[Federal Register Volume 62, Number 178 (Monday, September 15, 1997)]
[Notices]
[Pages 48324-48329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24378]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22814; File No. 812-10614]


LEVCO Series Trust, et al.; Notice of Application

September 9, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940 (the ``1940 Act'') for exemptions from 
the provisions of Section 9(a), 13(a), 15(a) and 15(b) of the 1940 Act 
and Rules  6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of 
the LEVCO Series Trust and shares of any other open-end investment 
company that is designed to fund insurance products and for which John 
A. Levin & Co. or any of its affiliates may serve as investment 
adviser, administrator, manager, principal underwriter, or sponsor 
(collectively, the ``Trust'') to be sold to and held by: (1) Separate 
accounts funding variable annuity and variable life insurance contracts 
(``Separate Accounts``) issued by both affiliated and unaffiliated life 
insurance companies (``Participating Insurance Companies''); and (2) 
certain qualified pension and retirement plans outside the separate 
account context.

APPLICANTS: LEVCO Series Trust (the ``LEVCO Trust'') and John A. Levin 
& Co. (the ``Investment Adviser'').

FILING DATES: The application was filed on April 18, 1997, and amended 
and restated on August 15, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
in person or by mail. Hearing requests must be received by the 
Commission by

[[Page 48325]]

5:30 p.m. on October 6, 1997, and accompanied by proof of service on 
the Applicants in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
interest, the reason for the request and the issues contested. Persons 
may request notification of the date of a hearing by writing to the 
Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Schulte Roth & Zabel LLP, Attention: Kenneth S. 
Gerstein, Esq., 900 Third Avenue, New York, New York, 10022.

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

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representation

    1. The LEVCO Trust is a Delaware business trust and is registered 
under the 1940 Act as an open-end diversified management investment 
company. It currently consists of one series known as LEVCO Equity 
Value Fund (``Equity Value Fund''). Additional series may in the future 
be authorized (each, including Equity Value Fund, a ``Series''). Each 
Series may issue one or more classes of shares representing interests 
therein, subject to compliance with the provisions of Rule 18f-3 under 
the 1940 Act. Certain classes of shares may incur fees or bear certain 
costs relating to the distribution of shares of such class pursuant to 
plans adopted in accordance with Rule 12b-1 under the 1940 Act.
    2. The Investment Adviser serves as the investment adviser to the 
LEVCO Trust. The Investment Adviser is an indirect, wholly-owned 
subsidiary of Baker, Fentress & Company, a registered closed-end 
investment company listed on the New York Stock Exchange.
    3. Shares of the Trust will be offered to Participating Insurance 
Companies and their Separate Accounts to enable the Series to serve as 
the investment vehicles for various types of insurance products, which 
may include all variations of variable annuity and variable life 
insurance contract (the ``Variable Contracts'').
    4. Shares of the Trust also may be offered and sold directly to 
certain qualified pension and retirement plans (``Qualified Plans'').

