[Federal Register Volume 63, Number 11 (Friday, January 16, 1998)]
[Notices]
[Pages 2702-2708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1113]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22996; File No. 812-10604]
The Dreyfus Socially Responsible Growth Fund, Inc., and The
Dreyfus Corporation
January 9, 1998.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application for an order under Section 6(c) of the
Investment Company Act of 1940 (the ``1940 Act'') for exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of
The Dreyfus Socially Responsible Growth Fund and shares of any other
investment company or portfolio thereof that is designed to fund
insurance products and for which The Dreyfus Corporation or any of its
affiliates may serve in the future, as investment adviser,
administrator, manager, principal underwriter, or sponsor (such other
investment companies or investment portfolios thereof being hereinafter
referred to, individually, as a ``Future Fund'' and collectively, as
the ``Future Funds'') to be sold to and held by: (1) Separate accounts
funding variable annuity and variable life insurance contracts issued
by both affiliated and unaffiliated life insurance companies; and (2)
qualified pension and retirement plans outside of the separate account
context.
APPLICANTS: The Dreyfus Socially Responsible Growth Fund, Inc. (the
``Fund'') and The Dreyfus Corporation (``Dreyfus'').
FILING DATE: The application was filed on April 4, 1997, amended and
restated on October 20, 1997, and amended on December 16, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on February 3, 1998, and accompanied by proof
of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 200 Park Avenue, New York, NY 10166.
FOR FURTHER INFORMATION CONTACT:
Zandra Y Bailes, Senior Counsel, or Mark C. Amorosi, Branch Chief,
Division of Investment Management, Office of Insurance Products, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The
[[Page 2703]]
complete application is available for a fee from the Public Reference
Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 (tel.
(202) 942-8090).
Applicants' Representations
1. The Fund is a Maryland corporation and is registered under the
1940 Act as an open-end diversified management investment company. Its
authorized capital stock presently consists of one class of stock, but
in the future the Fund may create one or more additional classes of
stock, each corresponding to a portfolio of securities.
2. Dreyfus, an investment adviser registered under the Investment
Advisers Act of 1940, is the investment adviser for the Fund. NCM
Capital Management Group, Inc. is the sub-investment adviser for the
Fund and provides day-to-day management of the Fund's portfolio.
3. The Fund currently offers its shares to insurance companies as
the investment vehicle for their separate accounts that fund variable
annuity contracts and intends to offer its shares to affiliated and
unaffiliated insurance companies as the investment vehicle for their
separate accounts that fund variable life insurance contracts
(together, variable annuity contracts and variable life insurance
contracts are referred to herein as ``Variable Contracts''). Separate
accounts owning shares of the Fund and their insurance company
depositors are referred to herein as ``Participating Separate
Accounts'' and ``Participating Insurance Companies,'' respectively.
4. Each Participating Insurance Company will enter into a
participation agreement with the Fund on behalf of its Participating
Separate Account. The role of the Fund under this agreement, insofar as
the federal securities laws are applicable, will consist of offering
shares to the Participating Separate Accounts and complying with any
conditions that the Commission may impose upon granting the order
requested in the application.
5. Applicants also propose that the Fund offer and sell its shares
directly to qualified pension and retirement plans (``Qualified Plans''
or ``Plans'') outside of the separate account context.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the
rules or regulations thereunder, if and to the extent that such
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
2. 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, Rule 6e-2(b)(15) under
the 1940 Act provides partial exemptions from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act. The exemptions granted by Rule 6e-
2(b)(15) are available, however, only where the management investment
company underlying the separate account (``underlying fund'') offers
its shares ``exclusively to variable life insurance separate accounts
of the life insurer, or of any affiliated life insurance company''
(emphasis supplied).\1\ Therefore, the relief granted by Rule 6e-
2(b)(15) is not available with respect to a scheduled premium variable
life insurance separate account that owns shares of an underlying fund
that also offers its shares to a variable annuity or a flexible premium
variable life insurance separate account of the same company or of any
affiliated life insurance company. The use of a common management
investment company as the underlying investment medium for both
variable annuity and variable life insurance separate accounts of the
same insurance company or of any affiliated life insurance company is
referred to herein as ``mixed funding.'' In addition, the relief
granted by Rule 6e-2(b)(15) is not available if shares of the
underlying management investment company are offered to variable
annuity or variable life insurance separate accounts of unaffiliated
life insurance companies. The use of a common management investment
company as the underlying investment medium for separate accounts of
unaffiliated life insurance companies is referred to herein as ``shared
funding.'' Furthermore, Rule 6e-2(b)(15) does not contemplate that
shares of the underlying fund might also be sold to Qualified Plans.
