[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Notices]
[Pages 55336-55341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27390]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22290; No. 812-10190]
Variable Investment Trust, et al.
October 18, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an exemption pursuant to the
Investment Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Variable Investment Trust (the ``Trust''), GE Investment
Management Incorporated (``GEIM'') 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) for
exemption 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.
SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent
necessary to permit shares of the Trust and any other investment
company that is offered to fund variable insurance products and for
which GEIM, or any of its affiliates, may serve as investment adviser,
administrator, manager, principal underwriter, or sponsor
(collectively, ``Investment Companies'') to be sold to and held by the
separate accounts (``Separate Accounts'') funding variable annuity and
variable life insurance contracts (``Variable Contracts'') issued by
affiliated or unaffiliated life insurance companies (``Participating
Insurance Companies'') or qualified pension and retirement plans
outside of the separate account context (``Qualified Plans'' or
``Plans'').
FILING DATE: The application was filed on June 5, 1996, and amended and
restated on October 11, 1996.
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 by writing to the Secretary of the
Commission 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 November 12, 1996, and must 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 may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, N.W., Washington, D.C. 20549. Applicants, c/o Matthew J.
Simpson, Esq., GE Investment Management Incorporated, 3003 Summer
Street, Stamford, Connecticut 06905.
FOR FURTHER INFORMATION CONTACT: Kevin M. Kirchoff, Senior Counsel, 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 is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. The Trust is a Massachusetts business trust registered under the
1940 Act as an open-end management investment company. The Trust
currently consists of five separate investment portfolio
(``Portfolios''), and may establish additional portfolios.
2. GEIM, a wholly-owned subsidiary of General Electric Company,
serves as investment adviser to each Portfolio of the Trust.
3. The Investment Companies will serve as investment vehicles for
various types of Variable Contracts. Shares of the Investment Companies
will be offered to Separate Accounts of Participating Insurance
Companies which enter into participation agreements with the Trust.
These Separate Accounts may be registered with the Commission under the
1940 Act or exempt from registration under Section 3(c)(1) thereof.
4. Each participating Insurance Company will have the legal
obligation of satisfying all applicable requirements under state law
and the federal securities laws in connection with any Variable
Contract issued by such company. The role of the Investment Companies
under this arrangement will consist of offering shares to the Separate
Accounts and fulfilling any conditions the Commission may impose upon
granting the order requested in this application.
5. The Trust desires to avail itself of the opportunity to increase
its asset base through the sale of its shares to Qualified Plans,
consistent with applicable tax law. The Qualified Plans may choose any
of the Investment Companies as the sole investment option under the
Qualified Plan or as one or several investment options. Participants in
Qualified Plans may or may not be given an investment choice among
available alternatives, depending on the Qualified Plan itself. Shares
of any Investment Company sold to Qualified Plans would be held by the
trustee(s) of such Qualified Plans as mandated by Section 403(a) of the
Employee Retirement Income Security Act (``ERISA''). To the extent
permitted under applicable law, GEIM may act as investment adviser to
any of the Qualified Plans that will purchase shares of the Trust.
Applicants note that pass-through voting is not required to be provided
to participants in Qualified Plans under ERISA.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act exempting them from Sections 9(a), 13(a),
15(a), and 15(b) thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder to the extent necessary to permit ``mixed'' and ``shared''
funding, as defined below.
2. Section 6(c) authorizes the Commission to grant exemptions from
the provisions of the 1940 Act, and rules thereunder, if and to the
extent that an exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
3. Rule 6e-2(b)(15) provides partial exemptive relief from Sections
9(a), 13(a), 15(a), and 15(b) of the 1940 Act to separate accounts
registered under the 1940 Act as unit investment trusts to the extent
necessary to offer and sell scheduled premium variable life insurance
contracts. The relief provided by the rule also extends to the
investment adviser, principal underwriter, and sponsor or depositor of
a separate account.
