[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Notices]
[Pages 5751-5756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2209]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20858; File No. 812-9290]
Quest for Value Accumulation Trust, et al.
January 24, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: The Quest for Value Accumulation Trust (the ``Trust''),
Quest for Value Advisors (``Quest Advisors'') and certain life
insurance companies and their separate accounts investing now or in the
future in the Trust.
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act 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 to the extent
necessary to permit shares of the Trust and shares of any other
investment company that is designed to fund insurance products and for
which Quest Advisors, or any of its affiliates, may serve an investment
advisor, administrator, manager, principal underwriter or sponsor
(collectively, with the Trust, the ``Funds'') to be sold to and held
by: (a) Variable annuity and variable life insurance separate accounts
of both affiliated and unaffiliated life insurance companies (the
``Participating Insurance Companies''); and (b) qualified pension and
retirement plans outside of the separate account context (the
``Plans'').
FILING DATE: The application was filed on October 18, 1994, and amended
on December 23, 1994. Applicants represent that the application will be
further amended during the notice period.
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,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on February 21, 1995 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, Quest for Value Accumulation Trust, One World
Financial Center, New York, New York 10281.
FOR FURTHER INFORMATION CONTACT: Barbara J. Whisler, Senior Attorney,
or Wendy F. Friedlander, Deputy Chief, both at (202) 942-0670, Office
of Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. The Trust, an open-end, management investment company organized
as a Massachusetts business trust on May 12, 1994, commenced operations
on September 15, 1994. Currently, the Trust consists of seven separate
series of shares: the Equity Series; the Small Cap Series; the Managed
Series; the Bond Series; the Global Equity Series; the U.S. Government
Income Series and the Money Market Series. Applicants incorporate by
reference into the application the registration statement (File No. 33-
78944) on Form N-1A of the Trust.
2. Quest Advisors serves as the investment advisor for each of the
Trust's series. Quest Advisors is a subsidiary of Oppenheimer Capital,
a general partnership registered as an investment advisor under the
Investment Advisers Act of 1940. A 33% interest in Oppenheimer Capital
is held by Oppenheimer Financial Corp. while the remaining 67% interest
is held by Oppenheimer Capital, L.P., a Delaware limited partnership
whose units are traded on the New York Stock Exchange. Oppenheimer
Capital, L.P. has as its sole general partner Oppenheimer Financial
Corp.
3. The Trust currently offers its shares to and its shares are held
by separate accounts, registered with the Commission under the 1940 Act
as unit investment trusts, of life insurance company affiliates of the
Mutual Life Insurance Company of New York, Provident Mutual Life
Insurance Company and National Home Life Assurance Company. The Trust
serves as the investment vehicle for variable annuity contracts issued
by these insurance companies. Shares of the Trust are also held by a
separate account of CIGNA, which is not registered as an investment
company under the 1940 Act pursuant to Section 3(c)(1) of the 1940 Act.
4. Applicants state that, upon the granting of the order requested
in this application, the Trust intends to offer shares of its existing
and future portfolios to separate accounts, registered as investment
companies under the 1940 Act, of the above-referenced insurance
companies and of other unaffiliated insurance companies (collectively,
the ``Accounts''), to serve as an investment vehicle for various types
of insurance products. These products may include variable annuity
contracts, single premium variable life insurance contracts, scheduled
premium variable life insurance contracts and flexible premium variable
life insurance contracts (collectively, the ``Contracts''). The Trust
may also offer shares of its portfolios directly to the Plans outside
of the separate account context.
5. In connection with any Contract issued by a Participating
Insurance Company, the application states that each such company will
have the legal obligation of satisfying all applicable requirements
under both state and federal law. Applicants further state that the
role of the Funds under this arrangement, insofar as the federal
securities laws are applicable, will consist of offering shares to the
Accounts and fulfilling any conditions that the Commission may impose
upon granting the order requested in the application.
6. Applicants state that, due to the applicable tax law, the Funds
wish to avail themselves of the opportunity to increase their asset
base through the sale of shares of the Funds to the Plans. The Plans
may choose any of the Funds as the sole investment option under the
Plan or as one of several investment [[Page 5752]] options.
