[Federal Register Volume 65, Number 199 (Friday, October 13, 2000)]
[Notices]
[Pages 60992-61000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26279]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24679; File No. 812-12026]


WM Variable Trust, et al., Notice of Application

October 5, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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    Summary of Application: WM Variable Trust (the ``Trust'') and WM 
Advisors, Inc. (the ``Adviser'') (collectively, ``Applicants'') seek an 
Order exempting them from Sections 9(a), 13(a), 15(a), and 15(b) of the 
Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to permit 
shares of the Trust and any other investment company that is designed 
for fund insurance products and for which the Adviser or its affiliates 
many serve as investment manager, investment adviser, investment sub-
adviser, administrator, manager, principal underwriter or sponsor 
(``Future Trusts'') to be sold to and held by (1) variable annuity and 
variable life insurance separate accounts of both affiliated and 
unaffiliated life insurance companies; (2) qualified pension and 
retirement plans outside of the separate account context; and (3) the 
Trust's or Future Trust's investment adviser (representing seed money 
investments in the Trust or Future Trust).
    Applicants: WM Variable Trust (the ``Trust'') and WM Advisors, Inc. 
(the ``Adviser'') are, collectively, referred to herein as the 
``Applicants.''
    Filing Date: The Application was filed on March 15, 2000, and 
amended on July 26, 2000 and September 27, 2000.
    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 the 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 5:30 p.m. on October 30, 2000, 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, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o John T. West, WM 
Advisors, Inc., 1201 Third Avenue, 22nd Floor, Seattle, WA 98101.

FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel, 
or Keith Carpenter, Branch Chief, Office of Insurance Products, Divison 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the SEC's Public 
Reference Branch.

Applicants' Representations

    1. The Trust is a business trust organized under the laws of 
Massachusetts on January 29, 1993. On March 20, 1998, the Trust's name 
was changed from Sierra Variable Trust to WM Variable Trust. The Trust 
filed its registration under the Act as an open-

[[Page 60993]]

end management investment company on February 2, 1993. The Trust is 
currently comprised of fifteen investment portfolios (the ``Funds''), 
although the Trust may create additional investment portfolios and 
issue shares representing beneficial interests therein from time to 
time.\1\ On February 2, 1993, the Trust filed a Registration Statement 
on Form N-1A under the Act and the Securities Act of 1933, as amended 
(the ``1933 Act''), to register the sale of the Funds' shares. At the 
current time, the Trust has issued only one class of shares of the 
Funds, but may in the future offer two or more classes of shares of the 
Funds. The Trust may offer each series of its shares to separate 
accounts, including Separate Account D of American General Life 
Insurance Company (the ``Separate Account''), the sole separate account 
currently investing in the Funds (``Participating Separate Accounts''), 
of various other life insurance companies (``Participating Insurance 
Companies'') and to pension and retirement plans qualified under 
Section 401(a) of the Internal Revenue Code of 1986, as amended (the 
``Code'') (``Qualified Plans''). Such Participating Insurance Companies 
and Qualified Plans are described below. The Trust many also offer each 
series of its shares to the Adviser pursuant to Treasury Regulations 
Sec. 1.817(f)(3)(ii).
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    \1\ Hereinafter, the term ``Funds'' means the Funds and/or any 
future series of the Trust or a Future Trust, as applicable.
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    2. Each variable life insurance account (``VLI Account'') and 
variable annuity account (``VA Account'') has been or will be 
established as a segregated asset account by a Participating Insurance 
Company pursuant to the insurance law of such insurance company's state 
of domicile. As such, the assets of each are or will be the property of 
the Participating Insurance Company and the portion of the assets of 
such an account equal to the reserves and other contract liabilities 
with respect to the account are not and/or will not be chargeable with 
liabilities arising out of any other business that the insurance 
company may conduct. The income, gains and losses, realized or 
unrealized, from such an account's assets are and/or will be credited 
to or charged against the account without regard to other income, gains 
or losses of the insurance company. If, like the Separate Account, a VA 
Account of a life insurance company is registered as an investment 
company, it will be a ``separate account'' as defined by Rule 0-1(e) 
(or any successor rule) under the Act and will be registered as a unit 
investment trust (``UIT''). If a VLI Account is registered as an 
investment company, it will be a separate account as described in Rule 
6e-2(a) or Rule 6e-3(T)(a) and will be registered as a UIT. For 
purposes of the Act, the life insurance company that establishes such a 
registered VLI Account or VA Account, like American General Life 
Insurance Company (``AGL''), is the depositor and sponsor of the 
account as those terms have been interpreted by the Commission with 
respect to variable life insurance and variable annuity separate 
accounts.
    3. The Qualified Plans will be pension or retirement plans intended 
to qualify under Sections 401(a) and 501(a) of the Code. Many of the 
Qualified Plans will include a cash or deferred arrangement (permitting 
salary reduction contributions) intended to qualify under Section 
401(k) of the Code. The Qualified Plans 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''). The 
Qualified Plans therefore will be subject to regulatory provisions 
under the Code and ERISA regarding, for example, reporting and 
disclosure, participation and vesting, funding, fiduciary 
responsibility, and enforcement.
    4. The Adviser, which is registered as an investment adviser under 
the Investment Advisers Act of 1940, is the investment adviser of the 
Fund. As investment adviser to the Fund, the Adviser has been engaged 
to continuously furnish an investment program for the Fund and to make 
or cause to be made investment decisions on behalf of the Fund and 
place or cause to be placed all others for the purchase and sale of 
portfolio securities.
    5. The Trust proposes to offer and sell shares of the Fund to 
Participating Insurance Companies as an investment vehicle for their 
VLI Accounts and VA Accounts (collectively, ``Variable 
Accounts'')(hereinafter, the term ``Trust'' refers to the Trust and/or 
any Future Trust, as applicable). As described more fully below, the 
Trust will only sell its shares to registered VLI Accounts and 
registered VA Accounts if each Participating Insurance Company 
sponsoring such a VLI Account or VA Account enters into a participation 
agreement with the Trust. The participation agreements will define the 
relationship between the Trust and each Participating Insurance Company 
and will memorialize, among other matters, the fact that, except where 
the agreement specifically provides otherwise, the Participating 
Insurance Company will remain responsible for establishing and 
maintaining any VLI Account or VA Account covered by the agreement and 
for complying with all applicable requirements of state and federal law 
pertaining to such accounts and to the sale and distribution of 
variable life insurance contracts (``VLI Contracts'') and variable 
annuity contracts (``VA Contracts,'' and together with VLI Contracts, 
``Variable Contracts'') issued through such accounts. The participation 
agreements also will memorialize, among other matters, the fact that, 
with regard to compliance with federal securities laws, unless the 
agreement specifically states otherwise, the Trust's obligations relate 
solely to offering and selling its shares to VLI Accounts and VA 
Accounts covered by the agreement and to compliance with the conditions 
states in this application.
    6. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for both VLI Accounts and VA 
Accounts 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 investment portfolio thereof) as an investment medium for 
VLI Accounts and/or VA Accounts of two or more insurance companies that 
are not affiliated persons of each other, is referred to herein as 
``shared funding.''
    7. The Trust may sell its shares directly to Qualified Plans. 
Changes in the federal tax law several years ago made it possible for 
investment companies such as the Trust to sell shares to Qualified 
Plans to addition to VLI Accounts and VA Accounts. Section 817(h) of 
the Code imposes certain diversification standards on the assets 
underlying Variable Contracts, such as those in the Trust. The Code 
provides that Variable Contracts will not be treated as annuity 
contracts or life insurance contracts, as the case may be, for any 
period (or any subsequent period) for which the underlying assets are 
not adequately diversified in accordance with regulations issued by the 
Treasury Department. On March 1, 1989, the Treasury Department adopted 
regulations (Treas. Reg. 1.817-5) (the ``Regulations'') which 
established specific diversification requirements for investment 
portfolios underlying Variable Contracts. The Regulations generally 
provide that, in order to meet these diversification requirements, all 
of the beneficial interests in the investment company must be held by 
the segregated asset accounts of one or more life insurance companies.