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act exempting variable life insurance Separate 
Accounts (and, to the extent necessary, any principal underwriter or 
depositor of such an account) and Applicants from Sections 9(a), 13(a), 
15(a) and 15(b) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to 
the extent necessary to permit shares of the Trust to be offered and 
sold to both variable annuity separate accounts and variable life 
insurance separate accounts of the same life insurance company or 
affiliated life insurance companies (i.e., mixed funding) and to permit 
shares of the Trust to be offered and sold to Separate Accounts of 
unaffiliated life insurance companies (i.e., share funding) and to 
Qualified Plans.
    2. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to conditionally or unconditionally exempt any 
person, security or transaction, or any class or classes of persons, 
securities or transactions from any provisions of the 1940 Act or the 
rules or regulations thereunder, if and to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    3. In connection with the funding of scheduled premium variable 
life insurance contracts issued through separate accounts registered 
under the 1940 Act as unit investment trust, Rule 6e-2(b)(15) under the 
1940 Act provides partial exemptions from Sections 9(a), 13(a), 15(a) 
and 15(b) of the 1940 Act. The exemptions granted by Rule 6e-2(b)(15) 
are available, however, only where 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'' (emphasis supplied).\1\ Therefore, 
the relief granted by Rule 6e-2(b)(15) is not available with respect to 
a separate account that owns shares of an underlying fund that also 
offers its shares to both variable annuity and variable life insurance 
separate accounts of the same company or of any affiliated life 
insurance company. In addition, the relief granted by Rule 6e-2(b)(15) 
is not available if shares of the underlying management investment 
company are offered to separate accounts of unaffiliated life insurance 
companies or to Qualified Plans.
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    \1\ The exemptions provided by Rule 6e-2 also are available to 
the investment adviser, principal underwriter, and sponsor or 
depositor of the separate account.
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    4. Applicants submit that the relief granted by Rule 6e-2(b)(15) is 
in no way affected by the purchase of shares of the Trust by Qualified 
Plans. However, because the relief under Rule 6e-2(b)(15) is available 
only where shares are offered exclusively to Separate Accounts, 
additional exemptive relief is necessary if shares of the Trust are 
also to be sold to Qualified Plans.
    5. In connection with flexible premium variable life insurance 
contracts issued through a separate account, 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) are available 
only to separate accounts that own shares of underlying funds that 
offer shares ``exclusively to separate accounts of the life insurer, or 
of any affiliated life insurance company, 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'' (emphasis supplied).\2\ 
Therefore, Rule 6e-3(T) permits mixed funding, but does not permit 
shared funding.
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    \2\ The exemptions provided by Rule 6e-3(T) also are available 
to the investment adviser, principal underwriter, and sponsor or 
depositor of the separate account.
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    6. Because the relief under Rule 6e-3(T) is available only where 
shares are offered exclusively to separate accounts of insurance 
companies, additional exemptive relief is necessary if shares of the 
Trust also are to be sold to Qualified Plans.
    7. Current tax law permits the Trust to increase its asset base 
through the sale of its shares to Qualified Plans. Section 817(h) of 
the Internal Revenue Code of 1986, as amended (the ``Code''), imposed 
certain diversification standards on fund investments underlying 
Variable Contracts. Treasury Regulations provide that, to meet 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 of 
which allows shares in the investment company to be held by the trustee 
of a Qualified Plan

[[Page 48326]]