Participants may be given an investment choice depending upon the Plan.
Shares of any of the Funds sold to Plans will be held by the trustees
of the Plans as mandated by Section 403(a) of the Employee Retirement
Income Security Act (``ERISA''). Quest Advisors will not act as
investment advisor to any of the Plans that will purchase shares of the
Funds. Applicants note that, pursuant to ERISA, pass-through voting is
not required to be provided to participants in the Plans.
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 advisor, 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 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 the 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
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 are also 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 exemptive relief is necessary if shares of the
Funds are also to be sold to Plans.
5. Applicants state that changes in the tax law have created the
opportunity for the Funds to increase their asset base through the sale
of Fund shares to the Plans. Applicants state that Section 817(h) of
the Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification standards on the underlying assets of the
Contracts held in the Funds. The Code provides that such Contracts
shall not be treated as an annuity contract or life insurance contract
for any period in which the underlying assets are not, in accordance
with regulations prescribed by the Treasury Department, adequately
diversified. On March 2, 1989, the Treasury Department issued
regulations which established diversification requirements for the
investment portfolios underlying variable contracts. Treas. Reg.
Sec. 1.817-5 (1989). The regulations provide that, 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 to also be held by the separate accounts of
insurance companies in connection with their variable 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.
Applicants 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
Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
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 investment advisor 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). Rules 6e-2(b) and 6e-3(T)(b)(15) 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 insurer, 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 advisor 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 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 to that
which is appropriate in light of the policy and purposes of the
Section. Applicants state that those 1940 Act rules recognize that it
is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the
provisions of Section 9(a) to the many individuals in a large insurance
company complex, most of whom will have no involvement in matters
pertaining to investment [[Page 5753]] 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. The
application states that the relief requested should not be affected by
the proposed sale of shares of the Funds to the Plans because the Plans
are not investment companies and are not, therefore, subject to Section
9(a).
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 the Participating Insurance
Companies will provide pass-through voting privileges to all Contract
owners so long as the Commission 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) provide that
the insurance company may disregard voting instructions of its contract
owners with respect to the investments of an underlying fund, or any
contract between a fund and its investment advisor, when required to do
so by an insurance regulatory authority.
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that
the insurance company may disregard voting instructions of its contract
owners if the contract owners initiate any change in the company's
policies, principal underwriter, or any investment advisor, 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. Applicants further represent that the Funds' sale of shares to
the Plans does not impact the relief requested in this regard. As noted
previously by Applicants, shares of the Funds sold to Plans would be
held by the trustees of such Plans as required by Section 403(a) of
ERISA. Section 403(a) also provides that the trustee(s) must have
exclusive authority and discretion to manage and control the Plan with
two exceptions: (a) When the Plan expressly provides that the
trustee(s) is (are) subject to the direction of a named fiduciary who
is not a trustee, in which case the trustee(s) is (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 two
exceptions stated in Section 403(a) applies, Plan trustees have the
exclusive authority and responsibility for voting proxies. Where a
named fiduciary appoints an investment manager, the investment manager
has the responsibility to vote the shares held unless the right to vote
such shares is reserved to the trustees or to the named fiduciary. In
any event, there is no pass-through voting to the participants in such
Plans. Accordingly, Applicants note that, unlike the case with
insurance company separate accounts, the issue of the resolution of
material irreconcilable conflicts with respect to voting is not present
with Plans.
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, or all, states. Applicants note that where insurers are
domiciled in different states, it is possible that the state insurance
regulatory body in a state in which one insurance company is domiciled
could require action that is inconsistent with the requirements of
insurance regulators in one or more other states in which other
insurance companies are domiciled. Applicants submit that this
possibility is no different and no 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, if any exists, for differences among 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 effect 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 Fund.
15. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to the
advisability or legality of a change in investment policies, principal
underwriter, or investment advisor initiated by owners of the
Contracts. 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 investment in that Fund. No change or
penalty will be imposed as a result of such withdrawal.