4. The exemptions granted by Rule 6e-2(b)(15) are available only to
a management investment company underlying a separate account
(``Underlying Fund'') that offers its shares exclusively to variable
life insurance separate accounts of a life insurer, or of any other
affiliated life insurance company, issuing scheduled premium variable
life insurance contracts. The relief granted by Rule 6e-2(b)(15) is not
available to a separate account issuing scheduled premium variable life
insurance contracts if the Underlying Fund also offers its shares to a
separate account issuing variable annuity or flexible premium variable
life insurance contracts. The use of a common Underlying Fund as an
investment vehicle for both variable
[[Page 55337]]
annuity contracts and scheduled or flexible premium variable life
insurance contracts is referred to herein as ``mixed funding.''
5. Additionally, the relief granted by Rule 6e-2(b)(15) is not
available to separate accounts issuing scheduled premium variable life
insurance contracts if the Underlying Fund also offers its shares to
unaffiliated life insurance company separate accounts funding variable
contracts. The use of a common fund as an underlying investment vehicle
for separate accounts of unaffiliated insurance companies is referred
to herein as ``shared funding.'' Moreover, because the relief granted
by Rule 6e-2(b)(15) is available only where shares of the Underlying
Fund are offered exclusively to separate accounts of insurance
companies, additional exemptive relief is necessary if the shares of
the Trust also are to be sold to Qualified Plans.
6. Regarding the funding of flexible variable life insurance
contracts issued through a separate account, Rule 6e-3(T)(b)(15)
provides partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b)
of the 1940 Act. This exemptive relief extends to the investment
adviser, principal underwriter, and sponsor or depositor of a separate
account. These exemptions are available only where the Underlying Funds
of the separate account 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
* * * .'' Rule 6e-3(T), therefore, permits mixed funding with respect
to a flexible premium variable life insurance separate account, subject
to certain conditions. However, Rule 6e-3(T) does not permit shared
funding because the relief granted by Rule 6e-3(T)(b)(15) is not
available to a flexible premium variable life insurance separate
account that owns shares of a management company that also offers its
shares to separate accounts of unaffiliated life insurance companies.
Moreover, because the relief afforded by Rule 6e-3(T) is available only
where shares of the Underlying Fund are offered exclusively to separate
accounts of insurance companies, additional relief is necessary if
shares of the Trust also are to be sold to Qualified Plans.
7. Applicants state that changes in the tax law have created the
opportunity for the Portfolios to increase their asset base through the
sale of Portfolio shares to Qualified Plans. Applicants state that
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
``Code''), imposes certain diversification standards on the assets
underlying variable contracts, such as those in each Portfolio of the
Trust. These diversification requirements are applied by taking into
account the assets of the Underlying Fund if all the beneficial
interests in the Underlying Fund are held by certain designated
persons. On March 2, 1989, the Treasury Department issued regulations
that adopted diversification requirements for Underlying Funds. Treas.
Reg. Sec. 1.817-5 (1989). These regulations provide that, 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, however, contain
certain exceptions to this requirement, one of which permits the
trustee(s) of a qualified pension or retirement plan to hold shares of
an investment company, the shares of which also are held by separate
accounts of insurance companies, without adversely affecting the status
of the investment company as an adequately diversified underlying
investment vehicle for variable contracts issued through such
segregated asset accounts. Treas. Reg. Sec. 1.817-5(f)(3)(iii).
8. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) preceded the issuance of regulations of the Treasury
Department which made it possible for shares of an investment company
to be held by the trustee(s) of qualified plans without adversely
affecting the ability of shares in the same investment company also to
be held by separate accounts of insurance companies in connection with
their variable contracts. Thus, the sale of shares of the same
investment company to separate accounts and qualified plans could not
have been envisioned at the time of the adoption of Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) given the current tax law.
9. Moreover, Applicants assert that if the Trust were to sell its
share only to Qualified Plans, no exemptive relief would be necessary.
Applicants state that none of the relief provided for in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) relates to qualified pension or retirement
plans or to the ability of an Underlying Fund to sell its shares to
such plans. It is only because the Separate Accounts investing in the
Trust are themselves investment companies which are relying upon Rules
6e-2 and 6e-3(T) and do not wish to be denied such relief if the
Investment Companies sell shares to Qualified Plans that Applicants are
applying for the requested relief.