without adversely affecting the ability of life insurance companies to 
hold shares in the same investment company in their separate accounts 
(Treas. Reg. 1.817-5(f)(3)(iii)).
    8. Applicants state that the promulgation of Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of the Treasury 
Regulations. Applicants assert that, given the then-current tax law, 
the sale of shares of the same investment company to both separate 
accounts and Qualified Plans was not envisioned at the time of the 
adoption of of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    9. Section 9(a) of the 1940 Act provides that it is unlawful for 
any person to serve as investment adviser to or principal underwriter 
of any registered open-end investment company if an affiliated person 
of that company is subject to a disqualification enumerated in Section 
9(a) (1) or (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide 
exemptions from Section 9(a) under certain circumstances, subject to 
the limitations on mixed and shared funding. These exemptions limit the 
application of the eligibility restrictions to affiliated individuals 
or companies that directly participate in the management of the 
underlying fund.
    10. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9, in 
effect, limits the amount of monitoring necessary to ensure compliance 
with Section 9 to that which is appropriate in light of the policy and 
purposes of Section 9. Applicants state that those Rules recognize that 
it is not necessary for the protection of investors or the purposes 
fairly intended by the policy and provisions of the 1940 Act to apply 
the provisions of Section 9(a) to the many individuals in an insurance 
company complex, most of whom typically will have no involvement in 
matters pertaining to investment companies within that organization. 
Applicants assert, therefore, that applying the restrictions of Section 
9(a) to all individuals in Participating Insurance Companies that 
participate in mixed and shared funding arrangements serves no 
regulatory purpose.
    11. Applicants state that the relief requested should not be 
affected by the proposed sale of shares of the Trust to Qualified Plans 
because the Qualified Plans are not investment companies, and will not 
be deemed to be affiliated solely by virtue of their shareholdings.
    12. Applicants state that 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 separate account. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) 
provide partial exemptions from the pass-through voting requirement, 
under certain circumstances. More specifically, of 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 and subject to certain requirements. In 
addition, Rules of Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard 
voting instructions of its contract owners if the contract owners 
initiate any change in the 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) and (b)(7)(ii) (B) and (C) of each rule).
    13. Applicants state that Rule 6e-2 recognizes that a variable life 
insurance contract is an insurance contract and is subject to extensive 
state insurance regulation. Applicants maintain, therefore, that in 
adopting of Rules 6e-2(b)(15)(iii), the Commission expressly recognized 
that state insurance laws or 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 a life insurance company 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 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, Rule 
6e-3(T)'s corresponding provisions for flexible premium variable life 
insurance contracts undoubtedly were adopted in recognition of the same 
considerations as the Commission applied in adopting Rule 6e-2.
    14. Applicants maintain that these considerations are no less 
important or necessary when an insurance company funds its separate 
accounts in connection with mixed and shared funding. Such mixed and 
shared funding does not compromise the goals of the insurance 
regulatory authorities or of the Commission. Applicants argue that by 
permitting such arrangements, the Commission eliminates needless 
duplication of start-up and administrative expenses and potentially 
increases an investment company's assets, thereby making portfolio 
management strategies easier to implement and promoting other economies 
of scale.
    15. Applicants further represent that the sale of the Trust's 
shares to Qualified Plans will not impact the relief requested in this 
regard. Shares of the Trust sold to Qualified Plans would be held by 
the trustees of such Qualified Plans as required by Section 403(a) of 
the Employment Retirement Income Security Act (``ERISA''). Section 
403(a) also provides that the trustee(s) must have exclusive authority 
and discretion to manage and control the Plan with two exceptions: (1) 
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 (2) 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 two 
exceptions stated in Section 403(a) applies, Qualified Plan trustees 
have the exclusive authority and responsibility for voting proxies. 
Where a named fiduciary appoints an investment manager, the investment 
manager has the responsibility to vote the shares held unless the right 
to vote such shares is reserved to the trustees or the named fiduciary. 
In any event, there is no pass-through voting to the participants in 
such Qualified Plans. Accordingly, Applicants note that, unlike the 
case with insurance company separate accounts, the issue of the 
resolution of material irreconcilable conflicts with respect to voting 
is not present with Qualified Plans.
    16. Applicants state that no increased conflicts of interest would 
be present by the granting of the requested relief. Applicants assert 
that shared funding does not present any issues that do not already 
exist where a single insurance

[[Page 48327]]