[[Page 60994]]

Notwithstanding this, the Regulations contain an exception to this 
requirement that permits trustees of a qualified pension or retirement 
plan to hold shares of an investment company, the shares of which are 
also held by insurance company segregated asset accounts, without 
adversely affecting the status of the investment company as an 
adequately diversified underlying investment for Variable Contracts 
issued through such segregated asset accounts (Treas. Reg. 1.817-
5(f)(3)(iii)).
    8. As a result, Qualified Plans may select the Trust as an 
investment option without endangering the tax status of Variable 
Contracts as life insurance or annuities. Trust shares sold to the 
Qualified Plans would be held by the Trustees of the Qualified Plans as 
required by Section 403(a) of ERISA. The Trustees or other fiduciaries 
of the Qualified Plans may vote Trust shares held by their Qualified 
Plans in their own discretion or, if the applicable Qualified Plan so 
provides, vote such shares in accordance with instructions from 
participants in such Plans. The use of a common management investment 
company (or investment portfolio thereof) as an investment medium for 
VLI Accounts, VA Accounts and Qualified Plans is referred to herein as 
``extended mixed funding.''

Applicants' Legal Analysis

    1. Rule 6e-2(b)(15) under the Act provides partial exemptions for 
(1) Section 9(a), which makes it unlawful for certain individuals and 
companies to act in certain capacities with respect to registered 
investment companies, and (2) Section 13(a), 15(a), and 15(b) of the 
Act to the extent that those sections might be deemed to require 
``pass-through'' voting with respect to the shares of a registered 
management investment company underlying a UIT (an ``underlying fund'') 
to VLI Accounts supporting scheduled premium VLI Contracts and to their 
life insurance company depositors, investment advisers, and principal 
underwriters. The exemptions granted by the Rule are available, 
however, only where the Trust offers its shares exclusively to VLI 
Accounts of a single Participating Insurance Company or an affiliated 
insurance company, and then, only where scheduled premium VLI Contracts 
are issued through such VLI Accounts. Therefore, the relief granted by 
Rule 6e-2(b)(15) is not available with respect to a scheduled premium 
VLI Account that owns shares of an underlying fund that engages in 
mixed funding by also offering its shares to a VA Account or to a 
flexible premium VLI Account of the same company or of an affiliated 
life insurance company. In addition, the relief granted by Rule 6e-
2(b)(15) is not available if the underlying fund engages in shared 
funding by offering its shares to VA Accounts of VLI Accounts of 
unaffiliated life insurance companies. Furthermore, Rule 6e-2(b)(15) 
does not contemplate that shares of the underlying fund might also be 
sold to Qualified Plans, that is, that the underlying fund will engage 
in extended mixed funding.
    2. Rule 6e-3(T)(b)(15) under the Act provides partial exemptions 
from Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI Accounts 
supporting flexible premium variable life insurance contracts and their 
life insurance company depositors, investment advisers and principal 
underwriters. The exemptions granted by the Rule are available, 
however, only where the Trust offers its shares exclusively to separate 
accounts of the Participating Insurance Company, or of any affiliated 
insurance company, offering either scheduled premium contracts or 
flexible premium contracts, or both, or which also offer their shares 
to VA Accounts of the Participating Insurance Company or of an 
affiliated life insurance company. Therefore, Rule 6e-3(T)(b)(15) 
permits mixed funding with respect to a flexible premium VLI Account, 
subject to certain conditions. However, Rule 6e-3(T)(b)(15) does not 
permit shared funding because the relief granted is not available with 
respect to a VLI Account that owns shares of an underlying fund that 
also offers its shares to separate accounts (including VA Accounts and 
flexible premium and scheduled premium VLI Accounts) of unaffiliated 
Participating Insurance Companies. Also, Rule 6e-3(T)(b)(15) does not 
contemplate extended mixed funding.
    3. In general, Section 9(a) of the Act disqualifies any person 
convicted of certain offenses and any person enjoined from engaging in 
certain activities because of misconduct, and any company affiliated 
with any such person, from acting or serving in various capacities with 
respect to a registered investment company. More specifically, Section 
9(a)(3) provides that it is unlawful for any company to serve as 
investment adviser or principal underwriter for 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).
    4. Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15) limit the application 
of the eligibility restrictions of Section 9(a) to affiliated persons 
of a life insurer who directly participate in the management of the 
underlying registered management investment company under certain 
circumstances, subject to limitations on mixed and shared funding. The 
relief provided by Rule 6e-2(b)(15)(i) and Rule 6e-3(T)(b)(15)(i) 
permits persons who are affiliated persons of a life insurer or its 
affiliates who otherwise would be disqualified under Section 9(a) to 
serve as an officer, director, or employee of an underlying fund, so 
long as any such person does not participate directly in the management 
or administration of such underlying fund. In addition, Rule 6e-
2(b)(15)(ii) and Rule 6e-3(T)(b)(15)(ii) permit a Participating 
Insurance Company to serve as the underlying fund's investment adviser 
or principal underwriter, provided that none of the insurance company's 
personnel who are ineligible pursuant to Section 9(a) of the Act 
participate in the management or administration of the underlying fund.
    5. In effect, the partial relief provided by Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) from the requirements of Section 9 limits the amount of 
monitoring of a Participating Insurance Company's personnel that is 
necessary to ensure compliance with Section 9 to that which is 
appropriate in light of the policy and purposes of Section 9. Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) recognize that applying the provisions of 
Section 9 to the many individuals in a large insurance company complex, 
most of whom typically will have no involvement in matters pertaining 
to investment companies funding the Participating Separate Accounts, is 
not necessary or appropriate in the public interest nor is it necessary 
for the protection of investors or the purposes fairly intended by the 
policy and provisions of the Act. In addition, if the eligibility 
restrictions of Section 9(a) were to apply to the Participating 
Insurance Companies, the increased costs of ensuring compliance with 
Section 9 would reduce the net rates of return realized by contract 
owners. Thus, the cost of compliance with Section 9 would exceed the 
benefits, if any, provided by compliance with such eligibility 
restrictions. Moreover, disallowing the relief permitted by Rules 6e-
2(b)(15) and Rule 6e-3(T)(b)(15) because the underlying fund engages in 
extended mixed funding would serve no regulatory purpose. The sale of 
shares of an underlying fund to Qualified Plans does not change the 
fact that the purposes of the Act are not advanced by applying the 
prohibitions of Section 9(a) to individuals who may be involved in a 
life insurance complex

