[Federal Register Volume 61, Number 7 (Wednesday, January 10, 1996)]
[Notices]
[Pages 750-754]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-368]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21651; File No. 812-9674]
M Fund, Inc., et al.
January 3, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: M. Fund, Inc. (``Company'') and M Financial Investment
Advisers, Inc. (``Adviser'').
RELEVANT ACT SECTIONS: Order requested under Section 6(c) for
exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order granting exemptions to
the extent necessary to permit shares of any current or future series
of the Company and shares of any other investment company that is
offered as a funding medium for insurance products, and for which the
Adviser or any of its affiliates may in the future serve as manager,
investment adviser, administrator, principal underwriter or sponsor
(the Company and such other investment companies are hereinafter
referred to collectively as the ``Funds''), to be sold and held by: (i)
variable annuity and variable life insurance company separate accounts
of both affiliated and unaffiliated life insurance companies
(``Participating Insurance Companies''); and (ii) certain qualified
pension and retirement plans outside the separate account context
(``Plans'').
FILING DATE: The Application was filed on July 18, 1995, and amended on
October 19, 1995. Applicants will amend during the notice period to
make certain representations herein.
HEARING OR NOTIFICATION OF HEARING: An order granting the Application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 29,
1996, and should be accompanied by proof of service on Applicants in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Secretary of the SEC.
ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, M Fund Inc., c/o David F. Byrne, President, River
Park Center, 205 S.E. Spokane Street, Portland, Oregon 97202.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Patrice M. Pitts, Special
Counsel, Office of Insurance Products, Division of Investment
Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application may be obtained for a fee from
the Public Reference Branch of the SEC.
Applicants' Representations
1. The Company is a Maryland corporation registered under the 1940
Act as an open-end diversified management investment company. The
Company currently is composed of four separate portfolios; additional
portfolios may be added in the future.
2. The Adviser for each of the Company's portfolios is a Colorado
corporation registered with the SEC under the Investment Advisers Act
of 1940. The Adviser is wholly-owned by the Management Partnership, an
Oregon general partnership. The Adviser has engaged other registered
investment advisers (``Sub-Advisers'') to conduct the investment
programs of each portfolio and has entered into investment sub-advisory
agreements with each Sub-adviser. The Sub-advisers are not affiliated
with the Adviser or the Company.
3. The Company intends to offer its shares to variable annuity and
variable life separate accounts (``Separate Accounts'') of both
affiliated and unaffiliated insurance companies in support of variable
annuity and variable life insurance contracts (``Contracts'').
Insurance companies whose separate accounts will own shares of one or
more portfolios of the Funds are referred to herein as ``Participating
Insurance Companies.'' Each Participating Insurance Company will have
the legal obligation of satisfying all requirements applicable to it
under the federal securities laws in connection with any variable
contract which it issues.
4. The Company also intends to offer one or more portfolios of its
shares directly to Plans. The Funds' shares sold to Plans which are
subject to the Employee Retirement Income Security Act of 1984, as
amended, may be held by the trustee(s) of the Plan.
5. The Adviser has no plans to offer investment advisory services
to Plans or Plan participants, and will not act as investment adviser
to any of the Plans that will purchase shares of the Company.
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust (``UIT''), Rule 6e-
2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act. The relief provided by Rule 6e-2 is
available to a separate account's investment adviser, principal
underwriter, and sponsor or depositor. The exemptions granted by Rule
6e-2(b)(15) are available only where the management investment company
underlying the UIT offers its shares ``exclusively to variable life
insurance separate accounts of the life insurer, or of any affiliated
life insurance company.'' The use of a common management investment
company as the underlying investment medium (``Underlying Fund'') for
both variable annuity and variable life insurance separate accounts of
a single insurance company (or of two or more affiliated insurance
companies) is referred to as ``mixed funding.'' The use of a common
management investment company as the underlying investment medium for
variable annuity and variable life insurance separate accounts of
unaffiliated insurance companies is referred to as ``shared funding.''
``Mixed and shared funding'' denotes that use of a common management
investment company to fund the variable annuity and variable life
insurance separate accounts of affiliated and unaffiliated insurance
companies. The relief granted by Rule 6e-2(b)(15) is not available with
respect to a scheduled premium variable life insurance separate account
that owns shares of an underlying fund that offers its shares to a
variable annuity separate account of the same company or of any other
affiliated or unaffiliated
[[Page 751]]
life insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed
funding as well as shared funding.
2. Applicants state that because the relief under Rule 6e-2(b)(15)
is available only where shares are offered exclusively to separate
accounts of insurance companies, additional exemptive relief is
necessary if shares of the Funds also are to be sold to Plans.