company is licensed to do business in several or all states. In this 
regard, Applicants note that a particular state insurance regulatory 
body could require action that is inconsistent with the requirements of 
insurance regulators in one or more other states in which the insurance 
company offers its policies. Applicants submit that the fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem.
    17. Applicants assert that shared funding 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) 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, Applicants submit that the conditions 
discussed below (which are adapted from the conditions included in Rule 
6e-3(T)(b)(15)) are designed to safeguard against, and provide 
procedures for resolving, any adverse effects that differences among 
state regulatory requirements may produce.
    18. Applicants note the Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give 
an insurance company the right to disregard the voting instructions of 
contract owners. Applicants submit that this does not raise any issues 
different from those raised by the authority of state insurance 
administrators over separate accounts. 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.
    19. Applicants state that there is no reason why the investment 
policies of the Trust would or should be materially different from what 
those policies would or should be if such investment company or series 
thereof funded only variable annuity or variable life insurance 
contracts. In this regard Applicants note that each type of variable 
insurance product is designed as a long-term investment program. 
Moreover, Applicants represent that each Series will be managed to 
attempt to achieve the investment objective of such Series and not to 
favor or disfavor any particular insurance company or type of insurance 
product.
    20. Furthermore, Applicants submit that no one investment strategy 
can be identified as appropriate to a particular insurance product. 
Each pool of variable annuity and variable life insurance contract 
owners is composed of individuals of diverse financial status, age, 
insurance, and investment goals. A fund supporting even one type of 
insurance product must accommodate those factors in order to attract 
and retain purchasers.
    21. In connection with the proposed sale of shares of the Trust to 
Qualified Plans, Applicants submit that either there are no conflict of 
interest or there exists the ability by the affected parties to resolve 
any such conflicts without harm to the contract owners in the Separate 
Accounts or to the participants in the Qualified Plans. Applicants note 
that Section 817(h) of the Code imposes certain diversification 
standards on fund assets underlying Variable Contracts. Treasury 
Regulation 1.817-5(f)(3)(iii), which established diversification 
requirements for such portfolios, specifically permits ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company. Therefore, Applicants have 
concluded that neither the Code, the Treasury Regulations, nor Revenue 
Rulings thereunder, present any inherent conflicts of interest if 
Qualified Plans, variable annuity separate accounts, and variable life 
insurance separate accounts all invest in the same management 
investment company.
    22. Applicants note that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life contracts and Qualified Plans, these tax consequences do 
not raise any conflicts of interest. 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 or the 
Qualified Plan will redeem shares of the Trust at their respective net 
asset value. The Qualified Plan will then make distributions in 
accordance with the terms of the Qualified Plan, and the Participating 
Insurance Company will make distributions in accordance with the terms 
of the Variable Contract.
    23. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving voting rights to 
Separate Account contract owners and to the trustees of Qualified 
Plans. Applicants represent that the transfer agent for the Trust will 
inform each Participating Insurance Company of its share ownership in 
each Separate Account, and will inform the trustees of Qualified Plans 
of their holdings. Each Participating Insurance Company will then 
solicit voting instructions in accordance with Rules 6e-2 and 6e-3(T).
    24. Applicants contend that the ability of the Trust to sell its 
shares directly to Qualified Plans does not create a ``senior 
security,'' as such term is defined under Section 18(g) of the 1940 
Act. Regardless of the rights and benefits of participants and contract 
owners under the respective Qualified Plans and Variable Contracts, the 
Qualified Plans and the Separate Accounts have rights only with respect 
to their shares of the Trust. Such shares may be redeemed only at their 
net asset value. No shareholder of the Trust will have any preference 
over any other shareholder of the Trust with respect to distribution of 
assets or payment of dividends.
    25. Applicants submit that there are no conflicts between the 
contract owners of the Separate Accounts and participants under the 
Qualified Plans with respect to the state insurance commissioners' veto 
powers (direct with respect to variable life insurance and indirect 
with respect to variable annuities) over investment objectives. The 
state insurance commissioners have been given the veto power in 
recognition of the fact that insurance companies cannot simply request 
redemption of shares held by their Separate Accounts and have shares 
redeemed out of one fund and invested in another. Generally, to 
accomplish such redemptions and transfers, complex and time-consuming 
transactions must be undertaken. Conversely, trustees of Qualified 
Plans can make the decision and implement redemption of shares from the 
Trust and reinvest in another funding vehicle without the same 
regulatory impediments, or even hold cash pending suitable investment. 
Based on the foregoing, Applicants represent that even if there should 
arise issues where the interests of Qualified Plans are in conflict, 
the issues can be almost immediately resolved because the trustees of 
the Qualified Plans can, independently, redeem the shares of the Trust 
which they hold.
    26. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. According to Applicants, these factors include the 
costs of organizing and operating an investment funding medium, the 
lack of expertise with respect to investment management

[[Page 48328]]

