qualify under sections 401(a) and 501(a) of 
the Code will also be subject to, and will be designed to comply with, 
the provisions of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), applicable to either defined benefit or defined 
contribution profit sharing plans, specifically ``Title I--Protection 
of Employee Benefit Rights.'' These Plans will thus be subject to 
regulatory provisions under the Code and ERISA regarding, for example, 
reporting and disclosure, participation and vesting, funding, fiduciary 
responsibility and enforcement. Fund shares sold to Qualified Plans 
will be held by the trustees of such plans as required by section 
403(a) of ERISA. Applicants state that pass-through voting is generally 
not required to be provided to participants in Qualified Plans pursuant 
to ERISA. Applicants note state that some of the Qualified Plans will 
not be subject to ERISA. These include governmental plans within the 
meaning of sections 414(d) or 457(b) of the Code, custodial accounts 
described in section 403(b) of the Code, and regular and Roth 
individual retirement accounts (``IRAs'') described in sections 408(a) 
and 408A of the Code, respectively. Generally, Fund shares sold to 
governmental plans will be held by trustees, those sold to custodial 
accounts will be held by custodians, and those sold to IRAs will be 
held by custodians or trustees on behalf of individual plan owners. 
Applicants state that pass-through voting is generally not required to 
be provided to participants in governmental plans, and voting rights in 
the case of custodial accounts and IRAs are generally exercised by 
individual participants or owners.
    9. Applicants state that the current federal tax law permits the 
Funds to sell their shares to Qualified Plans, Other Investors and 
General Accounts. Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of variable 
contracts held in segregated asset accounts. The Code provides that a 
variable contract shall not be treated as an annuity or life insurance 
contract for any period (and any subsequent period) for which the 
investments, in accordance with regulations prescribed by the Treasury 
Department, are not adequately diversified. The Treasury Department has 
issued regulations (Treas. Reg. 1.817-5) (the ``Treasury Regulations'') 
that establish diversification requirements for the investment 
portfolios underlying variable contracts. The Treasury Regulations 
provide that, in order to rely on certain look-through

[[Page 24768]]

provisions of the diversification requirements, all of the beneficial 
interests in the underlying investment company must be held by the 
segregated asset accounts of one or more insurance companies. The 
Treasury Regulations, however, also contain certain exceptions to this 
requirement. One exception allows shares in the investment company to 
be held by the trustee of a qualified pension or retirement plan 
without adversely affecting the ability of shares in the same 
investment company also to be held by insurance company separate 
accounts. (Treas. Reg. 1.817-5(f)(3)(iii)). A second exception allows 
shares in the investment company also to be held by the investment 
manager of the investment company, and certain companies related to the 
investment manager, in connection with the creation or management of 
the investment company. (Treas. Reg. 1.817-5(f)(3)(ii)). Finally, a 
third exception allows shares in the investment company also to be held 
by the general account of a life insurance company that holds or will 
hold such shares in a separate account, and by certain companies 
related to the life insurance company. (Treas. Reg. 1.817-5(f)(3)(i)). 
These latter two exceptions are available only if: (1) The return on 
such shares held by the investment manager, the general account or the 
related company is computed in the same manner as the return on shares 
held by the separate accounts; and (2) the investment manager, the 
general account and the related company do not intend to sell such 
shares to the public. Applicants anticipate that the Other Investors 
and General Accounts will comply with the provisions of the Treasury 
Regulations when they purchase and hold shares of the Funds.
    10. Applicants state that, as a result of these exceptions to the 
general diversification requirement, Qualified Plans may select the 
Funds as investment options, and the Other Investors and General 
Accounts may also hold shares of the Funds, without endangering the tax 
status of variable contracts issued through the separate accounts of 
Participating Insurance Companies.
    11. The use of a common management investment company (or series 
thereof) as an investment medium for variable life insurance and 
variable annuity separate accounts and for Qualified Plans is referred 
to herein as ``extended mixed and shared funding.''