10. Section 9(a) of the 1940 Act makes it unlawful for any company
to serve as an investment adviser to, or principal underwriter of, any
registered open-end investment company if an affiliated person of that
company is subject to any disqualification specified in Sections
9(a)(1) or 9(a)(2). Subparagraphs (b)(15) (i) and (ii) of Rules 6e-2
and 6e-3(T) provide exemptions from Section 9(a) under certain
circumstances, subject to limitations on mixed and shared funding. The
relief provided by subparagraphs (b)(15)(i) of Rules 6e-2 and 6e-3(T)
permits a person disqualified under Section 9(a) to serve as an office,
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
subparagraph (b)(15)(ii) of Rules 6e-2 and 6e-3(T) permits the life
insurer to serve as the investment adviser or principal underwriter of
an Underlying Fund, provided that none of the personnel of the insurer
who are ineligible pursuant to Section 9(a) are participating in the
management or administration of the fund.
11. Applicants state that the partial relief granted under
subparagraphs (b)(15) of Rules 6e-2 and 6e-3(T) from the requirements
of Section 9(a), in effect, limits the monitoring of the personnel of
an insurer 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 submit that Rules 6e-2 and 6e-3(T)
reflect a recognition that it is not necessary for the protection of
investors or for the purposes of the 1940 Act to apply the provisions
of Section 9(a) to the many individuals in an insurance company
complex, most of whom typically will have no involvement in matters
pertaining to an investment company. The Participating Insurance
Companies are not expected to play any role in the management or
administration of the Investment Companies. Applicants, therefore,
submit that there is no regulatory reason to apply the provisions of
Section 9(a) to the many individuals in various Participating Insurance
Companies.
12. Subparagraphs (b)(15)(iii) of Rules 6e-2 and 6e-3(T) provide
partial exemptions from Sections 13(a), 15(a), and 15(b) of the 1940
Act to the extent that those sections have been deemed by the
Commission to require ``pass-through'' voting with respect to
management investment company
[[Page 55338]]
shares held by a separate account, to permit the insurance company to
disregard the voting instructions of it variable contract owners in
certain limited circumstances.
13. Voting instructions may be disregarded under subparagraphs
(b)(15)(iii)(A) of Rules 6e-2 and 6e-3(T) if they would cause the
Underlying Fund to make, or refrain from making, certain investments
which would result in changes to the subclassification or investment
objectives of the Underlying Fund, or to approve or disapprove any
contract between a fund and its investment advisers, when required to
do so by an insurance regulatory authority, subject to the provisions
of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of each Rule.
14. Under subparagraph (b)(15)(iii)(B) of Rule 6e-2 and
subparagraph (b)(15)(iii)(A)(2) of Rule 6e-3(T), an insurance company
may disregard the voting instructions of variable contract owners if
such owners initiate any change in the investment objectives, principal
underwriter, or investment adviser of the Underlying Fund, provided
that disregarding such voting instructions is reasonable and subject to
the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and
(C) of each Rule.
15. Applicants assert that the proposed sale of shares of the Trust
to Qualified Plans does not affect the relief requested. As previously
noted, Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) permit an insurer
to disregard variable contract owner voting instructions in certain
circumstances. Offering shares of the Trust to Qualified Plans would
not affect the circumstances and conditions under which any veto right
would be exercised by a Participating Insurance Company. Furthermore,
as stated above, shares of the Trust sold to Qualified Plans would be
held by the trustee(s) of such Plans as mandated by Section 403(a) of
ERISA. Section 403(a) provides that the trustee(s) must have exclusive
authority and discretion to manage and control the qualified plan with
two exceptions: (a) when the qualified 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 of such fiduciary made in accordance with the terms of the
qualified plan and not contrary to ERISA; and (b) when the authority to
manage, acquire, or dispose of assets of the qualified plan is
delegated to one or more investment managers under Section 402(c)(3) of
ERISA. Unless one of the two exceptions stated in Section 403(a)
applies, the trustee(s) of the Qualified Plan has/have the exclusive
authority and responsibility for voting proxies. When 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 trustee(s) or the named fiduciary. In any
event, Applicants assert that pass-through voting by the participants
in such Qualified Plans is not required. Accordingly, Applicants note
that, unlike the case with insurance company separate accounts, the
issue of the resolution of material irreconcilable conflicts with
respect to voting is not present with Qualified Plans.