[[Page 60995]]

but have no involvement in the underlying fund.
    6. Rule 6e-2(b)(15)(iii) and Rule 6e-3(T)(b)(15)(iii) provide 
partial exemptions from Sections 13(a), 15(a), and 15(b) of the Act to 
the extent that those sections might be deemed to require ``pass-
through'' voting with respect to the shares of an underlying fund, by 
allowing an insurance company to disregard the voting instructions of 
contract owners with respect to several significant matters, assuming 
the limitations on mixed and shared funding are observed. Rules 6e-
2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that a 
Participating Insurance Company may disregard the voting instructions 
of its contract owners if such instructions would require an underlying 
fund's shares to be voted to cause such underlying fund to make (or to 
refrain from making) certain investments which would result in changes 
in the subclassification or investment objectives of such underlying 
fund or to approve or disapprove any contract between such underlying 
fund and an 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 the Rules).
    7. Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide 
that a Participating Insurance Company may disregard contract owners' 
voting instructions if the contract owners initiate any change in the 
underlying fund's investment objectives, principal underwriter or any 
investment adviser (provided that disregarding such voting instructions 
is reasonable and subject to the other provisions of paragraph 
(b)(5)(ii) and (b)(7)(ii)(B) and (C) of the Rules).
    8. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) recognize that a Variable 
Contract is primarily an insurance contract, and as such is subject to 
extensive state insurance regulation. In adopting Rule 6e-
2(b)(15)(iii), the Commission recognized that state insurance 
regulators have authority, pursuant to state insurance laws or 
regulations, to disapprove or require changes in the underlying fund's 
investment policies, investment advisers, or principal underwriters.
    9. If the Trust serves as an investment vehicle for mixed funding, 
extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-2(b)(15) would not be available to VLI Accounts and 
their Participating Insurance Company depositors and principal 
underwriters. Likewise, if the Trust serves as an investment vehicle 
for extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-3(T)(b)(15) would not be available to VLI Accounts 
and their Participating Insurance Companies and principal underwriters. 
Section 6(c) of the Act authorizes the Commission to exempt any person, 
security or transaction or any class of persons, securities or 
transactions from any provision or provisions of the Act and/or any 
rule under it 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 Act.
    10. Applicants submit that the requested exemptions are 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 Act.
    11. Applicants submit that the presence of both VLI Accounts and VA 
Accounts as shareholders of an underlying fund will not lead to a 
greater probability of material irreconcilable conflicts than if the 
underlying fund did not engage in mixed funding. Similarly, shared 
funding does not present any issues that do not already exist where an 
underlying fund sells its shares to a single insurance company which 
sells contracts in several states.
    12. The presence of both VLI Accounts and VA Accounts as 
shareholders of an underlying fund will not lead to a greater 
probability of material irreconcilable conflicts than if the underlying 
fund did not engage in mixed funding. Each type of insurance product is 
designed as a long-term investment program. There is not reason to 
believe that different features of various types of contracts, 
including the ``minimum death benefit'' guarantee under certain VLI 
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 VA Contracts and VLI Contracts, the differing 
insurance charges imposed, in effect, adjust any such differences and 
equalize the insurers' exposure in either case.
    13. In addition, if an underlying fund engages in mixed funding, 
there is no reason why the underlying fund would be managed to favor 
one class of investors over another. No one investment strategy can be 
identified as appropriate to a particular insurance product. Each pool 
of VA and VLI Contract owners is composed of individuals of diverse 
financial status, age, and insurance and investment goals. An 
underlying fund supporting even one type of insurance product must 
accommodate those differences to attract and retain purchasers.
    14. Regardless of the type of shareholder in the Trust, the 
investment manager is or would be contractually and otherwise obligated 
to manage the Fund solely and exclusively in accordance with that 
Fund's investment objectives, policies and restrictions as well as any 
guidelines established by the Board of Trustees responsible for such 
Fund (the ``Board''). Thus, the Fund will be managed in the same manner 
as any other mutual funds and there is not incentive for the Fund's 
investment manager to invest to benefit a particular class of 
shareholders. In addition, the Board has a fiduciary duty to oversee 
the Fund's investment adviser and ensure that the Fund is managed in a 
way that does not discriminate against any of the Fund's shareholders.
    15. Applicants maintain that qualified retirement plan investors in 
the Trust would have substantially the same interests as do VLI 
Contract owners and VA Contract owners. Like VLI and VA Contract 
owners, qualified retirement plan investors are long-term investors. 
Therefore, most can be expected not to withdraw their assets from the 
Qualified Plans. Indeed, while they may utilize more than one 
investment option under a Variable Contract or the Qualified Plans, 
both Variable Contract owners and participants would make certain 
sacrifices and face certain hurdles in surrendering a contract or 
withdrawing assets from a Qualified Plan. Variable Contract owners in 
many circumstances would sacrifice tax benefits, pay a penalty tax 
under Section 72(q) of the Code, and/or pay a surrender charge if they 
surrender their contracts. Similarly, participants may be permitted to 
withdraw Qualified Plan assets only in limited circumstances, would 
sacrifice tax benefits on such withdrawals, and may incur other 
economic penalties under the terms of the Qualified Plan. In addition, 
Section 72(t) of the Code may impose a tax penalty on certain 
withdrawals from a Qualified Plan even where permitted. Of course, 
Variable Contract owners may exchange one VLI Contract or VA Contract 
for another without losing possible tax benefits and participants may 
generally transfer or roll over vested Qualified Plan assets with the 
same result, but both types of transactions require significant 
contract owner or Qualified Plan investor initiative and can only be 
accomplished in certain circumstances pursuant to specific procedures.