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the Act as a unit investment trust, Rule 6e-2(b)(15) under the 
Act provides partial exemptions from sections 9(a), 13(a), 15(a), and 
15(b) of the Act. Section 9(a) provides that it is unlawful for any 
company to serve as an 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) provide partial 
exemptions from section 9(a), and Rule 6e-2(b)(15)(iii) provides a 
partial exemption from sections 13(a), 15(a), and 15(b) to the extent 
those sections have been deemed by the Commission to require ``pass-
through'' voting with respect to an underlying fund's shares.
    2. The exemptions granted to a registered variable life insurance 
separate account by Rule 6e-2(b)(15) are available only when all of the 
assets of the separate account consist of the shares of one or more 
registered 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'', and then only 
when scheduled premium variable life insurance contracts are issued 
through variable life insurance separate accounts. 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 management company that also offers its shares 
(i) to a separate account of the same or an affiliated insurance 
company to fund variable annuity contracts or flexible premium variable 
life insurance contracts or (ii) to any separate account of an 
unaffiliated life insurance company. Furthermore, Rule 6e-2(b)(15) does 
not contemplate that shares of the underlying fund might also be sold 
to Qualified Plans, Other Investors and General Accounts.
    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the Act as 
a unit investment trust, Rule 6e-3(T)(b)(15) under the Act provides 
partial exemptions from section 9(a), and from sections 13(a), 15(a), 
and 15(b) of the Act to the extent that those sections have been deemed 
by the Commission to require pass-through voting with respect to an 
underlying fund's shares. The exemptions granted to a separate account 
by Rule 6e-3(T)(b)(15) are available only when all of the assets of the 
separate account consist of the shares of one or more registered 
management investment companies which offer their 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, 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) permits mixed funding with respect to a 
flexible premium variable life insurance separate account, subject to 
certain conditions. Rule 6e-3(T), however, does not permit shared 
funding because the relief granted by Rule 6e-3(T)(b)(15) is not 
available with respect to a flexible premium variable life insurance 
separate account that owns shares of a management company that also 
offers its shares to separate accounts (including variable annuity and 
flexible premium and scheduled premium life insurance separate 
accounts) of unaffiliated life insurance companies. In addition, Rule 
6e-3(T) does not contemplate sales to Qualified Plans or Other 
Investors or, except in limited circumstances, General Accounts.
    4. Applicants maintain, as discussed below, that there is no policy 
reason why the sale of Fund shares to Qualified Plans, Other Investors 
or General Accounts should prohibit 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). Nonetheless, each of Rules 6e-2 and 6e-
3(T) specifically provides that the relief granted thereunder is 
available only where shares of the underlying fund are offered 
exclusively to insurance company separate accounts (and, in the case of 
Rule 6e-3(T), to insurance companies for advances made in connection 
with separate account operations). In this regard, Applicants request 
exemptive relief to the extent necessary to permit shares of the Funds 
to be sold to Qualified Plans, Other Investors and General Accounts 
while allowing the variable life insurance separate accounts of the 
Participating Insurance Companies to enjoy the benefits of the relief 
granted by Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    5. Applicants submit that, if the Funds were to sell their shares 
only to Qualified Plans, Other Investors or General Accounts, no 
exemptive relief

[[Page 24769]]

under Rules 6e-2 and 6e-3(T) would be necessary. The relief provided 
for under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not relate to 
Qualified Plans, Other Investors, General Accounts or to a registered 
investment company's ability to sell its shares to such purchasers. 
Applicants note that the promulgation of Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) preceded the issuance of the Treasury Regulations which 
made it possible for shares of an investment company to be held by the 
trustee of a Qualified Plan, by Other Investors or by General Accounts 
without adversely affecting the ability of shares of the same 
investment company also to be held by separate accounts of insurance 
companies in connection with their variable contracts. Applicants 
submit that the sale of shares of the same investment company both to 
separate accounts and to Qualified Plans, Other Investors and General 
Accounts (other than, as permitted by Rule 6e-3(T), for advances in 
connection with separate account operations) was not contemplated at 
the time of the promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    6. Applicants are not aware of any reason for excluding separate 
accounts and investment companies engaged in shared funding from the 
exemptive relief provided under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), 
or for excluding separate accounts and investment companies engaged in 
mixed funding from the exemptive relief provided under Rule 6e-
2(b)(15). Similarly, Applicants are not aware of any reason for 
excluding separate accounts from the exemptive relief requested because 
the Funds may also sell their shares to Qualified Plans, Other 
Investors and General Accounts.
    7. Applicants recognize that the reason the Commission did not 
grant broader relief in the area of mixed and shared funding when the 
Commission adopted Rule 6e-3(T) is because of the Commission's 
uncertainty in this area with respect to such issues as conflicts of 
interest. Applicants believe that the Commission's concern in this area 
is not warranted. Applicants have concluded that the addition of 
Qualified Plans, Other Investors and General Accounts as eligible 
shareholders in the Funds does not increase the risk of material 
irreconcilable conflicts among the shareholders. Applicants have 
further concluded that, even if a material irreconcilable conflict 
involving the Qualified Plans, Other Investors or General Accounts 
arose, such shareholders, unlike the separate accounts, could simply 
redeem their shares and make alternative investments.
    8. Consistent with the Commission's authority under section 6(c) of 
the Act to grant exemptive orders to a class or classes of persons and 
transactions, Applicants request relief for the class consisting of 
Applicants, the Participating Insurance Companies and their separate 
accounts investing in the Existing Funds and Future Funds and, to the 
extent necessary, investment advisers, subadvisers, principal 
underwriters, managers, administrators and sponsors of the Funds.
    9. The Commission has previously granted the exemptive relief 
requested herein, including the class relief, in the context of mixed 
and shared funding and extended mixed and shared funding. The 
Commission has also granted such relief to permit sales of fund shares 
to investment managers and their affiliates (i.e., Other Investors) and 
to the general accounts of life insurance companies holding fund shares 
in their separate accounts and the affiliates of such insurance 
companies (i.e., General Accounts).
    10. Section 9(a) of the Act provides that it is unlawful for any 
company to serve as investment adviser or principal underwriter of any 
registered open-end investment company if an affiliated person of that 
company is subject to a disqualification enumerated in sections 9(a)(1) 
or (2). Rules 6e-2(b)(15)(i) and (ii) and Rules 6e-3(T)(b)(15)(i) and 
(ii) 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 the 
management of the underlying management company.
    11. Rules 6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) provide, in effect, 
that the fact that an individual disqualified under section 9(a)(1) or 
section 9(a)(2) is an officer, director, or employee of an insurance 
company, or any of its affiliates, would not, by virtue of section 
9(a)(3) of the Act, disqualify the insurance company or any of its 
affiliates from serving in any capacity with respect to an underlying 
investment company, provided that the disqualified individual did not 
participate directly in the management or administration of the 
underlying investment company.
    12. Similarly, Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) 
provide, in effect, that the fact that any company disqualified under 
section 9(a)(1) or section 9(a)(2) is affiliated with the insurance 
company would not, by virtue of section 9(a)(3), disqualify the 
insurance company from serving in any capacity with respect to an 
underlying investment company, provided that the disqualified company 
did not participate directly in the management or administration of the 
investment company.
    13. The partial relief granted in Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) from the requirements of section 9 limits, in effect, the 
amount of monitoring of an insurer's personnel that would otherwise be 
necessary to ensure compliance with section 9. These rules recognize 
that it is not necessary for the protection of investors or the 
purposes fairly intended by the policy and provisions of the Act to 
apply the provisions of section 9(a) to the many individuals in a large 
insurance company complex, most of whom will have no involvement in 
matters pertaining to investment companies funding separate accounts. 
These rules further recognize that it is also unnecessary to apply 
section 9(a) to individuals in various unaffiliated insurance companies 
(or affiliated companies of Participating Insurance Companies) that may 
utilize the Funds as funding media for variable contracts.
    14. Applicants submit that there is no regulatory purpose in 
extending the section 9(a) monitoring requirements because of mixed or 
shared funding. The Participating Insurance Companies are not expected 
to play any role in the management or administration of the Funds. 
Those individuals who participate in the management or administration 
of the Existing Funds and, it is expected, of any Future Fund, will 
remain the same regardless of which separate accounts, insurance 
companies or Qualified Plans use such Funds. Applying the monitoring 
requirements of section 9(a) because of investment by separate accounts 
of other insurers would be unjustified and would not serve any 
regulatory purpose. Furthermore, the increased monitoring costs would 
reduce the net rates of return realized by contract owners. With 
respect to Qualified Plans, they, unlike separate accounts, are not 
themselves investment companies and therefore are not subject to 
section 9(a) of the Act. Furthermore, it is not anticipated that a 
Qualified Plan would be an affiliated person of a Fund except by virtue 
of its holding 5% or more of a Fund's shares. Finally, the relief 
requested should not be affected by the sale of shares of the Funds to 
Other Investors or to General Accounts. The eligibility restrictions of 
section 9(a) will still apply to any officers, directors or employees 
of Other Investors or Participating Insurance