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\1\ The exemptions provided by Rule 6e-2 also are available to
the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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3. In connection with the funding of flexible premium variable life
insurance contracts issues through a separate account registered under
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides
partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the
1940 Act. These exemptions, however, are available only where the
separate account's underlying fund offers its shares ``exclusively to
separate accounts of the life insurer, or of any affiliated life
insurance company, offering either scheduled contracts or flexible
contracts, or both; or which also offer their shares to variable
annuity separate accounts of the life insurer or of an affiliated life
insurance company'' (emphasis supplied).\2\ Therefore, Rule 6e-3(T)
permits mixed funding with respect to a flexible premium variable life
insurance separate account but does not permit shared funding. Also,
Rule 6e-3(T) does not contemplate the sale of shares of the underlying
fund to Qualified Plans.
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\2\ The exemptions provided by Rule 6e-3(T) also are available
to the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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4. Applicants state that changes in the federal tax law have
created the opportunity for the Fund to substantially increase its net
assets by selling shares to Qualified Plans. Section 817(h) of the
Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification standards on the assets underlying Variable
Contracts. 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, in accordance with regulations issued by the
Treasury Department (the ``Regulations''), adequately diversified. On
March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) 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 underlying
investment company must be held by the segregated asset accounts of one
or more life insurance companies. Notwithstanding this, the Regulations
also contain an exception to this requirement that permits trustees of
a Qualified 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)).
[[Page 2704]]
5. Applicants note that if the Fund and Future Funds were to sell
their shares only to Qualified Plans, exemptive relief under Rule 6e-2
and Rule 6e-3(T) would not be necessary. The relief provided under Rule
6e-2(b)(15) and Rule 6e-3(T)(b)(15) does not relate to qualified
pension and retirement plans or to a registered investment company's
ability to sell its shares to such plans.
6. Applicants also note that the promulgation of Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) preceded the issuance of the Regulations. Thus, the
sale of shares to both separate accounts and Qualified Plans was not
contemplated at the time of the adoption of Rules 6e-2(b)(15) and 6e-
3(T)(b)(15).
7. Section 9(a)(3) of the 1940 Act provides that it is unlawful for
any company to serve as investment adviser or principal underwriter of
any registered open-end investment company if an affiliated person of
that company is subject to a disqualification enumerated in 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. These exemptions limit the application of the eligibility
restrictions to affiliated individuals or companies that directly
participate in the management of the underlying fund.
8. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 of the
1940 Act limits, in effect, the amount of monitoring of an insurer's
personnel that would otherwise be necessary to ensure compliance with
Section 9 to that which is appropriate in light of the policy and
purposes of Section 9. Applicants state that those Rules recognize that
it is not necessary for the protection of investors or the purposes
fairly intended by the policy and provisions of the 1940 Act to apply
the provisions of Section 9(a) to the many individuals involved in an
insurance company complex, most of whom typically will have no
involvement in matters pertaining to investment companies funding the
separate accounts.
9. Applicants state that neither the Participating Insurance
Companies nor the Qualified Plans are expected to play any role in the
management or administration of the Fund or Future Funds. Those
individuals who participate in the management or administration of the
Fund and Future Funds will remain the same regardless of which separate
accounts, insurance companies or Qualified Plans use such Funds.
Applicants maintain that applying the requirements of Section 9(a)
because of investment by other insurers' separate accounts and
Qualified Plans would be unjustified and would not serve any regulatory
purpose. Moreover, Qualified Plans, unlike separate accounts, are not
themselves investment companies, and therefore are not subject to
Section 9 of the 1940 Act. Furthermore, it is not anticipated that a
Qualified Plan would be deemed to be an affiliated person of the Fund
or any Future Fund by virtue of its shareholders.
10. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) under the 1940 Act provide exemptions from the pass-
through voting requirement with respect to several significant matters,
assuming the limitations on mixed and shared funding are observed. More
specifically, Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting
instructions of its contractowners with respect to the investments of
an underlying fund or any contract between a fund and its investment
adviser, when required to do so by an insurance regulatory authority
and subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A)
of the Rules. In addition, Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowner's voting instructions if the contractowners initiate any
change in such company's investment policies, principal underwriter or
any investment adviser (provided that disregarding such voting
instructions is reasonable and subject to the other provisions of
paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and (C) of the Rules).