[[Page 60996]]

    16. In addition, neither VLI and VA Contract owners on the one hand 
nor Qualified Plan investors on the other would be taxed on the 
investment return of their respective investments in the Trust. 
Therefore, they would share a strong interest in the Trust operating in 
a manner that preserves this tax status. For example, material 
conflicts between these two groups of investors regarding capital 
transactions would be unlikely to occur. In this regard, ERISA imposes 
general diversification requirements on qualified pension or retirement 
plan investments that are wholly consistent with those required of each 
Fund of the Trust under Section 817(h) of the Code.
    17. VLI Accounts, VA Accounts and the Qualified Plans are governed 
in similar ways. Qualified Plan committees (and other Qualified Plan 
fiduciaries) have a fiduciary duty to participants that is similar to 
the obligations that a Participating Insurance Company has to look 
after the interests of its VLI Contract owners and VA Contract owners. 
In this respect, applicants note that Participating Insurance Companies 
and their VLI Accounts would not require any exemptions from the Act 
other than those necessary for mixed funding and shared funding if 
participants in certain qualified pension and retirement plans invest 
indirectly in the Trust when their Qualified Plan purchases a variable 
annuity contract offered by a Participating Insurance Company in the 
Qualified Plan market. The various Qualified Plans may or may not offer 
an annuity option.
    18. In light of the fact that Qualified Plan investors would have 
beneficial interests in the Trust very similar to those of VLI Contract 
owners and VA Contract owners, applicants assert that, provided that 
they (and VLI Accounts and Participating Insurance Companies) comply 
with the conditions explained below, the addition of the Qualified 
Plans as shareholders of the Trust and the addition of participants as 
persons having beneficial interests in the Trust should not increase 
the risk of material irreconcilable conflicts among and between 
investors. Applicants further assert that even if a material 
irreconcilable conflict involving the Qualified Plans or participants 
arose, the trustees (or other fiduciaries) of the Qualified Plans, 
unlike Participating Insurance Companies, can, if their fiduciary duty 
to the participants requires it, redeem the shares of the Trust held by 
the Qualified Plans and make alternative investments without obtaining 
prior regulatory approval. Similarly, most, if not all, of the 
Qualified Plans, unlike the VLI Accounts or the VA Accounts, may hold 
cash or other liquid assets pending their reinvestment in a suitable 
alternative investment.
    19. Applicants maintain that VLI Contract owners and VA Contract 
owners would benefit from the expected increase in net assets of the 
Funds of the Trust occasioned by participant investments. Not only 
should such additional investments not increase the likelihood of 
material irreconcilable conflicts of interest between or among 
different types of investors, but such additional investments should 
reduce some of the costs of investing for Variable Contract owners. In 
particular, additional investments would promote economies of scale, 
permit increased safety through greater portfolio diversification, 
provide each Fund's investment adviser with greater flexibility due to 
a larger portfolio and make the addition of future new Funds more 
feasible.
    20. When the Commission last revised Rule 6e-3(T) in 1987, the 
Treasury Department had not issued the current regulations (Treas. Reg. 
1.817-5) which make it possible for the Trust to sell shares to 
qualified pension or retirement plans without adversely affecting the 
tax status of VLI Contracts and VA Contracts. Applicants submit that, 
although proposed regulations had been published, the Commission did 
not envision this possibility when it last examined paragraph (b)(15) 
of the Rule and might well have broadened the exclusivity provision of 
that paragraph at that time to include plans such as the Qualified 
Plans had this possibility been apparent. In this regard, the 
Commission has recently issued several orders under Section 6(c) 
granting the same exemptions requested herein to other applicants in 
very similar circumstances.
    21. In light of the fact that the proposed Qualified Plan 
investments in the Trust should not increase the likelihood of material 
irreconcilable conflicts and would otherwise benefit VA Contract owners 
and VLI Contract owners, and in light of the recent supporting 
precedent, applicants believe that the Commission should grant the 
requested exemptions.
    22. Applicants submit that the sale of the shares of the Trust to 
Qualified Plans will not increase the potential for material 
irreconcilable conflicts of interest between or among different types 
of investors. Moreover, in considering the appropriateness of the 
requested relief, an analysis of the following issues leads to the 
conclusion that there are either no conflicts of interest or that there 
exists the ability by the affected parties to resolve the issues 
without harm to the contract owners in the Participating Separate 
Accounts or to the participants under the Qualified Plans.
    23. Section 817(h) imposes certain diversification standards on the 
underlying assets of VA Contracts and VLI Contracts held in the 
portfolios of management investment companies. Treasury Regulation 
1.817-5(f)(3)(iii), which established diversification requirements for 
such portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans'' and separate accounts to invest in the 
same underlying fund without jeopardizing the tax status of VLI and VA 
Accounts. Therefore, neither the Code, the Treasury Regulations, nor 
Revenue Rulings thereunder present any inherent conflicts of interest 
if Qualified Plans, VA Accounts and VLI Accounts all invest in the same 
underlying fund.
    24. While there are differences in the manner in which 
distributions are taxed for VA Contracts, VLI Contracts and Qualified 
Plans, the differing tax consequences do not raise any conflicts of 
interest. When distributions are to be made and the Participating 
Separate Account or the Qualified Plan cannot net purchase payments to 
make the distributions, the Participating Separate Account or the 
Qualified Plan will redeem shares of the Fund at their net asset value. 
The Qualified Plan then will 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. Therefore, distributions and dividends will be declared and 
paid by the Fund without regard to the character of the shareholder.
    25. The ability of the Trust to sell its shares directly to 
Qualified Plans does not create a ``senior security'' as such terms is 
defined under Section 18(g) of the Act, with respect to any contract 
owner as opposed to a participant under a Qualified Plan. As noted 
above, regardless of the rights and benefits of participants under the 
Qualified Plans, or Variable Contract owners, the Qualified Plans and 
the Participating Separate Accounts have rights only with respect to 
their respective shares of the Trust. They can only redeem such shares 
at their net assets value. No shareholder of the Trust will have any 
preference over any other shareholder with respect to distribution of 
assets or payment of dividends.
    26. With respect to voting rights, it is possible to provide an 
equitable means of giving such voting rights to Variable Contract 
owners and to the trustees of