[[Page 24770]]

Companies who participate directly in the management or administration 
of the Funds.
    15. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume the 
existence of a pass-through voting requirement with respect to 
management investment company shares held by a registered separate 
account. Pass-through voting privileges will be provided by 
Participating Insurance Companies with respect to all variable contract 
owners so long as the Commission interprets the Act to require pass-
through voting privileges for variable contract owners.
    16. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide 
exemptions from the pass-through voting requirement with respect to 
several significant matters, assuming the limitations discussed above 
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 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)). Rules 6e-2(b)(15)(iii)(B) 
and 6e-3(T)(b)(15)(iii)(A)(2) provide that, with respect to registered 
management investment companies whose shares are held by a registered 
separate account of an insurance company, the insurance company may 
disregard voting instructions of contract owners if the contract owners 
initiate any change in such investment company'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) of the Rules).
    17. Rules 6e-2 and 6e-3(T) recognize 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 has 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) (which apply to flexible 
premium insurance contracts and which permit mixed funding) undoubtedly 
were adopted in recognition of the same considerations.
    18. Applicants state that, in addition, sales of shares of the 
Funds to Qualified Plans, Other Investors and General Accounts will not 
have any impact on the relief requested with respect to pass-through 
voting. Qualified Plans are not registered as investment companies 
under the Act, and there is no requirement to pass through voting 
rights to plan participants. For those Qualified Plans covered by 
ERISA, applicable law expressly reserves voting rights associated with 
the assets of most Plans to certain specified persons. Under section 
403(a) of ERISA, shares of a fund sold to a Qualified Plan covered by 
ERISA must be held by the trustees of the Plan. Section 403(a) also 
provides that the trustees must have exclusive authority and discretion 
to manage and control the Plan with two exceptions: (1) When the Plan 
expressly provides that the trustees 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 
plan and not contrary to ERISA; and (2) 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, Qualified Plan 
trustees have the exclusive authority and responsibility for voting 
proxies.
    19. When a named fiduciary appoints an investment manager, the 
investment manager has the responsibility to vote the shares held by 
the Plan unless the right to vote such shares is reserved to the 
trustees or the named fiduciary. The Qualified Plans may have their 
trustees or other fiduciaries exercise voting rights attributable to 
investment securities held by the Plans in their discretion. Some 
ERISA-covered Qualified Plans, however, may provide for the trustees, 
an investment adviser or another named fiduciary to exercise voting 
rights in accordance with instructions from participants. For Qualified 
Plans that are not covered by ERISA, voting rights attributable to 
investment securities held by the Plans are exercised in accordance 
with the terms of governing plan documents. Such voting rights may be 
exercised, as under ERISA-covered Qualified Plans, by plan trustees in 
their discretion or pursuant to instructions from participants, or, in 
the case of custodial accounts or IRAs, by individual participants or 
plan owners.
    20. When a Qualified Plan does not provide participants with the 
right to give voting instructions, Applicants do not see any potential 
for material irreconcilable conflicts of interest between or among 
variable contract owners and plan investors with respect to voting a 
Fund's shares. Accordingly, unlike the case with insurance company 
separate accounts, the issue of the resolution of material 
irreconcilable conflicts of interest with respect to voting is not 
present with respect to such Qualified Plans since the Qualified Plans 
are not entitled to pass-through voting privileges.
    21. 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 the 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 and 
shared funding. Unlike mixed and shared funding, plan investor voting 
rights cannot be frustrated by veto rights of insurers or state 
regulators.
    22. When a Qualified Plan does afford plan participants rights to 
give voting instructions, Applicants see no reason to believe that such 
participants generally or those in a particular Qualified Plan, either 
as a single group or in combination with participants in other Plans, 
would vote in a manner that would disadvantage variable contract 
holders.
    23. Other Investors and General Accounts similarly are not subject 
to any pass-through voting requirements. Accordingly, unlike the case 
with insurance company separate accounts, the issue of the resolution 
of any material irreconcilable conflicts with respect to voting is not 
present with respect to Other Investors and General Accounts.