11. Applicants assert that Qualified Plans, which are not
registered as investment companies under the 1940 Act, have no
requirement to pass through voting rights to plan participants. Indeed,
to the contrary, applicable law expressly reserves voting rights
associated with Plan assets to certain specified persons. Under Section
403(a) of the Employee Retirement Income Security Act (``ERISA''),
shares of a fund sold to a Qualified Plan must be held by the trustees
of the Plan. Section 403(a) also provides that the trustee(s) must have
exclusive authority and discretion to manage and control the Plan with
two exceptions: (a) When the Plan expressly provides that the trustees
are subject to the direction of a named fiduciary who is not a trustee,
in which case the trustees are subject to proper directions made in
accordance with the terms of the Plan and not contrary to ERISA, and
(b) when the authority to manage, acquire or dispose of assets of the
Plan is delegated to one or more investment managers pursuant to
Section 402(c)(3) of ERISA. Unless one of the above two exceptions
stated in Section 403(a) applies, Plan trustees have the exclusive
authority and responsibility for voting proxies.
12. Where a named fiduciary to a Qualified Plan appoints an
investment manager, the investment manager has the responsibility to
vote the shares held unless the right to vote such shares is reserved
to the trustees or the named fiduciary. The Qualified Plans may have
their trustee(s) or other fiduciaries exercise voting rights
attributable to investment securities held by the Qualified Plans in
their discretion. Some of the Qualified Plans, however, may provide for
the trustee(s), an investment adviser (or advisers) or another named
fiduciary to exercise voting rights in accordance with instructions
from participants.
13. Where a Qualified Plan does not provide participants with the
right to give voting instructions, Applicants submit that there is no
potential for material irreconcilable conflicts of interest between or
among variable contract holders and Plan investors with respect to
voting of the respective Fund's shares. Accordingly, unlike the case
with insurance company separate accounts, the issue of the resolution
of material irreconcilable conflicts with respect to voting is not
present with respect to such Qualified Plans since the Qualified Plans
are not entitled to pass-through voting privileges.
14. Even if a Qualified Plan were to hold a controlling interest in
the Fund or a Future Fund, Applicants argue that such control would not
disadvantage other investors in such Fund to any greater extent than is
the case when any institutional shareholder holds a majority of the
voting securities of any open-end management investment company. In
this regard, Applicants submit that investment in the Fund or a Future
Fund by a Plan will not create any of the voting complications
occasioned by mixed funding or shared funding. Unlike mixed or shared
funding, Plan investor voting rights cannot be frustrated by veto
rights of insurers or state regulators.
15. Where a Plan provides participants with the right to give
voting instructions, Applicants see no reason to believe that
participants in Qualified Plans generally or those in a particular
Plan, either as a single group or in combination with participants in
other Qualified Plans, would vote in a manner that would disadvantage
variable
[[Page 2705]]
contract holders. The purchase of shares of the Fund or Future Funds by
Qualified Plans that provide voting rights does not present any
complications not otherwise occasioned by mixed or shared funding.
16. Applicants submit that the prohibitions on mixed and shared
funding might reflect some concern with possible divergent interests
among different classes of investors. 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 or all
states. Where insurers are domiciled in different states, it is
possible that the particular state insurance regulatory body in a state
which one insurance company is domiciled could require action that is
inconsistent with the requirements of insurance regulators of other
states in which other insurance companies are domiciled. The fact that
a single insurer and its affiliates offer their insurance products in
different states does not create a significantly different or enlarged
problem.
17. Applicants submit that shared funding is, in this respect, no
different than the use of the same investment company as the funding
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) permit under various circumstances. Affiliated insurers may
be domiciled in different states and be subject to differing state law
requirements. Affiliation does not reduce the potential, if any exists,
for differences in state regulatory requirements. In any event,
Applicants submit that the conditions set forth in the application and
included in this notice are designed to safeguard against and provide
procedures for resolving any adverse effects that differences among
state regulatory requirements may produce. For instance, 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 Participating Separate Account's investment in
the relevant Fund.
18. Applicants assert that the right of an insurance company under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to disregard contractowners'
voting instructions does not raise any issues different from those
raised by the authority of state insurance administrators over separate
accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can
disregard contractowner voting instructions only with respect to
certain specified items and under certain specified conditions.
Affiliation does not eliminate the potential, if any exits, for
divergent judgments as to the advisability or legality of a change in
investment policies, principal underwriter, or investment adviser
initiated by contractowners. The potential for disagreement is limited
by the requirements in Rules 6e-2 and 6e-3(T) that an insurance
company's disregard of voting instructions be reasonable and based on
specific good faith determinations.