3. In connection with flexible premium variable life insurance
contracts issued through a Separate Account registered under the 1940
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act. The exemptions
granted to a separate account by Rule 6e-3(T)(b)(15) are available 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 separate accounts of the life insurer, or
of any affiliated life insurance company, offering either scheduled 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.'' Thus, Rule 6e-3(T) permits mixed
funding, but does not permit shared funding.
4. Applicants state that because the relief under Rule 6e-3(T) is
available only where shares are offered exclusively to separate
accounts, additional relief is necessary if shares of the Funds also
are to be sold to Plans.
5. Furthermore, Applicants also state that Section 817(h) of the
Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification requirements on the underlying assets of the
Contracts held in the Fund. The Code provides that such Contracts shall
not be treated as a Contract for any period in which the underlying
assets are not, in accordance with regulations prescribed by the
Treasury Department, adequately diversified. The Treasury Department
issued regulations (Treas. Reg. 1.817-5) on March 2, 1989 which
establish diversification requirements for the investment portfolios
underlying Contracts. In order to meet the diversification
requirements, all of the beneficial interests in the investment company
must be held by the segregated asset accounts of one or more insurance
companies. The regulations do, however, contain certain exceptions to
this requirement, one of which allows shares in an investment company
to be held by the trustee of a qualified pension or retirement plan
without adversely affecting the ability of shares in the same
investment company also to be held by the separate accounts of
insurance companies in connection with their Contracts. (Treas. Reg.
Sec. 1.817-5(f)(3)(iii)).
6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
under the 1940 Act preceded the issuance of these Treasury regulations
and assert that, given the then current tax law, the sale of shares of
the same investment company to both separate accounts and Plans could
not have been envisioned at the time of the adoption of the Rules.
7. Applicants therefore request relief from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Funds to be offered and sold in connection with both mixed and shared
funding.
8. Section 9(a) of the 1940 Act provides that it is unlawful for
any company to serve as an investment adviser to, or principal
underwriter for, 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) of the 1940 Act. Rules 6e-
2(b)(15)(i) and (ii), and 6e-3(T)(b)(15)(i) and (ii), provide
exemptions from Section 9(a) under certain circumstances, subject to
the limitations on mixed and shared funding. The relief provided by
Rules 6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person
disqualified under Section 9(a) to serve as an officer, director, or
employee of the life insurance company, or any of its affiliates, so
long as that person does not participate directly in the management or
administration of the Underlying Fund. The relief provided by Rules 6e-
2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the life insurer to serve
as the Underlying Fund's investment adviser or principal underwriter,
provided that none of the insurer's personnel who are ineligible
pursuant to Section 9(a) participate in the management or
administration of the Underlying Fund.
9. Applicants state that the partial relief from Section 9(a) found
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount
of monitoring necessary to ensure compliance with Section 9 of the 1940
Act to that which is appropriate in light of the policy and purposes of
that Section. 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 employed by the
Participating Insurance Companies, most of whom will have no
involvement in matters pertaining to investment companies within that
organization. Applicants note that the Participating Insurance
Companies are not expected to play any role in the management or
administration of the Funds. Therefore, Applicants assert, applying the
restrictions of Section 9(a) serves no regulatory purpose. Applicants
further assert that there is no regulatory purpose in extending the
monitoring requirements because of investment by Plans.
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act assume the existence of a pass-through voting requirement with
respect to management investment company shares held by a separate
account. The application states that Participating Insurance Companies
will provide pass-through voting privileges to all Contract owners so
long as the SEC interprets the 1940 Act to require such privileges.
11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act provide exemptions from the pass-through voting requirement with
respect to several significant matters, assuming observance of the
limitations on mixed and shared funding imposed by the 1940 Act and the
rules thereunder. Rules 6e-2(b)(15)(iii)(A) and 6e-
3(T)(b)(15)(iii)(A)(1) 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. Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that an insurance company may disregard
voting instructions of its Contract owners if the Contract owners
initiate any change in the investment company's investment policies,
principal underwriter, or any investment adviser, provided that
disregarding such voting instructions is reasonable and subject to the
other provisions of paragraphs (b)(15)(ii) and (b)(7)(ii)(B) and (C) of
each rule.
12. The offer and sale of the Funds' shares to Plans will not have
any impact on the relief requested in this regard. Applicants state
that shares of the Funds sold to Plans will be held by the trustees of
such Plans, as required by Section 403(a) of ERISA. Section 403(a) also
provides that the trustees must have exclusive authority and discretion
to manage and control the Plan with certain exceptions not relevant
herein. Accordingly, Plan trustees have exclusive authority and
responsibility for voting proxies on behalf of a Plan.