[[Page 24771]]

    24. The prohibitions on mixed and shared funding might reflect 
concern regarding possible different investment motivations among 
investors. When Rule 6e-2 was adopted, variable annuity separate 
accounts could invest in mutual funds whose shares also were offered to 
the general public. At the time of the adoption of Rule 6e-2, 
therefore, the Commission staff contemplated underlying funds with 
public shareholders as well as 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.
    25. For reasons unrelated to the Act, however, Internal Revenue 
Service Revenue Ruling 81-225 (September 25, 1981) effectively deprived 
most 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 
investment media 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 unit investment trust that invests in a single fund 
or series, then the separate account will not be diversified. In this 
situation, however, section 817(h) of the Code, in effect, provides 
that 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 unit 
investment trust 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 selling its 
shares to the public. Consequently, there will be no public 
shareholders of the Funds.
    26. Applicants state that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist when a 
single insurance company is licensed to do business in several or all 
states. When insurers are domiciled in different states, it is possible 
that the particular state insurance regulatory body in a state in which 
one insurance company is domiciled could require action that is 
inconsistent with the requirements of insurance regulators in other 
states in which other insurance companies are domiciled. The fact that 
a single insurer and its affiliates offer their insurance products in 
different states does not create a significantly different or enlarged 
problem.
    27. Applicants further state that shared funding by unaffiliated 
insurers is, in this respect, 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) permit under various 
circumstances. 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. For example, if a particular state insurance 
regulator's decision conflicts with the majority of other state 
regulators, the affected insurer(s) will be required to withdraw their 
separate accounts' investment from the relevant Fund.
    28. Applicants submit that the rights of an insurance company under 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to disregard the voting 
instructions of contract owners do not raise any issues different from 
those raised by the authority of state insurance regulators over 
separate accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an 
insurer may disregard the voting instructions of the contract owners 
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) that the insurance company's disregard of 
voting instructions be reasonable and based on specific good-faith 
determinations.
    29. A particular insurer's disregard of voting instructions, 
nevertheless, could conflict with the majority of contract owner 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 could either preclude a majority vote approving the 
change or 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 Fund's election, to 
withdraw its separate account's investment from the Fund, and no charge 
or penalty would be imposed as a result of such withdrawal.
    30. Applicants state that there is no reason why the investment 
policies of the Funds would or should be materially different from what 
these policies would or should be if the Funds funded only variable 
annuity contracts or variable life insurance policies, whether flexible 
or scheduled premium policies. Each type of insurance product is 
designed as a long-term investment program. The Funds will not be 
managed to favor or disfavor any particular Participating Insurance 
Company or type of variable contract. 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 and variable annuity 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 differing insurance 
charges imposed, in effect, adjust any such differences and equalize 
the insurer's exposure in either case. 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. A fund supporting even one type of insurance 
product must accommodate these diverse factors in order to attract and 
retain purchasers. Permitting mixed and shared funding will provide 
economic justification for the continuation of the Existing Funds and 
will facilitate the establishment of Future Funds serving diverse 
goals.
    31. Applicants do not believe that the proposed sale of shares of 
the Funds to Qualified Plans, Other Investors and General Accounts will 
increase the potential for material irreconcilable conflicts of 
interest between or among different types of investors. In considering 
the appropriateness of the requested relief, Applicants have