19. A particular insurer's disregard of voting instructions
nevertheless could conflict with the majority of contractowner voting
instructions. The insurer's action could arguably be different from the
determination of all or some of the other insurers (including
affiliated insurers) that the contractowners' voting instructions
should prevail, and could either preclude a majority vote approving the
change or could represent a minority view. If the insurer's judgment
represents a minority position or would preclude a majority vote, the
insurer may be required, at the election of the relevant Fund to
withdraw its Participating Separate Account's investment in such Fund,
and no charge or penalty would be imposed as a result of such
withdrawal.
20. Applicants submit that there is no reason why the investment
policies of the Fund or any Future Fund would or should be materially
different from what those policies would or should be if the Funds
funded only annuity contracts or only scheduled or flexible premium
life contracts. In this regard, Applicants note that each type of
insurance product is designed as a long-term investment program. In
addition, Applicants represent that neither the Fund or any Future Fund
will be managed to favor or disfavor any particular insurer or type of
insurance product.
21. Furthermore, applicants submit that no one investment strategy
can be identified as appropriate to a particular insurance product.
Each pool of variable annuity and variable life insurance
contractowners is composed of individuals of diverse financial status,
age, insurance and investment goals. A fund supporting even one type of
insurance product must accommodate those factors in order to attract
and retain purchasers.
22. Applicants do not believe that the sale of shares of the Fund
and Future Funds to Qualified Plans will increase the potential for
material irreconcilable conflicts of interest between or among
different types of investors. In particular, Applicants see very little
potential for such conflicts beyond that which would otherwise exist
between variable annuity and variable life insurance contractowners.
Applicants note that Section 817(h) of the Code requires that the
investments made by variable annuity and variable life insurance
separate accounts be ``adequately diversified.'' Treasury Department
Regulations issued under Section 817(h) provide that, in order to meet
the statutory diversification requirements, all of the beneficial
interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the
Regulation specifically permits ``qualified pension or retirement
plans'' and separate accounts to invest in the same underlying fund.
For this reason, Applicants have concluded that neither the Code, nor
the Treasury Regulations or Revenue Rulings thereunder, present any
inherent conflicts of interest if Qualified Plans, variable annuity
separate accounts, and variable life insurance separate accounts all
invest in the same underlying fund.
23. Applicants note that while there are differences in the manner
in which distributions from Variable Contracts and Qualified Plans are
taxed, these differences will have no impact on the Fund and Future
Funds. When distributions are to be made, and a Separate Account or
Qualified Plan is unable to net purchase payments to make the
distributions, the Separate Account and Qualified Plan will redeem
shares of the Fund and the Future Funds at their respective net asset
value. A Qualified Plan will make distributions in accordance with the
terms of the Plan.
24. Applicants state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of
participants under Qualified Plans and contractowners of Participating
Separate Accounts from possible future changes in the federal tax laws
than that which already exist between variable annuity contractowners
and variable life insurance contractowners.
25. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving voting rights to
Participating Separate Account contractowners and to Qualified Plans.
Applicants represent that the Fund and Future Funds will inform each
shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the shareholder meeting,
including their respective share of ownership in the relevant Fund.
Each Participating Insurance Company will then solicit voting
instructions in accordance with Rules 6e-2 and 6e-3(T), as applicable,
and its participation agreement with the
[[Page 2706]]
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 Fund and Future Funds would be no
different from the voting rights that are provided to Qualified Plans
with respect to shares of funds sold to the general public.
26. Applicants submit that there are no conflicts between the
contractowners of the Participating Separate Accounts and Qualified
Plan participants with respect to the state insurance commissioners'
veto powers over investment objectives. 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. Conversely, the trustees of Qualified Plans
or the participants in participant-directed Qualified Plans can make
the decision quickly and redeem their interest in the Fund and Future
Funds 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.
Based on the foregoing, Applicants have concluded that even if there
should arise issues where the interests of contractowners 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 Plans can, on their own, redeem the shares out of the Fund
and Future Funds.
27. Applicants assert that various factors have limited the number
of insurance companies that offer variable annuities and variable life
insurance contracts. These factors include the costs of organizing and
operating a funding medium, the lack of expertise with respect to
investment management (principally with respect to stock and money
market investments) and the lack of name recognition by the public of
certain insurers as investment experts. 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.