[[Page 752]]
13. 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 company is licensed to do business in
several states. Applicants note that where different Participating
Insurance Companies are domiciled in different states, it is possible
that the state insurance regulatory body in a state in which one
Participating Insurance Company is domiciled could require action that
is inconsistent with the requirements of insurance regulators in one or
more other states in which other Participating Insurance Companies are
domiciled. Applicants submit that this possibility is no different or
greater than exists where a single insurer and its affiliates offer
their insurance products in several states.
14. Applicants further submit that affiliation does not reduce the
potential for differences in state regulatory requirements. In any
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15) discussed below) are designed to safeguard against any
adverse effects that these differences may produce. If a particular
state insurance regulator's decision conflicts with the majority of
other state regulators, the affected insurer may be required to
withdraw its separate account's investment in the relevant Funds.
15. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard Contract owner voting
instructions. Potential disagreement is limited by the requirement that
the Participating Insurance Company's disregard of voting instructions
be both reasonable and based on specified good faith determinations.
However, if a Participating Insurance Company's decision to disregard
Contract owner instructions represents a minority position or would
preclude a majority vote approving a particular change, such
Participating Insurance Company may be required, at the election of the
relevant Fund, to withdraw its separate account's investment in that
Fund. No charge or penalty will be imposed as a result of such a
withdrawal.
16. Applicants submit that there is no reason why the investment
policies of a Fund with mixed funding 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. Applicants therefore argue that
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, Applicants represent that the Funds will
not be managed to favor or disfavor any particular insurance company or
type of Contract.
17. Furthermore, Applicants have concluded that since the Code
imposes certain diversification requirements on Underlying Fund assets
and Treasury Regulation 1.817-5(f)(3)(iii) specifically permits
``qualified pension or retirement plans'' and separate accounts to
share the same underlying management investment company, no inherent
conflicts of interest are present if Plans and Separate Accounts all
invest in the same management investment company.
18. Applicants note that while there are differences in the manner
in which distributions are taxed for variable annuity contract,
variable life insurance contracts and Plans, these tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and the Separate Account or the Plan is unable to net purchase payments
to make the distributions, the Separate Account or the Plan will redeem
shares of the Funds at their respective net asset value. The Plan will
then make distributions in accordance with the terms of the Plan. The
life insurance company will make distributions in accordance with the
terms of the Contract.
19. In connection with any meeting of shareholders, the Funds will
inform each shareholder, including each Separate Account and Plan, of
information necessary for the meeting. A Participating Insurance
Company will then solicit voting instructions consistent with the
``pass-through'' voting requirement. Separate Accounts and Plans will
each have the opportunity to exercise voting rights with respect to
their shares in the Funds, although the Separate Accounts are required
to follow the pass-through voting procedure.
20. Applicants state that there are no conflicts of interest
between Contract owners and participants under the Plans with respect
to state insurance commissioners' veto powers over investment
objectives. State insurance commissioners have been given the veto
power to prevent insurance companies indiscriminately redeeming their
separate accounts out of one fund and investing those monies in another
fund. Generally, to accomplish such redemptions and transfers, complex
and time-consuming transactions must be undertaken. Conversely,
trustees of Plans or the participants in participant-directed Plans can
make the decision quickly and implement redemption of shares from a
Fund and reinvest the monies in another funding vehicle without the
same regulatory impediments or, as is the case with most Plans, even
hold cash pending a suitable investment. Based on the foregoing,
Applicants represent that even where the interests of Contract owners
and the interests of Plans and Plan participants conflict, the issues
can be almost immediately resolved in that trustees of the Plans can,
independently, redeem shares out of the Funds.
21. Applicants submit that there is no greater potential for
material irreconcilable conflicts arising between the interests of
participants under Plans and Contract owners of Separate Accounts from
possible future changes in the federal tax laws than that which already
exists between variable annuity contract owners and variable life
insurance contract owners.
22. Finally, Applicants argue that the ability of the Funds to sell
their respective shares directly to Plans does not create a ``senior
security,'' as such term is defined under Section 18(g) of the 1940
Act, with respect to any Contact owner as opposed to a participant
under a Plan. Regardless of the rights and benefits of participants and
Contract owners under the respective Plans and Contracts, the Plans and
the separate accounts have rights only with respect to their shares of
the Funds. Such shares may be redeemed only at net asset value. No
shareholder of any of the Funds has any preference over any other
shareholder with respect to distributions of assets or payment of
dividends.