[[Page 24772]]

analyzed a number of issues as discussed below to assure themselves 
that there are either no conflicts of interest or that there will exist 
the ability of affected parties to resolve the issues without harm to 
the contract owners in the separate accounts, the participants under 
the Qualified Plans, the Other Investors or the General Accounts.
    32. Applicants considered whether any issues are raised under the 
Code or the Treasury Regulations or Revenue Rulings thereunder if 
Qualified Plans, Other Investors, General Accounts, variable annuity 
separate accounts and variable life insurance separate accounts all 
invest in the same underlying Fund. As discussed above, section 817(h) 
of the Code imposes certain diversification standards on the underlying 
assets of variable annuity contracts and variable life insurance 
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.
    33. Treasury Department 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 permits 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 shares in the underlying 
fund also to be held by separate accounts of insurance companies in 
connection with their variable contracts. (Treas. Reg. 1.817-
5(f)(3)(iii)). A second such exception permits the investment manager 
and related companies also to invest in the underlying fund. (Treas. 
Reg. 1.817-5(f)(3)(ii)). A third such exception permits the general 
accounts of insurance companies, and related companies, also to invest 
in the underlying fund. (Treas. Reg. 1.817-5(f)(3)(i)). Thus, Treasury 
Regulations specifically permit qualified pension and retirement plans, 
investment managers and certain affiliates, insurance companies and 
certain affiliates and separate accounts to invest in the same 
underlying fund. For this reason, Applicants have concluded that 
neither the Code nor the Treasury Regulations or Revenue Rulings 
thereunder present any inherent conflicts of interest if Qualified 
Plans, Other Investors, General Accounts, variable annuity separate 
accounts and variable life insurance separate accounts all invest in 
the same management investment company.
    34. 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 of distributions from variable contracts and Qualified 
Plans do not raise any conflicts of interest with respect to the use of 
the Funds. When distributions are to be made, and the separate account 
or the Qualified Plan cannot net purchase payments to make the 
distributions, the separate account or the Qualified Plan will redeem 
shares of the affected Funds at their respective net asset values. The 
Qualified Plan then will make distributions in accordance with the 
terms of the Qualified Plan. The life insurance company will surrender 
values from the separate account in order to make distributions in 
accordance with the terms of the variable contract.
    35. Moreover, 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 
accounts. A long-term capital gains tax was incurred in such separate 
accounts with respect to the reserves underlying non-qualified 
contracts but not with respect to the reserves underlying qualified 
contracts. A tax reserve at the estimated tax rate was established in 
the separate accounts affecting only the non-qualified reserves. To the 
best of Applicants' knowledge, this practice was never found to have 
violated any fiduciary standards. Accordingly, Applicants have 
concluded that the tax consequences of distributions with respect to 
separate accounts and Qualified Plans do not raise any material 
irreconcilable conflicts of interest with respect to the use of a Fund.
    36. Applicants considered whether, and believe that, it is possible 
to provide an equitable means of giving voting rights to separate 
account contract owners, Qualified Plans, Other Investors and General 
Accounts. In connection with any meetings of shareholders, each Fund or 
its transfer agent will inform each shareholder, including each 
Participating Insurance Company (with respect to each of its separate 
accounts and its general account), Qualified Plan, Other Investor and 
General Account of its share ownership in the Fund. Each Participating 
Insurance Company will then solicit voting instructions in accordance 
with Rules 6e-2 and 6e-3(T), as applicable. So long as the Commission 
interprets the Act as requiring Participating Insurance Companies to 
pass-through voting privileges to variable contract owners whose 
contracts are funded through registered separate accounts, each 
Participating Insurance Company will vote shares of a Fund held in its 
separate accounts in a manner consistent with voting instructions 
timely-received from contract owners and will vote shares of the Fund 
held in its separate accounts for which no voting instructions from 
contract owners are timely-received, as well as shares of the Fund 
which the Participating Insurance Company itself owns, in the same 
proportion as those shares of the Fund for which voting instructions 
from contract owners are timely-received. MSS and its affiliates will 
vote their shares of a Fund in the same proportion as all variable 
contract owners having voting rights with respect to the relevant Fund 
or in such manner as may be required by the Commission or its staff. 
Shares held by Qualified Plans will be voted in accordance with 
applicable law. The voting rights that are provided to Qualified Plans 
with respect to Fund shares would be no different from the voting 
rights that are provided to Qualified Plans with respect to shares of 
publicly-available funds.
    37. Applicants considered whether a ``senior security,'' as such 
term is defined under section 18(g) of the Act, is created with respect 
to any variable contract owner as opposed to a plan participant under a 
Qualified Plan, an Other Investor or a General Account. Applicants 
concluded that the ability of the Funds to sell their shares directly 
to Qualified Plans, Other Investors and General Accounts does not 
create a senior security. A ``senior security'' is defined under 
section 18(g) of the Act to include ``any stock of a class having 
priority over any other class as to distribution of assets or payment 
of dividends.'' Applicants submit that, regardless of the rights and 
benefits of participants under Qualified Plans or contract owners under 
variable contracts, the Qualified Plans, separate