28. Applicants contend that the use of the Fund and Future Funds as
common investment vehicles for Variable Contracts would reduce or
alleviate these concerns. Participating Insurance Companies will
benefit not only from the investment and administrative expertise of
the Fund's and Future Funds' investment adviser, but also from the cost
efficiencies and investment flexibility afforded by a large pool of
funds. Therefore, making the Fund and Future Funds available for mixed
and shared funding may encourage more insurance companies to offer
Variable Contracts, and accordingly could result in increased
competition with respect to both Variable Contract design and pricing,
which can be expected to result in more product variation and lower
charges. Applicants state that mixed and shared funding would benefit
variable contractowners by eliminating a significant portion of the
costs of establishing and administering separate funds. Applicants also
assert that the sale of shares of the Fund and Future Funds to
Qualified Plans in addition to separate accounts of Participating
Insurance Companies will result in an increased amount of assets
available for investment by such Funds. This may benefit variable
contractowners by promoting economies of scale, by permitting increased
safety of investments through greater diversification, and by making
the addition of new portfolios more feasible.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of each Fund shall consist of persons
who are not ``interested persons'' of such Fund, as defined by Section
2(a)(19) of the 1940 Act, and the Rules thereunder, as modified by any
applicable orders of the Commission, except that if this condition is
not met by reason of the death, disqualification or bona fide
resignation of any Trustee or Director, 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. Each Board will monitor its Fund 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 and determine what action, if
any, should be taken in response to such conflicts. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) An action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of such Fund are being managed; (e) a difference in voting
instructions given by variable annuity contractowners and variable life
insurance contractowners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contractowners; or (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
3. The Participating Insurance Companies, Dreyfus, and any
Qualified Plan that executes a fund participation agreement upon
becoming an owner of 10% or more of the assets of the Fund or a Future
Fund (the ``Participants'') shall report any potential or existing
conflicts to the applicable Board. Participants will be responsible for
assisting the Board in carrying out its responsibilities under these
conditions by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This
responsibility includes, but is not limited to, an obligation by each
Participating Insurance Company to inform the Board whenever it has
determined to disregard contractowners voting instructions, and, if
pass-through voting is applicable, an obligation by each Participant to
inform the Board whenever it has determined to disregard plan
participant voting instructions. The responsibility to report such
conflicts and information, and to assist the Board will be contractual
obligations of all Participants under their agreements governing
participation in the Fund and Future Funds, and such agreements, in the
case of Participating Insurance Companies, shall provide that such
responsibilities will be carried out with a view only to the interests
of the contractowners. The responsibility to report such information
and conflicts, and to assist the Board, also will be contractual
obligations of all Participants, and such agreements will provide that
their responsibilities will be carried out with a view only to the
interests of plan participants.
4. If it is determined by a majority of a Board, or a majority of
its disinterested members, that a material irreconcilable conflict
exists, the relevant Participants shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested members of the Board), take whatever
[[Page 2707]]
steps are necessary to eliminate the material irreconcilable conflict,
including: (1) Withdrawing the assets allocable to some or all of the
Participating Separate Accounts from the relevant Fund and reinvesting
such assets in a different investment medium, which may include another
portfolio of such Fund, if any, or, in the case of Participating
Insurance Companies, submitting the question whether such segregation
should be implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contractowners, life insurance contractowners or Variable
Contractowners of one or more Participant) that votes in favor of such
segregation, or offering to the affected contractowners the option of
making such a charge; and (2) establishing a new registered management
investment company or managed separate account. If a material
irreconcilable conflict arises because of a Participating Insurance
Company's decision to disregard contractowners' voting instructions and
that decision represents a minority position or would preclude a
majority vote, such Participant may be required, at the relevant Fund's
election, to withdraw its separate account's investment in such Fund
and no charge or penalty will be imposed as a result of such
withdrawal. If a material irreconcilable conflict arises because of a
Qualified Plan's decision to disregard Plan participant voting
instructions, if applicable, and that decision represent a minority
position or would preclude a majority vote, the Plan may be required,
at the election of the Fund, to withdraw its investment in such Fund,
and no charge or penalty will be imposed as a result of such
withdrawal.