16. Applicants state that no increased conflicts of interest would
be presented by the granting of the requested relief. Applicants submit
that shared funding by unaffiliated insurance companies 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. In this
regard, Applicants assert that a particular state insurance regulatory
body could require action that is inconsistent with the requirements of
other states in which the insurance company offers its variable
contracts. Accordingly, Applicants submit that the fact that different
insurers may be domiciled in different states does not create a
significantly different or enlarged problem.
17. Applicants state further that, under paragraph (b)(15) of Rules
6e-2 and 6e-3(T), the right of an insurance company to disregard the
voting instructions of Variable Contract owners does not raise any
issues different from those raised by the authority of state insurance
administrators over separate accounts, and that affiliation does not
eliminate the potential, if any, for divergent judgements as to the
advisability or legality of a change in investment policies, principal
underwriter, or investment adviser. Applicants state that the potential
for disagreement is limited by the requirements in Rules 6e-2 and 6e-
3(T) that the disregard of voting instructions by an insurance company
be reasonable and based on specific good faith determinations. If a
decision of a Participating Insurance Company to disregard the
instructions of Variable Contract owners represents a minority position
or would preclude a majority vote approving a particular change,
however, such Participating Insurance Company may be required, at the
election of the relevant Investment Company, to withdraw the investment
of its Separate Account in such Investment Company. No charge or
penalty will be imposed as a result of such withdrawal.
18. Applicants state that there is no reason why the investment
policies of the Investment Companies with mixed funding would or should
be materially different from what they would or should be if the
Investment Companies funded only variable annuity contracts or variable
life insurance policies. Each type of insurance product is designed as
a long-term investment program. Moreover, Applicants assert that the
Investment Companies will continue to be managed in an attempt to
achieve their investment objectives, and not to favor any particular
Participating Insurance Company or type of insurance product.
Applicants, therefore, argue that there is no reason to believe that
conflicts of interest would result from mixed funding.
19. In addition, Applicants assert that the sale of shares of the
Trust to Qualified Plans will not increase the potential for material
irreconcilable conflicts of interest between or among different types
of investors. Section 817 is the only section in the Code in which
separate accounts are discussed. Section 817(h) imposes certain
diversification standards on the underlying assets of variable annuity
and variable life insurance contracts. Treasury Regulation Sec. 1.817-
5(f)(iii) specifically permits ``qualified pension or retirement
plans'' and separate accounts to share the same underlying management
investment company. Applicants, therefore, have concluded that neither
the Code, nor the Treasury regulations or revenue rulings thereunder,
present any inherent conflicts of interest between or among qualified
pension or retirement plan participants and variable contract owners if
qualified pension and retirement plans and variable annuity and
variable life separate accounts invest in the same management
investment company.
20. Applicants assert that while there are differences in the
manner in which distributions are taxed for variable annuity and
variable life insurance contracts and Qualified Plans, these tax
consequences do not raise any conflicts of interest. When distributions
are made, and the Separate Account or the Qualified Plan is unable to
net purchase payments to make the distributions, the Separate Account
or the Qualified Plan will redeem shares of the Investment Companies at
their respective net asset value. The Qualified Plan then will make
distributions in accordance with the terms of the Plan, and a
Participating Insurance Company will surrender values from the Separate
Account into the general account to
[[Page 55339]]
make distributions in accordance with the terms of the Variable
Contract.
21. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving rights to Variable
Contract owners and participants in the Qualified Plans. In connection
with any meeting of shareholders, the Trust will inform each
shareholder, including each Separate Account and Qualified Plan, of the
information necessary for the meeting, including their respective share
of ownership in the Investment Companies. A Participating Insurance
Company will solicit voting instructions in accordance with the ``pass-
through'' voting requirement. Qualified Plans and Separate Accounts
each will have the opportunity to exercise voting rights with respect
to their shares in the Investment Companies, although only the Separate
Accounts are required to pass through their vote to contract owners.
The voting rights provided to Qualified Plans with respect to shares of
the Trust would be no different from the voting rights that are
provided to Qualified Plans with respect to shares of mutual funds sold
to the general public.
22. Applicants argue that the ability of the Investment Companies
to sell their shares directly to Qualified Plans does not create a
``senior security'' as defined by Section 18(g) of the 1940 Act. As
noted above, regardless of the rights and benefits of participants
under Qualified Plans, or Variable Contract owners under Variable
Contracts, the Qualified Plans and the Separate Accounts have rights
only with respect to their respective shares of the Investment
Companies. They can redeem such shares only at their net asset value.
No shareholder of the Investment Companies has any preference over any
other shareholder with respect to distribution of assets or payment of
dividends.
23. Applicants have determined that no conflicts of interest exist
between the Variable Contract owners of the Separate Accounts and
Qualified Plan participants with respect to the veto powers over
investment objectives of state insurance commissioners. The basic
premise of corporate democracy and shareholder voting is that not all
shareholders may agree with a particular proposal. State insurance
commissioners have been given veto power in recognition of the fact
that insurance companies usually cannot simply redeem their separate
accounts out of one Underlying Fund and invest in another. Generally,
time-consuming complex transactions must be undertaken to accomplish
such redemptions and transfers. Conversely, the trustee(s) of Qualified
Plans or the participants in participant directed Qualified Plans could
make the decision quickly and could implement the redemption of their
shares from the Investment Companies and reinvest in another funding
vehicle without the same regulatory impediments or, as is the case with
most Qualified Plans, even hold cash pending suitable investment.
24. Applicants state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of
participants under the Qualified Plans and owners of Variable Contracts
funded through Separate Accounts from possible future changes in the
federal tax laws than that which already exists between Variable
Contract owners.
25. Applicants assert that the requested relief is appropriate and
in the public interest because the relief will promote competitiveness
in the variable life insurance market. Various factors have limited the
number of insurance companies that offer variable insurance contracts.
These factors include the costs of organizing and operating a funding
medium, the lack of expertise with respect to investment management,
and the lack of name recognition by the public of certain insurers as
investment experts to whom the public feels comfortable entrusting
their investments. Applicants argue that use of Investment Companies as
common investment vehicles for Variable Contracts helps to alleviate
these concerns because Participating Insurance Companies benefit not
only from the investment and administrative expertise of the investment
adviser of the Trust, but also from the cost efficiencies and
investment flexibility afforded by a large pool of funds. Making the
Portfolios available for mixed and shared funding may encourage more
insurance companies to offer variable insurance contracts and,
accordingly, could result in increased competition with respect to both
variable insurance contract design and pricing, which can be expected
to result in more product variation and lower charges. Mixed and shared
funding also would benefit variable insurance contract owners by
eliminating a significant portion of the costs of establishing and
administering separate mutual funds. Furthermore, Applicants assert
that the sale of shares of the Investment Companies to Qualified Plans,
in addition to Separate Accounts of Participating Insurance Companies,
would result in an increased amount of assets available for investment
by the Investment Companies. This may benefit Variable Contract owners
by promoting economies of scale, by permitting increased safety of
investments through greater diversification, and by making the addition
of new portfolios more feasible.
26. Applicants assert that there is no significant legal impediment
to permitting mixed and shared funding. Separate accounts organized as
unit investment trusts historically have been employed to accumulate
shares of mutual funds which have not been affiliated with the
depositor or sponsor of the separate account, and Applicants believe
that mixed and shared funding will have no adverse federal income tax
consequences.