(principally with respect to stock and money market investments) and 
the lack of name recognition by the public of certain insurers as 
investment professionals. Applicants contend that use of the Trust as 
common investment media for Variable Contracts as well as for Qualified 
Plans would ease these concerns. Participating Insurance Companies and 
Qualified Plans would benefit not only from the investment and 
administrative expertise of the Investment Adviser and its affiliates, 
but also from the cost efficiencies and investment flexibility afforded 
by a large pool of funds. Applicants state that making the Trust 
available for mixed and shared funding may encourage more insurance 
companies to offer Variable Contracts which may then increase 
competition with respect to both the design and the pricing of Variable 
Contracts. Thus, Applicants represent that contract owners would 
benefit because mixed and shared funding will eliminate a significant 
portion of the costs of establishing and administering separate funds. 
Moreover, Applicants assert that sales of shares of the Trust to 
Qualified Plans should increase the amount of assets available for 
investment by the Trust. This should, in turn, promote economies of 
scale and permit increased safety of investments through greater 
diversification.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Board of Trustees of each Trust (each, a 
``Board'') shall 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, then 
the operation of this condition shall be suspended: (a) For a period of 
45 days if the vacancy or vacancies may be filled by the Board; (b) for 
a period of 60 days if a vote of shareholders is required to fill the 
vacancy or vacancies; or (c) for such longer period as the Commission 
may prescribe by order upon application.
    2. The Board will monitor the Trust for the existence of any 
material irreconcilable conflict between and among the interests of the 
variable annuity and variable life insurance contract owners investing 
in the Separate Accounts and participants in all Qualified Plans 
investing in Series of the 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 
interpretive letter, or any similar action by insurance, tax or 
securities regulatory authorities; (c) an administrative or judicial 
decision in any relevant proceeding; (d) the manner in which the 
investments of any Series are being managed; (e) a difference in voting 
instructions given by variable annuity contract owners and owners of 
variable life insurance contracts and trustees of the Plans; or (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of contract owners.
    3. If a Qualified Plan becomes an owner of 10% or more of the 
assets of the Trust, such Plan will execute a participation agreement 
with the Trust that provides appropriate protection consistent with the 
representations in the application. In connection with its initial 
purchase of shares of the Trust, the Qualified Plan will be required to 
acknowledge this condition in its application to purchase the shares.
    4. The Participating Insurance Companies, the Investment Adviser 
and any Qualified Plan that executes a fund participation agreement 
upon becoming an owner of 10% or more of the issued and outstanding 
shares of the Trust (collectively, the ``Participating Entities'') will 
report any potential or existing conflicts to the Board. Participating 
Entities will be responsible for assisting the Board in carrying out 
the responsibilities of the Board 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. The responsibility to report such conflicts and 
information to the Board and to assist the Board will be a contractual 
obligation of all Participating Insurance Companies and Qualified Plans 
investing in the Trust; these responsibilities will be carried out with 
a view only to the interest of the contract owners and participants in 
Qualified Plans.
    5. If it is determined by a majority of a Board, or a majority of 
its disinterested trustees, that a material irreconcilable conflict 
exists, the relevant Participating Insurance Companies and Qualified 
Plans shall, at their expense and to the extent reasonably practicable 
(as determined by a majority of the disinterested trustees), take 
whatever steps are necessary to remedy or eliminate the irreconcilable 
material conflict, up to and including: (a) Withdrawing the assets 
allocable to some or all of the Separate Accounts from the affected 
Series of the Trust and reinvesting such assets in a different 
investment medium, including another Series, or submitting the question 
of whether such segregation should be implemented to a vote of all 
affected contract owners and, as appropriate, segregating the assets of 
any appropriate group (i.e., variable annuity contract owners or 
variable 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; (b) withdrawing the assets allocable to some or all of the 
Qualified Plans from the affected Series of the Trust and reinvesting 
those assets in a different investment medium, including another 
Series; and (c) establishing a new registered management investment 
company or managed separate account. If a material irreconcilable 
conflict arises because of a Participating Insurance Company's decision 
to disregard voting instructions of the owners of the contracts, and 
that decision represents a minority position or would preclude a 
majority vote, the Participating Insurance Company may be required, at 
the election of the Trust, within its sole discretion, to withdraw its 
Separate Account's investment in the Trust, with no charge or penalty 
being imposed. The responsibility to take remedial action in the event 
of a Board determination of an irreconcilable material conflict and to 
bear the cost of such remedial action will be a contractual obligation 
of all Participating Insurance Companies and all Qualified Plans under 
the agreements governing their participation in the Trust. The 
responsibility to take such remedial action shall be carried out with a 
view only to the interests of contract owners and participants in 
Qualified Plans.
    6. For the purposes of Condition 5, a majority of the disinterested 
members of the Board shall determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but, in no 
event will the Trust or the Investment Adviser be required to establish 
a new funding medium for any Variable Contract. No Participating