[[Page 24773]]

accounts, Other Investors and General Accounts have rights only 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.
    38. Applicants considered whether there are any conflicts between 
the contract owners of separate accounts and the participants under 
Qualified Plans, the Other Investors or the General Accounts with 
respect to the state insurance commissioners' veto powers (direct with 
respect to variable life and indirect with respect to variable 
annuities) over investment objectives. The basic premise of shareholder 
voting is that not all shareholders agree with a particular proposal. 
This does not mean that there are any inherent conflicts of interest 
between shareholders. The state insurance commissioners have been given 
the veto power in recognition of the fact that insurance companies 
cannot simply redeem their separate accounts out of one fund and invest 
in another. Time-consuming, complex transactions must be undertaken to 
accomplish such redemptions and transfers. On the other hand, the 
trustees of Qualified Plans can quickly make the decision to redeem and 
then implement the redemption of their plans' shares from the Funds and 
reinvest in another funding vehicle without the same regulatory 
impediments, or, as is the case with most Qualified Plans, even hold 
cash pending suitable investment. Based on the foregoing, Applicants 
have concluded that, even if there should arise issues where the 
interests of contract owners and Qualified Plans are in conflict, these 
issues can be resolved almost immediately in that the trustees of the 
Qualified Plans can, on their own, redeem shares out of the Funds. 
Other Investors and General Accounts can similarly redeem their shares 
out of the Funds and make alternative investments at any time.
    39. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Separate Accounts 
and Qualified Plans created by future changes in the tax laws. 
Applicants do not see any greater potential for material irreconcilable 
conflicts arising between the interests of participants under Qualified 
Plans and contract owners of Participating Separate Accounts from 
possible future changes in the federal tax laws than that which already 
exists between variable annuity contract owners and variable life 
insurance contract owners.
    40. Applicants submit that permitting the sales of a Fund's shares 
to Other Investors and General Accounts in compliance with the Treasury 
Regulations will enhance Fund management without raising significant 
concerns regarding material irreconcilable conflicts. Section 14(a) of 
the Act generally requires that an investment company have a net worth 
of $100,000 upon making a public offering of its shares. Initial 
capital may also be necessary in connection with the creation of new 
series of shares and the voting of initial shares of such series on 
matters requiring shareholder approval. Potential sources of initial 
capital for a Fund are Other Investors or General Accounts. Any of 
these entities may have an interest in making the capital expenditure 
and in participating with the Fund in its organization. However, the 
provision of seed capital or the purchase of Fund shares by Other 
Investors or General Accounts may be deemed to violate the exclusivity 
requirements of Rule 6e-2(b)(15) or Rule 6e-3(T)(b)(1) under the Act.
    41. Applicants anticipate that such investment in a Fund by Other 
Investors or General Accounts will be made in compliance with the 
Treasury Regulations. Given the conditions of Treas. Reg. 1.817-5(f)(3) 
and the harmony of interest between a Fund, on the one hand, and Other 
Investors and General Accounts, on the other, Applicants submit that 
little incentive for overreaching exists. Furthermore, such investment 
should not implicate the concerns discussed above regarding the 
creation of material irreconcilable conflicts. Rather, permitting 
investment by Other Investors or General Accounts will permit the 
orderly and efficient creation and operation of Funds.
    42. Applicants state that various factors have limited the number 
of insurance companies that offer variable annuity and variable life 
insurance contracts. These factors include the costs of organizing and 
operating a funding medium, the lack of expertise with respect to 
investment management (principally with respect to stock and money 
market investments), and the lack of name recognition by the public of 
certain insurers as investment experts with whom members of the public 
feel comfortable entrusting their investment dollars. For example, some 
smaller life insurance companies may not find it economically feasible, 
or within their investment or administrative expertise, to enter the 
variable contract business on their own.
    43. Applicants believe that the use of the Funds as common 
investment media for variable contracts, as well as for Qualified 
Plans, would reduce or eliminate these concerns. Mixed and shared 
funding, including extended mixed and shared funding, also should 
provide several benefits to variable contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate funds. Participating Insurance Companies and Qualified Plans 
will benefit not only from the investment and administrative expertise 
of the Funds' investment advisers and subadvisers, but also from the 
cost efficiencies and investment flexibility afforded by a large pool 
of funds. Therefore, making the Funds available for mixed and shared 
funding will encourage more insurance companies to offer variable 
contracts, and this should result in increased competition with respect 
to both variable contract design and pricing, which can be expected to 
result in more product variation and lower charges. Mixed and shared 
funding, and extended mixed and shared funding, also will result in a 
greater amount of assets available for investment by the Funds, thereby 
benefiting contract owners through greater diversification and by 
making the addition of Future Funds more feasible.
    44. Applicants submit that, regardless of the type of shareholder 
in any of the Funds, the investment advisers and subadvisers are or 
will be contractually obligated to manage each Fund solely and 
exclusively in accordance with that Fund's investment objectives and 
restrictions as well as with any guidelines established by the Board of 
Trustees of MIT, or by the board of directors or trustees of any Future 
Fund that is not a series of MIT, as the case may be (each such board, 
together with the Board of Trustees of MIT, a ``Board''). With respect 
to each Fund, the investment advisers and subadvisers work with a pool 
of money and do not take into account the identity of the shareholders. 
Thus, the Existing Funds are, and any Future Fund will be, managed in 
the same manner as any other mutual fund.
    45. Applicants see no significant legal impediment to permitting 
mixed and shared funding and extended mixed and shared funding. 
Separate accounts organized as unit investment trusts historically have 
been employed to accumulate shares of mutual funds which have not been 
affiliated with the depositor or sponsor of the separate account, and 
Applicants believe, as indicated above, that mixed and shared funding 
and extended mixed and shared funding will have no adverse federal 
income tax consequences.