[[Page 60997]]

Qualified Plans. The transfer agent for the Fund will inform each 
Participating Insurance Company of its share ownership in each 
Participating Separate Account, as well as inform the trustees of 
Qualified Plans of their holdings. Each Participating Insurance Company 
then will solicit voting instructions in accordance with Rules 6e-2 and 
6e-3(T), as applicable, and its participation agreement with the 
relevant Fund. Shares held by Qualified Plans will be voted in 
accordance with applicable law. The voting rights provided to Qualified 
Plans with respect to shares of the Trust will be no different from the 
voting rights that are provided to Qualified Plans with respect to 
shares of funds sold to the general public.
    27. In addition, the veto power of state insurance commissioners 
over an underlying fund's investment objectives does not create any 
inherent conflicts of interest between the contract owners of the 
Participating Separate Accounts and Qualified Plan participants. 
Applicants note that the basic premise of corporate democracy and 
shareholder voting is that not all shareholders may agree with a 
particular proposal. Although the interests and opinions of 
shareholders may differ, this does not mean that inherent conflicts of 
interest exist between or among such shareholders. State insurance 
commissioners have been given the veto power in recognition of the fact 
that insurance companies usually cannot simply redeem their separate 
accounts out of one fund and invest in another. Generally, time-
consuming, complex transactions must be undertaken to accomplish such 
redemptions and transfers. In contract, the trustees of Qualified Plans 
or the participants in participant-directed Qualified Plans can quickly 
decide to redeem their interest in the Trust and reinvest in another 
funding vehicle without the same regulatory impediments faced by 
separate accounts or, as is the case with most Qualified Plans, even 
hold cash pending suitable investment. Thus, even if there should arise 
issues where the interests of contract owners and the interests of 
Qualified Plans are in conflict, the issues can be almost immediately 
resolved since the trustees of (or participants in) the Qualified Plan 
can, on their own, redeem their shares from the Trust.
    28. The holding of Trust shares by separate accounts of 
unaffiliated insurance companies would not entail greater potential for 
material irreconcilable conflicts arising between or among the 
interests of VLI Contact owners and VA Contract owners than would mixed 
funding. Likewise, the holding of Trust shares by separate accounts of 
unaffiliated insurance companies would not entail greater potential for 
material irreconcilable conflicts arising between or among the 
interests of VLI Contract owners, VA Contract owners and Qualified Plan 
investors than would extended mixed funding where only separate 
accounts of affiliated Participating Insurance Companies held such 
shares.
    29. Historically, concern existed that greater potential existed 
for material irreconcilable conflicts between or among the interests of 
VLI Contract owners or VA Contract owners of unaffiliated insurance 
companies because such companies were more likely than affiliated 
companies to be domiciled in different states and the different state 
insurance regulators could impose divergent requirements on such 
insurers with regard to investments supporting Variable Contracts. It 
was also believed by some that unaffiliated insurance companies were 
less likely than affiliated companies to find ways to reconcile 
material conflicts of interest that might arise from conflicting state 
regulation. In fact, shared funding by unaffiliated companies does not 
increase the potential for such material conflicts of interest beyond 
that which would otherwise exist for a single insurance company that is 
licensed in many states and therefore subject to the insurance 
regulations of such jurisdictions. A particular state insurance 
regulator could require action of an insurer domiciled or licensed in 
its jurisdiction that conflicts with or is inconsistent with the 
regulatory requirements of or actions required by the regulator of 
another state where that insurer is domiciled or licensed. The fact 
that different insurance companies are domiciled in different states 
does not enlarge or create significantly different issues in connection 
with conflicting state regulatory requirements. Affiliation among or 
between such insurance companies does not diminish the potential for 
such issues to arise nor, in light of the source of such issues, does 
it dramatically increase the likelihood of their being resolved.
    30. Historically, concern also existed that material irreconcilable 
conflicts between or among the interests of VLI Contract owners and/or 
VA Contract owners of unaffiliated insurance companies were more likely 
to arise in the event that such companies exercised their limited right 
to disregard VLI owner voting instructions than would be the case 
between or among affiliated companies. In fact, the right of an 
insurance company to disregard VLI owner voting instructions does not 
raise any issues different from those raised by the authority of 
different state insurance regulators over separate accounts. Similarly, 
affiliation between or among insurance companies does not diminish or 
eliminate the potential for divergent judgments by such companies as to 
the advisability or legality of a change in investment policies, 
principal underwriter or investment adviser of a mutual fund in which 
their separate account invests. Applicants believe that the potential 
for disagreement between or among insurance companies is limited by 
requirements in Rule 6e-2 and Rule 6e-3(T) that a company's disregard 
of voting instructions be reasonable and based on specific good faith 
determinations. Moreover, in the event that a decision by a 
participating life insurance company to disregard VLI Contract owners' 
voting instructions represents a minority position or would preclude a 
majority vote at a Trust shareholder's meeting, the company could be 
required by the Trust's Board of Trustees to withdraw from the Trust.
    31. Various factors, including 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 to whom the public feels 
comfortable entrusting their investment dollars, have limited the 
number of insurance companies that offer VA Contracts and VLI 
Contracts. In particular, 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. Use of the Funds of the Trust as a mixed funding and shared 
funding vehicle for Variable Contracts would reduce or eliminate such 
concerns for small life insurance companies.
    32. Applicants submit that use of the Trust as a common investment 
vehicle for Variable Contracts would reduce or alleviate the above-
mentioned concerns and that mixed and shared funding will provide 
several benefits. Participating Insurance Companies will benefit not 
only from the investment and administrative expertise of the Trust's 
investment adviser, but also from the cost efficiencies and investment 
flexibility afforded by a larger pool of funds. Therefore, making the 
Trust available for mixed and shared funding may encourage more 
insurance companies to offer Variable Contract design and pricing, 
which can be