16. Applicants state 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 under 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 Fund will
not be managed to favor or disfavor any particular insurance company or
type of Contract.
17. Section 817(h) imposes certain diversification standards on the
underlying assets of variable annuity contracts and variable life
insurance 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
``qualified pension or retirement plans'' and separate accounts to
share the same underlying management investment company. Therefore,
Applicants have concluded that neither the Code, nor the Treasury
regulations nor the revenue rulings thereunder present any inherent
conflicts of interest if Plans, variable annuity separate accounts and
variable life insurance 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 contracts,
variable life insurance contracts and Plans, Applicants state that
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 [[Page 5754]] value. The Plan will then make distributions in
accordance with the terms of the Plan. A Participating Insurance
Company will surrender values from the separate account into the
general account make distributions in accordance with the terms of the
variable contract.
19. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving such voting rights to
Contract owners and to Plans. Applicants represent that the Funds will
inform each shareholder, including each Account and Plan, of its
respective share of ownership in the respective Funds. Each
Participating Insurance Company will then solicit voting instructions
in accordance with the ``pass-through'' voting requirement.
20. 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 Contract 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 Accounts have rights only with respect to their shares of the
Funds. Such shares may be redeemed only to net asset value. No
shareholder of any of the Funds has any preference over any other
shareholder with respect to distribution of assets or payment of
dividends.
21. Finally, Applicants state that there are no conflicts between
Contract owners and participants under the Plans with respect to the
state insurance commissioners' veto powers (direct with respect to
variable life insurance and indirect with respect to variable
annuities) over investment objectives. The basic premise of corporate
democracy and shareholder voting is that not all shareholders may agree
with a particular proposal. The state insurance commissioners have been
given the veto power in recognition of the fact that insurance
companies usually are unable to simply redeem their separate accounts
out of one fund and invest 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
suitable investment. Based on the foregoing, Applicants represent that
even should there arise issues where the interests of Contract owners
and the interests of Plans conflict, the issues can be almost
immediately resolved in that trustees of the Plans can, independently,
redeem shares out of the Funds.
22. Applicants stat that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of
participants under the Plans and owners of the Contracts issued by the
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.
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 invest management (particularly with
respect to stock and money market investments); and the lack of name
recognition by the public of certain insurers as investment
professionals. Applicants argue that 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 Funds' investment
advisor, but also from the cost efficiencies and investment flexibility
afforded by a large pool of funds. 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.
Thus, 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 the 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.
24. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Additionally,
Applicants note the previous issuance 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 Trustees or Board of Directors of
each Fund (each, a ``Board'') shall consist of persons who are not
``interested persons'' of the Funds, as defined by Section 2(a)(19) of
the 1940 Act and the rules thereunder and as modified by any applicable
orders of the Commission, except that, if this condition is not met by
reason of the death, disqualification, or bona fide resignation of any
trustee or director, then the operator 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 respective Fund for the existence of
any material irreconcilable conflict among the interests of the
Contract owners of all of the Accounts investing in the respective
Funds. A material irreconcilable conflict may arise for a variety of
reasons, including: (a) An action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax,
or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities, (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of the Funds are managed; (e) a
difference in voting instructions given by owners of variable annuity
contracts and owners of variable life insurance contracts; or (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Contract owners.
3. The Participating Insurance Companies, Quest Advisors (or any
other investment advisor of the Funds), and any Plan that executes a
fund participation agreement upon becoming an owner of 10% or more of
the assets of a Fund (the ``Participants'') will report any potential
or existing conflicts to the Board. Participants will be responsible
for assisting the appropriate 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 [[Page 5755]] includes, but is not limited
to, an obligation by each Participant to inform the Board whenever
voting instructions of Contract owners are disregarded. The
responsibility to report such information and conflicts and to assist
the Board will be a contractual obligation of all Participants
investing in the Funds under their agreements governing participation
in the Funds and such agreements shall provide that these
responsibilities will be carried out with a view only to the interests
of Contract owners.