The responsibility to take remedial action in the event of a
determination by a Board of a material irreconcilable conflict, and to
bear the cost of such remedial action, will be a contractual obligation
of all Participants under their agreements governing participation in
the relevant Fund and this responsibility, in the case of Participating
Insurance Companies, will be carried out with a view only to the
interest of contractowners and, in the case of Qualified Plans, will be
carried out with a view only to the interests of plan participants. A
majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any material
irreconcilable conflict, but in no event will the Fund, any Future Fund
or Dreyfus be required to establish a new funding medium for any
Variable Contract. No Participating Insurance Company will be required
to establish a new funding medium for any Variable Contracts if an
offer to do so has been declined by the vote of a majority of
contractowners materially and adversely affected by the irreconcilable
material conflict. Further, no Qualified Plan will be required by this
condition to establish a new funding medium for the Plan if: (a) A
majority of the plan participants materially and adversely affected by
the irreconcilable material conflict vote to decline such offer, or (b)
pursuant to documents governing the Qualified Plan, the Plan makes each
decision without a plan participant vote.
5. The determination by a Board of the existence of a material
irreconcilable conflict and its implications shall be promptly made
known in writing to all Participants.
6. Participating Insurance Companies will provide pass-through
voting privileges to all contractowners to the extent that the
Commission continues to interpret the 1940 Act to require pass-through
voting for contractowners. Accordingly, such Participants, where
applicable, will vote shares of the applicable Fund held in its
Participating Separate Accounts in a manner consistent with voting
instructions timely received from contractowners. Participating
Insurance Companies shall be responsible for assuring that each
Participating Separate Account investing in a Fund calculates voting
privileges in a manner consistent with other Participants. The
obligation to calculate voting privileges as provided in the
application shall be a contractual obligation of all Participating
Insurance Companies under their agreement governing participation in a
Fund. Each Participating Insurance Company will vote shares for which
it has not received timely voting instructions as well as shares it
owns in the same proportion as it votes those shares for which it has
received voting instructions. Each Qualified Plan will vote as required
by applicable law government Plan documents.
7. All reports received by a Board with respect to potential or
existing conflicts and all Board action with regard to (a)
determination of the existence of a conflict, (b) notification of
Participants of the existence of a conflict and (c) determination of
whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the meetings of the Board or other
appropriate records, and such minutes or other records will be made
available to the Commission upon request.
8. The Fund and each Future Fund will notify all Participants that
separate account prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate. Each Fund shall disclose
in its prospectus that: (a) Shares of such Fund may be offered to
insurance company separate accounts of both annuity and life insurance
variable contracts, and to Qualified Plans; (b) due to differences of
tax treatment and other considerations, the interest of various
contractowners participating in such Fund and the interest of Qualified
Plans investing in such Fund may conflict; and (c) the Board will
monitor such Fund for any material conflicts and determine what action,
if any, should be taken.
9. The Fund and each Future Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders (which, for these
purposes, shall be the persons having a voting interest in the shares
of such Fund), and, in particular, each Fund will either provide for
annual meetings (except to the extent that the Commission may interpret
Section 16 of the 1940 Act not to require such meetings) or comply with
Section 16(c) of the 1940 Act (although the Fund and Future Funds are
or will not be the type of trust described in Section 16(c) of the 1940
Act), as well as with Section 16(a), and, if applicable, Section 16(b)
of the 1940 Act. Further, each Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors (or trustees) and with
whatever rules the Commission may promulgate with respect thereto.
10. If and to the extent Rule 6e-2 or 6e-3(T) is amended, or
proposed Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated under the 1940 Act
with respect to mixed and shared funding on terms and conditions
materially different from any exemptions granted in the order requested
in the application, then the Fund and each Future Fund and/or the
Participants, as appropriate, shall take such steps as may be necessary
to comply with Rule 6e-2 or 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
11. The Participants shall at least annually submit to the Board of
each Fund such reports, materials or data as a Board may reasonably
request so that the Board may fully carry out obligations imposed upon
them by the conditions contained in the application. Such reports,
materials and data shall be
[[Page 2708]]
submitted more frequently if deemed appropriate by the applicable
Board. The obligations of the Participants to provide these reports,
materials and data to a Board when it so reasonably requests, shall be
a contractual obligation of all Participants under their agreement
governing participation in the Fund and Future Funds.
12. Neither the Fund nor any Future Fund will accept a purchase
order from a Plan if such purchase would make the Plan shareholder or
owner of 10% or more of the assets of such Fund unless such Plan
executes a fund participation agreement with the relevant Fund,
including the conditions set forth herein to the extent applicable. A
Plan shareholder will execute an application containing an
acknowledgment of this condition at the time of its initial purchase of
shares of such Fund.
Conclusion
For the reasons summarized above, Applicants assert that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-1113 Filed 1-15-98; 8:45 am]
BILLING CODE 8010-01-M