[[Page 60998]]

expected to result in greater product variation and lower charges. In 
addition, Variable Contract owners would benefit from the reduced costs 
to Participating Insurance Companies of establishing and administering 
separate accounts.
    33. Regardless of the type of shareholder in the Trust, the 
investment manager is or would be contractually and otherwise obligated 
to manage the Fund solely and exclusively in accordance with that 
Fund's investment objectives, policies and restrictions as well as any 
guidelines established by the Board of Trustees responsible for such 
Fund (the ``Board''). Thus, the Fund will be managed in the same manner 
as any other mutual fund, and there is no incentive for the Fund's 
investment manager to invest to benefit a particular class of 
shareholders. In addition, the Board has a fiduciary duty to oversee 
the Fund's investment adviser and ensure that the Fund is managed in a 
way that does not discriminate against any of the Fund's shareholders.
    34. Applicants see no legal impediment to permitting the Trust to 
serve as a vehicle for mixed funding, extended mixed funding and shared 
funding. The Commission has issued numerous orders permitting mixed 
funding, extended mixed funding and shared funding. Therefore, 
applicants believe that granting the exemptions requested herein is in 
the public interest and will not compromise the regulatory purposes of 
Section 9(a), 13(a), 15(a) or 15(b) of the Act or of Rules 6e-2 and 6e-
3(T) thereunder.
    35. The Commission's authority under Section 6(c) of the Act to 
grant exemptions from various provisions of the Act and rules 
thereunder is broad enough to permit orders of exemption that cover 
classes of unidentified parties. Applicants request an order of the 
Commission that would exempt VLI Accounts and their Participating 
Insurance Companies and principal underwriters as a class from the 
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rule 
6e-2 or Rule 6e-3(T)(b)(15) thereunder. The exemption of these classes 
of parties is appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act because all of the potential members 
of the class could obtain the foregoing exemptions for themselves on 
the same basis as the applicants, but only at a cost to each of them 
that is not justified by any public policy purpose. As discussed below, 
the requested exemptions would only extend to VLI Accounts whose 
Participating Insurance Companies enter into participation agreements 
with the Trust; which agreements would subject such VLI Accounts to the 
conditions discussed below. The Commission staff also would have the 
opportunity to review compliance with these conditions by Participating 
Insurance Companies when it reviews the 1933 Act registration 
statements filed by each VLI Account and VA Account before the account 
could issue any Variable Contracts. The Commission has previously 
granted exemptions to classes of similarly situated parties in various 
contexts and from a wide variety of circumstances, including class 
exemptions in the context of mixed funding, extended mixed funding and 
shared funding.