4. If it is determined by a majority of the Board, or by a majority
of its disinterested trustees or directors, that an irreconcilable
material conflict exists, the relevant Participant shall, at its
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees or directors), take any steps
necessary to remedy or eliminate the irreconcilable material conflict,
including:
(a) Withdrawing the assets allocable to some or all of the Accounts
from the Funds and reinvesting such assets in a different investment
medium including another portfolio of the relevant Fund or another
Fund, or submitting the question as to whether such segregation should
be implemented to a vote of all affected contract owners; and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity contract owners, variable life insurance contract
owners, or variable contract owners of one or more Participant) that
votes in favor of such segregation, or offering to the affected
variable contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account. If a material irreconcilable conflict arises because
of a Participant's decision to disregard voting instruction of the
owners of the Contracts, and that decision represents a minority
position or would preclude a majority vote, the Participant may be
required, at the election of the relevant Fund, to withdraw its
Account's investment in the 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 Board
determination of a material irreconcilable conflict and to bear the
cost of such remedial action shall be a contractual obligation of all
Participants under the agreements governing their participation in the
Funds. The responsibility to take such remedial action shall be carried
out with a view only to the interests of Contract owners. For purposes
of this Condition Four, a majority of the disinterested members of the
applicable Board shall determine whether any proposed action adequately
remedies any material irreconcilable conflict, but, in no event will
the relevant Fund or Quest Advisors (or any other investment advisor of
the Funds) be required to establish a new funding medium for any
Contract. Further, no Participant shall be required by this Condition
Four to establish a new funding medium for any Contract if any offer to
do so has been declined by a vote of a majority of the Contract owners
materially affected by the material irreconcilable conflict.
5. The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and
in writing to all Participants.
6. Participants will provide pass-through voting privileges to all
Contract owners so long as the Commission continues to interpret the
1940 Act as requiring pass-through voting privileges for Contract
owners. Accordingly, the Participants, where applicable, will vote
shares of the Fund held in their Accounts in a manner consistent with
voting instructions timely received from Contract owners. Participants
will be responsible for assuring that each of their Accounts that
participates in the Funds calculates voting privileges in a manner
consistent with other Participants. The obligation to calculate voting
privileges in a manner consistent with all other Accounts will be a
contractual obligation of all Participants under the agreements
governing their participation in the Funds. Each Participant 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.
7. All reports received by the Board or potential or existing
conflicts, and all Board action with regard to: (a) Determining the
existence of a conflict; (b) notifying Participants of a conflict; and
(c) determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the appropriate
Board of other appropriate records. Such minutes or other records shall
be made available to the Commission upon request.
8. Each 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 the 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 interests of various contract
owners participating in the Funds and the interests of Plans investing
in the Funds may conflict; and (c) the Board will monitor the Funds for
any materials conflicts and determine what action, if any, should be
taken.
9. Each 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 the Funds), 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 Funds are not one of the trusts
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 that Rules 6e-2 and 6e-3(T) are amended
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive
relief from any provision of the 1940 Act or the rules thereunder with
respect to mixed and shared funding on terms and conditions materially
different from any exemptions granted in the order requested by
Applicants, then the Funds and/or the Participants, as appropriate,
shall 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 such
rules are applicable.
11. No less than annually, the Participants shall submit to the
Boards such reports, materials, or data as the Boards may reasonably
request so that the Boards may carry out fully the obligations imposed
upon them by the conditions contained in the application. Such reports,
materials, and data shall be submitted more frequently if deemed
appropriate by the Boards. The obligations of the Participants to
provide these reports, materials, and data to the Boards, when the
appropriate Board so reasonably requests, shall be a contractual
obligation of all Participants under the agreements governing their
participation in the Funds.
12. If a Plan becomes an owner of 10% or more of the assets of a
Fund, such Plan will execute a fund [[Page 5756]] participation
agreement with the applicable Fund. A Plan will execute an application
containing an acknowledgment of this condition upon such Plan's initial
purchase of the shares of any Fund.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2209 Filed 1-27-95; 8:45 am]
BILLING CODE 8010-01-M