[[Page 24774]]

    46. Applicants note that the Commission has issued numerous orders 
permitting mixed and shared funding and extended mixed and shared 
funding as well as permitting sales of fund shares in such context to 
investment advisers, the general accounts of insurance companies and 
their affiliates. Applicants' proposal for mixed and shared funding and 
extended mixed and shared funding as well as sales of fund shares in 
such context to Other Investors and General Accounts complies in all 
material respects with the same conditions consented to by the 
applicants for such orders. Therefore, granting the exemptions 
requested herein is in the public interest and, as discussed above, 
will not compromise the regulatory purposes of sections 9(a), 13(a), 
15(a), or 15(b) of the Act or Rules 6e-2 or 6e-3(T) thereunder.

Applicants' Conditions

    Applicants consent to the following conditions if the Commission 
considers them appropriate in granting the order requested herein:
    1. A majority of the Board of each Fund will consist of persons 
(``directors'') who are not ``interested persons'' of that Fund (the 
``Disinterested Directors''), as defined by section 2(a)(19) of the 
Act, and the rules thereunder, 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 director, 
then the operation of this condition will be suspended: (a) For a 
period of 90 days if the vacancy or vacancies may be filled by the 
directors; (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 or by 
future rule.
    2. Each Board will monitor each of its Funds for the existence of 
any material irreconcilable conflict between and among the interests of 
the contract owners of all separate accounts, the participants under 
the Qualified Plans, the Other Investors and the General Accounts 
investing in each such Fund and determine what action, if any, should 
be taken in response to such conflict. 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 the 
Fund are being managed; (e) a difference in voting instructions given 
by variable annuity contract owners, variable life insurance contract 
owners and trustees of 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 its participants.
    3. In the event that a Qualified Plan ever should become an owner 
of 10 percent or more of the assets of a Fund, such Qualified Plan will 
execute a fund participation agreement with that Fund which will 
include agreement to comply with the conditions set forth herein, to 
the extent applicable. A Qualified Plan will execute an application 
with each Fund that contains an acknowledgment of this condition at the 
time of the Qualified Plan's initial purchase of shares of such Fund.
    4. Any Participating Insurance Company (on behalf of itself, its 
separate accounts, and any of its affiliates investing in a Fund), any 
Qualified Plan that executes a fund participation agreement upon 
becoming an owner of 10% or more of the assets of a Fund, and any 
investment adviser or subadviser to a Fund which is an Other Investor 
(each on behalf of itself and any of its affiliates (other than a 
Participating Insurance Company) investing in the Fund) (collectively, 
the ``Participants'') will report any potential or existing conflicts 
to the Board of the relevant Fund. The Participants 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, and, if pass-through voting is applicable, an 
obligation by each Qualified Plan to inform the Board whenever it has 
determined to disregard plan participant voting instructions. The 
responsibility to report such information and conflicts to and to 
assist the Board will be a contractual obligation of all Participating 
Insurance Companies and Qualified Plans investing in a Fund under their 
agreements governing participation in the Funds, and these agreements 
will provide that these responsibilities will be carried out with a 
view only to the interests of the contract owners and plan 
participants, as applicable.
    5. If it is determined by a majority of the Board of a Fund, or a 
majority of its Disinterested Directors, that a material irreconcilable 
conflict exists with respect to that Fund, then the relevant 
Participant, at its own expense and to the extent reasonably 
practicable (as determined by a majority of the Disinterested 
Directors), will take whatever steps are necessary to remedy or 
eliminate the material irreconcilable conflict, including: (a) In the 
case of a Participating Insurance Company, withdrawing the assets 
allocable to some or all of its separate accounts from the Fund and 
reinvesting such assets in a different investment medium, including 
another Fund, or 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., 
variable annuity contract owners or variable life insurance contract 
owners of the Participating Insurance Company) that votes in favor of 
such segregation, or offering to the affected contract owners the 
option of making such a change; (b) in the case of a Qualified Plan, 
withdrawing the assets allocable to the Plan from the Fund and 
reinvesting such assets in a different investment medium, including 
another Fund; and (c) 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, or, 
if applicable, a decision by a trustee of a Qualified Plan to disregard 
plan participant voting instructions, and that decision represents a 
minority position or would preclude a majority vote, then the 
Participating Insurance Company or Qualified Plan may be required, at 
the Fund's election, to withdraw its investment in the Fund, and no 
charge or penalty will be imposed as a result of such withdrawal. To 
the extent permitted by applicable law, 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 Insurance 
Companies and Qualified Plans under their agreements governing 
participation in the Funds, and such agreements will provide that these 
responsibilities will be carried out with a view only to the interests 
of contract owners and plan participants, as applicable.