Applicant's Conditions

    1. Applicants have consented to the following conditions:
    a. A majority of the Board of Trustees of the Trust shall consist 
of persons who are not ``interested persons'' of such Trust, as defined 
by Section 2(a)(19) of the Act, and 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 Trustee, then the operation of this condition shall 
be suspended for: (a) A period of 45 days if the vacancy or vacancies 
may be filled by the Board, (b) a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies, or (c) such 
longer period as the Commission may prescribe by order upon 
application.
    b. The Board of Trustees will monitor the Funds for the existence 
of any material irreconcilable conflict among the interests of the 
contract holders of all Participating Separate Accounts and of 
participants of Qualified Plans investing in such Fund(s) and determine 
what action, if any, should be taken in response to those 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 Fund are being managed, (e) a 
difference in voting instructions given by VLI Contract owners, VA 
Contract owners and Qualified Plan investors or the Trustees of 
Qualified Plans that do not provide voting rights to their investors, 
(f) a decision by a Participating Insurance Company to disregard VLI 
Contractor or VA Contract owner voting instructions and (g) a decision 
by a Plan trustee (or other plan fiduciary) to disregard voting 
instructions of Plan participants.
    c. The Funds' prospectus shall disclose that (1) its shares are 
offered in connection with mixed funding, extended mixed funding and 
shared funding, (2) due to differences in tax treatment and other 
considerations mixed funding, extended mixed funding and shared funding 
may present certain conflicts of interest between VA Contract owners, 
VLI Contract owners and Qualified Plan investors and (3) the Trust's 
Board of Trustees will monitor the Funds for the existence of any 
material irreconcilable conflict of interest and determine what action, 
if any, should be taken in response to such a conflict. The Trust shall 
also notify the Qualified Plan trustees and Participating Insurance 
Companies that similar prospectus disclosure may be appropriate in 
Participating Separate Account prospectuses or any Plan prospectuses or 
other Plan disclosure documents.
    d. The Trust will comply with all of the provisions of the Act 
relating to security holder (i.e., persons such as VLI Contract owners 
and VA Contract owners or participants in Plans that provide 
participants with voting rights) voting including Section 16(a), 16(b) 
(when applicable) and 16(c) (even though the Trust is not a trust of 
the type described therein).
    e. The Adviser will report any material irreconcilable conflicts or 
any potential material irreconcilable conflicts between or among the 
interests of VLI Contract owners, VA Contract owners and Plan 
participants to the Trust's Board of Trustees and will assist the Board 
in carrying out the Board's responsibilities under these conditions. 
Such assistance will include, but not be limited to, providing the 
Board, at least annually, with all information reasonably necessary for 
the Board to consider any issues raised by such existing or potential 
conflicts. Any shares of a Fund purchased by the Adviser or its 
affiliates will be automatically redeemed if and when the Adviser's 
investment advisory agreement terminates, to the extent required by 
applicable Treasury regulations.
    f. For so long as the Commission interprets the Act to require 
``pass- through'' voting privileges for Contract owners whose Contracts 
are funded through a separate account, the Adviser,

[[Page 60999]]

or if applicable any of its affiliates, will vote its shares of any 
Fund in the same proportion as all Contract owners having voting rights 
with respect to the Fund; provided, however, that the Adviser or any 
such affiliate shall vote its shares in such other manner as may be 
required by the Commission staff.
    g. The Trust shall promptly notify the Adviser, each Participating 
Insurance Company and Qualified Plan in writing of any determination of 
a material irreconcilable conflict and its implications. All reports 
sent by Participating Insurance Companies or Qualified Plans to the 
Board of Trustees of the Trust or notices sent by the Board of Trustees 
to Participating Insurance Companies or Qualified Plans notifying the 
recipient of the existence of or potential for a material 
irreconcilable conflict between the interests of VA Contract owners, 
VLI Contract owners and Plan participants as well as Board 
deliberations regarding such conflicts or such potential conflicts 
shall be recorded in the board meeting minutes of the Trust or other 
appropriate records, and such minutes or other records shall be made 
available to the Commission upon request.
    h. The Adviser, each Participating Insurance Company and each 
Qualified Plan owning more than 10% of the outstanding shares of a Fund 
shall have a contractual obligation, under the agreements governing 
their participation in the Funds, to provide at least annually such 
reports and other information relating to potential conflicts as the 
Board may reasonably request.
    2. In addition to the foregoing conditions, applicants consent to 
the following conditions and represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares to any VLI 
Account unless the account's Participating Insurance Company enters 
into a participation agreement with the Trust containing provisions 
that require the following:
    a. A majority vote of the disinterested trustees of the Trust shall 
represent a conclusive determination as to the existence of a material 
irreconcilable conflict between or among the interests of VLI Contract 
owners, VA Contract owners and Qualified Plan investors. For the 
purpose of number 5 below, a majority vote of the disinterested 
trustees of the Trust shall represent a conclusive determination as to 
whether any proposed action adequately remedies any material 
irreconcilable conflict between or among the interests of VLI Contract 
owners, VA Contract owners and Qualified Plan investors.
    b. Each Participating Insurance Company will monitor its operations 
and those of the Trust for the purpose of identifying any material 
irreconcilable conflicts or potential material irreconcilable conflicts 
between or among the interests of Qualified Plan investors, VA Contract 
owners and VLI Contract owners.
    c. Each Participating Insurance Company will report any such 
conflicts or potential conflicts to the Trust's Board of Trustees and 
will provide the Board, at least annually, with all information 
reasonably necessary for the Board to consider any issues raised by 
such existing or potential conflicts or by these conditions. Each 
Participating Insurance Company will also assist the Board in carrying 
out its responsibilities under these conditions including, but not 
limited to: (a) Informing the Board whenever it disregards VLI Contract 
owner or VA Contract owner voting instructions, and (b) providing, at 
least annually, such other information and reports as the Board may 
reasonably request. Each Participating Insurance Company will carry out 
these obligations with a view only to the interests of owners of its 
VLI Contracts and VA Contracts.
    d. Each Participating Insurance Company will provide ``pass-
through'' voting privileges to owners of registered VA Contracts and 
registered VLI Contracts as long as the Act requires such privileges in 
such cases. Accordingly, such Participating Insurance Companies, where 
applicable, will vote Trust shares held in their Participating Separate 
Accounts in a manner consistent with voting instructions timely 
received from owners of such VLI and VA Contracts. Each Participating 
Insurance Company will vote Trust shares owned by itself (i.e., that 
are not attributable to VA Contract or VLI Contract reserves) in the 
same proportion as instructions received in a timely fashion from VA 
Contract owners and VLI Contract owners and shall be responsible for 
ensuring that it and other Participating Insurance Companies calculate 
``pass-through'' votes for VLI Accounts and VA Accounts in a consistent 
manner. Each participating Issurance Company also will vote Trust 
shares held in any registered VLI Account or registered VA account for 
which it has not received timely voting instructions in the same 
proportion as instructions received in a timely fashion from VA 
Contract owners and VLI Contract owners.
    e. In the event that a material irreconcilable conflict of interest 
arises between VA Contract owners or VLI Contract owners and Qualified 
Plan participants, each Participating Insurance Company will, at its 
own expense, take whatever action is necessary to remedy such conflict 
as it adversely affects owners of its VA Contracts or VLI Contracts up 
to and including, (1) establishing a new registered management 
investment company, and (2) withdrawing assets attributable to reserves 
for the VA contracts or VLI Contracts subject to the conflict from the 
Trust and reinvesting such assets in a different investment medium 
(including another Fund of the Trust) or submitting the question of 
whether such withdrawal should be implemented to a vote of all affected 
VA Contract owners or VLI Contract owners, and, as appropriate, 
segregating the assets supporting the contracts of any group of such 
owners that votes in favor of such withdrawal, or offering to such 
owners the option of making such a change. Each Participating Insurance 
Company will carry out the responsibility to take the foregoing action 
with a view only to the interests of owners of its VA Contracts and VLI 
Contracts. Notwithstanding the foregoing, each Participating Insurance 
Company will not be obligated to establish a new funding medium for any 
group of VA Contracts or VLI Contracts if an offer to do so has been 
declined by a vote of a majority of the VA Contract owners or VLI 
Contract owners adversely affected by the conflict.
    f. If a material irreconcilable conflict arises because of a 
Participating Insurance Company's decision to disregard the voting 
instructions of VLI Contract owners or VA Contract owners and that 
decision represents a minority position or would preclude a majority 
vote at any Fund shareholding meeting, then, at the request of the 
Trust's Board of Trustees, the Participating Insurance Company will 
redeem the shares of the Trust to which the disregarded voting 
instructions relate. No charge or penalty, however, will be imposed in 
connection with such a redemption.
    g. Each Participating Insurance Company and VLI Account will 
continue to rely on Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(15), as 
appropriate, and to comply with all of the appropriate Rule's 
conditions. In the event that Rule 6e-2 and/or Rule 6e-3(T) is amended, 
or any successor rule is adopted, each Participating Insurance Company 
and VLI Account will instead comply with such amended or successor 
rule.
    h. Each participating insurance company will maintain at its home 
office available to the Commission a list of its officers, directors 
and employees who participate directly in the