[[Page 48329]]

Insurance Company shall be required by Condition 5 to establish a new 
funding medium for any Variable Contract if any offer to do so has been 
declined by the vote of a majority of contract owners who are 
materially and adversely affected by the irreconcilable material 
conflict.
    7. A Board's determination of the existence of an irreconcilable 
material conflict and its implications will be made known promptly and 
in writing to all Participating Entities.
    8. Participating Insurance Companies will provide pass-through 
voting privileges to all Variable Contract owners so long as the 
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for variable annuity and variable life 
insurance contract owners. Accordingly, the Participating Insurance 
Companies will vote shares of the Trust held in their Separate Accounts 
in a manner consistent with voting instructions timely received from 
contract owners. Each Participating Insurance Company will vote shares 
of the Trust held in the Participating Insurance Company's Separate 
Accounts for which no voting instructions from contract owners are 
timely-received, as well as shares of the Trust which the Participating 
Insurance Company itself owns, in the same proportion as those shares 
of the Trust for which voting instructions from contract owners are 
timely-received. Participating Insurance Companies will be responsible 
for assuring that each of their Separate Accounts participating in the 
Trust calculates voting privileges in a manner consistent with other 
participation Insurance Companies. The obligation to calculate voting 
privileges in a manner consistent with all other Separate Accounts 
investing in the Trust shall be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
their participation in the trust. Each Qualified plan will vote as 
required by applicable law and governing Plan documents.
    9. 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 Trust), 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 trusts described 
in 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 Trust 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.
    10. The Trust will notify all Participating Insurance Companies 
that Separate account prospectus disclosures regarding potential risks 
of mixed and shared funding may be appropriate. The trust will disclose 
in the prospectuses of the Series that: (a) The Trust is intended to be 
a funding vehicle for all types of variable annuity and variable life 
insurance contracts offered by various insurance companies and for 
certain qualified pension and retirement plans; (b) material 
irreconcilable conflicts possibly may arise; 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.
    11. If, and to the extent that, Rules 6e-2 or 6e-3(T) are amended 
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive 
relief from any provision of the 1940 Act or the rules thereunder with 
respect to mixed or shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Trust and/or the Participating Entities, as 
appropriate, shall take such steps as may be necessary to comply with 
Rule 6e-2 or 6e-3(T), as they may be amended, and Rule 6e-3, as it may 
be adopted, to the extent such rules are applicable.
    12. At least annually, the Participating Entities shall submit to 
the Board such reports, materials or data as the Board reasonably may 
request so that the Board may carry out fully the obligations imposed 
by the conditions contained in these conditions. Such reports, 
materials and data shall be submitted more frequently if deemed 
appropriate by the Board. The obligations of the Participating Entities 
to provide these reports, materials and data to the Board, when the 
Board so reasonably requests, shall be a contractual obligation of all 
Participating Entities under their agreements governing participation 
in the Trust.
    13. All reports received by a Board of potential or existing 
conflicts, and all Board action with regard to (a) determining the 
existence of a conflict; (b) notifying Participating Entities of a 
conflict; and (c) determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
Board or other appropriate records. Such minutes or other records shall 
be made available to the Commission upon request.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24378 Filed 9-12-97; 8:45 am]
BILLING CODE 8010-01-M