23. 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 cost of organizing and operating an investment funding medium; the
lack of expertise with respect to investment managers (principally with
respect to stock and money market investments); and the lack of public
name recognition as investment experts. Specifically, Applicants state
that smaller life insurance companies may not find it economically
feasible, or within their investment or administrative expertise, to
enter the Contract business on their own. Applicants argue the use of
the Funds as common investment media for the Contracts would ease these
concerns. Participating Insurance Companies would benefit not only from
the investment and administrative expertise of the Adviser, but also
from
[[Page 753]]
the cost efficiencies and investment flexibility afforded by a large
pool of funds.
24. Applicants state that making the Funds available for mixed and
shared funding may encourage more insurance companies to offer variable
contracts such as the Contracts which may then increase competition
with respect to both the design and the pricing of variable contracts.
Applicants submit that this can be expected to result in greater
product variation and lower charges.
25. Applicants argue 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 Funds to Plans should
increase the amount of assets available for investment by such Funds.
This should, in turn, promote economies of scale, permit increased
safety of investments through greater diversification, and make the
addition of new portfolios more feasible.
26. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Additionally,
Applicants note the previous insurance of orders permitting mixed and
shared funding where shares of a fund were sold directly to qualified
plans such as the Plans.
Applicants' Conditions
Applicants have consented to the following conditions if the order
requested in the application is granted:
1. A majority of the Board of Directors of each Fund (each a
``Board'') will consist of persons who are not ``interested persons''
thereof, 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
(``disinterested directors''), except that if this condition is not met
by reason of death, disqualification, or bona fide resignation of any
director or directors, 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 Boards will monitor their respective Funds for the existence
of any material irreconcilable conflict between the interests of
Contract owners of all Separate Accounts and participants under Plans
investing in the respective Funds. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or
a public ruling, private letter ruling, no-action or interpretative
letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
portfolio of Funds are being managed; (e) a difference in voting
instructions given by Contract owners; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
Contract owners; and (g) if applicable, a decision by a Participating
Plan (as defined below) to disregard the voting instructions of Plan
participants.
3. The Adviser (or any other investment adviser of a Fund), any
Participating Insurance Company, and any Plan that executes a Fund
participation agreement upon becoming an owner of 10% or more of the
assets of the Fund (referred to hereafter as a ``Participating
Plans''), will report any potential or existing conflicts to the Board.
The Adviser, Participating Insurance Companies and Participating Plans
will be responsible for assisting the Board in carrying out its
responsibilities under these conditions by providing the Board with all
information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by each
Participating Insurance Company to inform the Board whenever Contract
owner voting instructions are disregarded and an obligation by each
Participating Plan to inform the Board whenever Plan participant voting
instructions disregard Plan participant voting instructions. The
responsibility to report such information and conflicts and to assist
the Board will be a contractual obligation of all Participating
Insurance Companies and Participating Plans investing in the Funds
under their agreements governing participation in each Fund, and such
agreements will provide that these responsibilities will be carried out
with a view only to the interests of Contract owners and Plan
participants, as applicable.
4. If it is determined by a majority of the Board of a Fund, or a
majority of its disinterested directors, that a material irreconcilable
conflict exists with respect to a portfolio of a Fund, a Participating
Insurance Company or Participating Plan will, at its expense and to the
extent reasonably practical (as determined by a majority of the
disinterested directors of that Fund), 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 Fund or any portfolio thereof and
reinvesting such assets in a different investment medium, which may
include another portfolio of that Fund or another Fund; (b) 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., Contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of
making such a change; and (c) establishing a new registered management
investment company. If a material irreconcilable conflict arises
because of a Participating Insurance Company's decision to disregard
Contract owner voting instructions 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 Fund, to
withdraw its separate account's investment in that Fund (or any
portfolio thereof), and no charge or penalty will be imposed as a
result of such withdrawal. If a material irreconcilable conflict arises
because of a Participating Plan's decision to disregard a minority
position or would preclude a majority vote, the Participating Plan may
be required, at the election of the Fund, to withdraw its investment in
that Fund (or any portfolio thereof), and no charge or penalty will be
imposed as a result of such withdrawal. To the extent permitted by
applicable law, the responsibility of taking remedial action in the
event of a Board determination of an irreconcilable material conflict
and bearing the cost of such remedial action will be a contractual
obligation of all Participating Insurance Companies and Participating
Plans under their agreements governing participation in the Funds, and
these responsibilities will be carried out with a view only to the
interest of Contract owners and Plan participants, as applicable.