[[Page 61000]]

management and administration of any separate account organized as a 
UIT or of any Fund. These individuals will continue to be subject to 
the automatic disqualification provisions of Section 9(a).
    3. In addition to the foregoing conditions, applicants consent to 
the following conditions and represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares of any 
Fund to a Qualified Plan if such sale would result in the Qualified 
Plan owning 10% or more of that Fund's outstanding shares unless the 
Qualified Plan first enters into a participation agreement with the 
Trust containing provisions that require the following:
    a. The trustees or plan committees of the Qualified Plan will: (a) 
Monitor the Qualified Plan's operations and those of the Trust for the 
purpose of identifying any material irreconcilable conflicts or 
potential material irreconcilable conflicts between or among the 
interests of Qualified Plan participants, VA Contract owners and VLI 
Contract owners, (b) report any such conflicts or potential conflicts 
to the Trust's Board of Trustees, (c) provide the Board, at least 
annually, with all information reasonably necessary for the Board to 
consider any issues raised by such existing or potential conflicts and 
any other information and reports that the Board may reasonably 
request, (d) inform the Board whenever it (or another fiduciary) 
disregards the voting instructions of Qualified Plan participants (of a 
Qualified Plan that provides voting rights to its participants), and 
(e) ensure that the Qualified Plan votes Trust shares as required by 
applicable law and governing Qualified Plan documents. The trustees or 
plan committees of the Qualified Plan will carry out these obligations 
with a view only to the interests of Qualified Plan participants in its 
Qualified Plan.
    b. In the event that a material irreconcilable conflict of interest 
arises between Qualified Plan investors and VA Contract owners, VLI 
Contract owners or other investors in the Trust, each Qualified Plan 
will, at its own expense, take whatever action is necessary to remedy 
such conflict as it adversely affects that Qualified Plan or 
participants in that Qualified Plan up to and including (1) 
establishing a new registered management investment company, and (2) 
withdrawing Qualified Plan assets subject to the conflict from the 
Trust and reinvesting such assets in a different investment medium 
(including another Fund of the Trust) or submitting the question of 
whether such withdrawal should be implemented to a vote of all affected 
Quality Plan investors, and, as appropriate, segregating the assets of 
any group of such participants that votes in favor of such withdrawal, 
or offering to such participants the option of making such a change. 
Each Qualified Plan will carry out the responsibility to take the 
foregoing action with a view only to the interests of Qualified Plan 
investors in its Qualified Plan. Notwithstanding the foregoing, no 
Qualified Plan will be obligated to establish a new funding medium for 
any group of participants or Qualified Plan investors if an offer to do 
so has been declined by a vote of a majority of the Qualified Plan's 
participants or Qualified Plan investors adversely affected by the 
conflict.
    c. If a material irreconcilable conflict arises because of a 
Qualified Plan trustee's (or other fiduciary's) decision to disregard 
the voting instructions of Qualified Plan participants (of a Qualified 
Plan that provides voting rights to its participants) and that decision 
represents a minority position or would preclude a majority vote at any 
shareholder meeting, then, at the request of the Trust's Board of 
Trustees, the Qualified Plan will redeem the shares of the Trust to 
which the disregarded voting instructions relate. No charge or penalty, 
however, will be imposed in connection with such a redemption.
    4. Applicants also represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares of any 
Fund to a Qualified Plan until the Qualified Plan executes an 
application containing an acknowledgment of the condition that the 
Trust cannot sell shares of any Fund to such Qualified Plan if such 
sale would result in that Qualified Plan owning 10% or more of that 
Fund's outstanding shares unless that Qualified Plan first enters into 
a participation agreement as described above.

Conclusion

    For the reasons and upon the facts stated 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 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26279 Filed 10-12-00; 8:45 am]
BILLING CODE 8010-01-M