[[Page 24775]]

    For purposes of this Condition 5, a majority of the Disinterested 
Directors will determine whether or not any proposed action adequately 
remedies any material irreconcilable conflict, but, in no event will 
MIT, any Fund or MSS (or any other investment adviser to a Fund), as 
relevant, be required to establish a new funding medium for any 
variable contract. No Participating Insurance Company will be required 
by this Condition 5 to establish a new funding medium for any variable 
contract if an offer to do so has been declined by the 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 5 to establish a new funding medium for 
the Plan if: (a) A majority of its participants materially and 
adversely affected by the irreconcilable material conflict vote to 
decline an offer to do so, or (b) pursuant to applicable law and 
governing plan documents, the Qualified Plan makes such decision 
without a vote of plan participants.
    6. A Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participants.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners whose contracts are 
funded through registered separate accounts so long as the Commission 
continues to interpret the Act as requiring such pass-through voting 
privileges. Accordingly, each Participating Insurance Company, where 
applicable, will vote shares of a Fund held in its separate accounts in 
a manner consistent with voting instructions timely-received from 
contract owners. Each Participating Insurance Company will vote shares 
of a Fund held in its separate accounts for which no voting 
instructions from contract owners are timely-received, as well as 
shares of a Fund which the Participating Insurance Company itself owns, 
in the same proportion as those shares of the Fund for which voting 
instructions from contract owners are timely-received. Each 
Participating Insurance Company will be responsible for assuring that 
each of its separate accounts investing in a Fund calculates voting 
privileges in a manner consistent with other Participating Insurance 
Companies investing in that Fund. The obligation to calculate voting 
privileges in a manner consistent with all other separate accounts 
investing in a Fund will be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participation in that Fund. Trustees of Qualified Plans will vote 
shares held by Qualified Plans in accordance with applicable law and 
governing plan documents.
    8. As long as the Commission continues to interpret the Act as 
requiring pass-through voting privileges to be provided to variable 
contract owners, MSS and any of its affiliates will vote their shares 
of any Fund in the same proportion as all variable contract owners 
having voting rights with respect to the relevant Fund or in such other 
manner as may be required by the Commission or its staff.
    9. Each Fund will comply with all provisions of the Act requiring 
voting by shareholders (which for these purposes, will be the persons 
having a voting interest in shares of the relevant Fund), and, in 
particular, each Fund will either provide for annual meetings (except 
to the extent that the Commission may interpret section 16 of the Act 
not to require such meetings) or comply with section 16(c) of the Act 
(although Existing Funds are not, and Future Funds will not be, the 
type of trust described in the section 16(c) of the Act), as well as 
with section 16(a) of the Act and, if and when applicable, section 
16(b) of the Act. Further, each Fund will act in accordance with the 
Commission's interpretation of the requirements of section 16(a) with 
respect to periodic elections of directors and with whatever rules the 
Commission may promulgate with respect thereto.
    10. Each Fund will notify all Participating Insurance Companies and 
all Qualified Plans investing in the Fund that disclosure in separate 
account prospectuses or any Qualified Plan prospectuses or other Plan 
disclosure documents regarding potential risks of mixed and shared 
funding may be appropriate. Each Fund will disclose in its prospectus 
that: (a) Shares of the Fund may be offered to insurance company 
separate accounts for both variable annuity and variable life insurance 
contracts and to Qualified Plans; (b) due to differences in tax 
treatments and other considerations, the interests of various contract 
owners participating in the Fund and the interests of Qualified Plans 
investing in the Fund may conflict; and (c) the Fund's Board will 
monitor events in order to identify the existence of any material 
irreconcilable conflicts and determine what action, if any, should be 
taken in response to any such conflict.
    11. If, and to the extent that, Rule 6e-2 and Rule 6e-3(T) under 
the Act are amended, or proposed Rule 6e-3 under the Act is adopted, to 
provide exemptive relief from any provision of the Act, or the rules 
promulgated thereunder, with respect to mixed or shared funding, on 
terms and conditions materially different from any exemptions granted 
in the order requested in this Application, then the Funds and/or the 
Participating Insurance Companies, as appropriate, will take such steps 
as may be necessary to comply with Rules 6e-2 or 6e-3(T) as amended, or 
Rule 6e-3 as adopted, as such rules are applicable.
    12. The Participants, at least annually, will submit to the Board 
of each relevant Fund such reports, materials, or data as such Board 
reasonably may request so that the Board may fully carry out the 
obligations imposed upon it by the conditions contained in this 
Application, and said reports, materials, and data shall be submitted 
more frequently if deemed appropriate by the Board. The obligations of 
the Participating Insurance Companies and Qualified Plans to provide 
these reports, materials, and data to the Board will be a contractual 
obligation under their agreements governing participation in the Funds.
    13. All reports of potential or existing conflicts received by the 
Board of a Fund, and all action by the Board 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 or other appropriate records 
of the Board, and such minutes or other records shall be made available 
to the Commission upon request.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11412 Filed 5-7-03; 8:45 am]
BILLING CODE 8010-01-P