5. For purposes of Condition Four, a majority of the disinterested
directors of the applicable Board will determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in
no event will the Fund or the Adviser (or any other investment adviser
of a Fund) be required to establish a new funding medium for any
Contract. No Participating Insurance
[[Page 754]]
Company will be required by Condition Four to establish a new funding
medium for any Contract if a majority of Contract owners materially and
adversely affected by the irreconcilable material conflict vote to
decline such offer. No Participating Plan will be required by Condition
Four to establish a new funding medium for such Plan if (a) a majority
of Plan participants materially and adversely affected by the material
irreconcilable material conflict vote to decline such offer, or (b)
pursuant to governing Plan documents and applicable law, the
Participating Plan makes such decision without a Plan participant vote.
6. The Adviser, all Participating Insurance Companies, and
Participating Plans will be promptly informed, in writing, of the
Board's determination that an irreconcilable material conflict exists,
and its implications.
7. Participating Insurance Companies will provide pass-through
voting privileges of Fund shares to all Contract owners so long as the
SEC interprets the 1940 Act to require pass-through voting privileges
for Contract owners. Accordingly, Participating Insurance Companies
will vote shares of the Funds held in their separate accounts in a
manner consistent with timely voting instructions received from
Contract owners. Each Participating Insurance Company will vote Fund
shares held in its Separate Accounts for which it has not received
timely voting instructions from Contract owners, as well as Fund shares
held in its general account or otherwise attributable to it, in the
same proportion as it votes Fund shares for which it has received
instructions. Participating Insurance Companies will be responsible for
assuring that each of their separate accounts investing in each Fund
calculates voting privileges in a manner consistent with the separate
accounts of other Participating Insurance Companies investing in that
Fund. The obligation to calculate voting privileges in a manner
consistent with all other Separate Accounts investing in each Fund will
be a contractual obligation of all Participating Insurance Companies
under their agreements governing participation in that Fund.
8. All reports of potential or existing conflicts of interest
received by a Board, and all Board action with regard to determining
the existence of a conflict, notifying the Adviser, Participating
Insurance Companies and Participating Plans of a conflict, and
determining whether any proposed action adequately remedies a conflict,
will be properly recorded in the minutes of the appropriate Board or
other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
9. Each Fund will comply with all the provisions of the 1940 Act
requiring voting by shareholders (which, for these purposes, will be
the persons having a voting interest in the shares of the Funds), and,
in particular, each Fund will either provide for annual meetngs (except
insofar as the SEC 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 Fund is not one of the trusts described in Section 16(c)
of the 1940 Act) as well as Section 16(a) of the 1940 Act and, if
applicable, Section 16(b) of the 1940 Act. Further, each Fund will act
in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with
whatever rules the SEC may promulgate with respect thereto.
10. Each Fund will disclose in its prospectus that: (a) the Fund is
intended to be the funding vehicle for Contracts offered by various
Participating Insurance Companies and to Plans; (b) material
irreconcilable conflicts may arise among various Contract owners and
Plan participants; and (c) the Board will monitor events in order to
identify the existence of any material irreconcilable conflict and
determine what action, if any, should be taken in response to such
conflict. Each Fund will notify all Participating Insurance Companies
that separate account prospectus disclosure regarding potential risks
of mixed and shared funding may be appropriate.
11. If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940
Act are amended (or if Rule 6e-3 under the 1940 Act is adopted) to
provide exemptive relief from any provisions of the 1940 Act or the
rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the
order requested by the Applicants, then the Funds and the Participating
Insurance Companies, as appropriate, will take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent applicable.
12. No less than annually, the Adviser (and/or its affiliates), the
Participating Insurance Companies and Participating Plans, will submit
to the Board such reports, materials, or data as the Board may
reasonably request so that the Board may carry out fully the
obligations imposed upon it by the conditions contained in the
application. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the Board. The obligations of the
Participating Insurance Companies and Participating Plans to provide
these reports, materials and data to the Board will be a contractual
obligation of the Participating Insurance Companies and Participating
Plans under their agreements governing their participation in the
Funds.
13. If a Plan or Plan participant should become an owner of 10% or
more of the assets of a Fund, such Plan or Plan participant will
execute a participation agreement with that Fund including the
conditions set forth herein to the extent applicable. A Plan or Plan
participant will execute an application containing an acknowledgement
of this condition at the time of its initial purchase of shares of the
Funds.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and 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. 96-368 Filed 1-9-96; 8:45 am]
BILLING CODE 8010-01-M