Applicants' Conditions
The Applicants have consented to the following conditions:
1. A majority of the Board of Trustees or Directors of each
Investment Company (``Board'') shall consist of persons who are not
``interested persons'' of such investment company, as defined by
Section 2(a)(19) of the 1940 Act and rules thereunder, and as modified
by any applicable orders of the Commission, except that, if this
condition is not met by reason of 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 as the Commission may prescribe by
order upon application.
2. The Boards will monitor the Investment Companies for the
existence of any material irreconcilable conflict between the contract
holders of all Separate Accounts and of participants of Qualified Plans
investing in the respective Investment Companies, 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) state insurance regulatory authority action; (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 the Investment Companies are being managed; (e) a
difference among voting instructions given by Variable Contract owners;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Variable Contract
[[Page 55340]]
owners; or (g) as appropriate, a decision by a Qualified Plan to
disregard the voting instructions of Qualified Plan participants.
3. Participating Insurance Companies and GEIM, or any other
investment manager of an Investment Company, and any Qualified Plan
that executes a fund participation agreement upon becoming an owner of
10 percent or more of the assets of the Investment Company
(collectively, ``Participants'') will report any potential or existing
conflicts, of which they become aware, to the relevant Board.
Participants will be obligated to assist the Board in carrying out its
responsibilities under these conditions by providing the Board with all
information reasonably necessary for it to consider any issues raised.
This responsibility includes, but is not limited to, an obligation by
each Participating Insurance Company to inform the relevant Board
whenever the voting instructions of Variable 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 an Investment Company under their
participation agreements, and those participation agreements shall
provide that such responsibilities will be carried out with a view only
to the interests of the Variable Contract owners or, as appropriate,
Qualified Plan participants.
4. If a majority of a Board, or a majority of its disinterested
members (``Independent Members''), determines that a material
irreconcilable conflict exists, the relevant Participant shall, at its
expense and to the extent reasonably practicable (as determined by a
majority of Independent Members), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, including:
(a) Withdrawing the assets allocable to some or all of the Separate
Accounts from the Portfolios and reinvesting those assets in a
different investment medium, which may include another portfolio of the
relevant Investment Company; (b) in the case of Participating Insurance
Companies, submitting the question whether such segregation should be
implemented to a vote of all affected Variable Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or Variable
Contract owners of one or more Participating Insurance Company) 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 or managed
separate account. If a material irreconcilable conflict arises because
of the decision of a Participating Insurance Company to disregard the
voting instructions of Variable Contract owners, and that decision
represents a minority position or would preclude a majority vote, such
Participating Insurance Company may be required, at the election of the
relevant Investment Company, to withdraw the investment of its Separate
Account therein. No charge or penalty will be imposed as a result of
such withdrawal. Likewise, and as appropriate, if a material
irreconcilable conflict arises because of a Qualified Plan's decision
to disregard Plan participant voting instructions, and that decision
represents a minority position or would preclude a majority vote, the
Qualified Plan may be required, at the election of the relevant
Investment Company, to withdraw its investment in the Investment
Company; 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 that an irreconcilable material conflict
exists and to bear the cost of such remedial action shall be a
contractual obligation of all Participants under their participation
agreements governing participation in the Investment Companies, and
these responsibilities will be carried out with a view only to the
interests of Variable Contract owners or, as appropriate Qualified Plan
participants.
5. A majority of Independent Members shall determine whether any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will the relevant Investment Company or GEIM
(or any other investment adviser of the Investment Companies) be
required to establish a new funding medium for any variable contract.
No Participating Insurance Company shall be required by this condition
to establish a new funding medium for any Variable Contract if an offer
to do so has been declined by a vote of a majority of Variable Contract
owners materially affected by the irreconcilable material conflict.
6. The determination by a Board of the existence of an
irreconcilable material conflict and its implications shall be made
known promptly in writing to all Participants.
7. Participating Insurance Companies 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 variable insurance contract owners. Accordingly, when
appropriate, such a Participating Insurance Company will vote shares of
a Portfolio held in its Separate Accounts in a manner consistent with
timely voting instructions received from Variable Contract owners. A
Participating Insurance Company also will vote shares of a Portfolio
held in its Separate Accounts for which no timely voting instructions
from Variable Contract owners are received, as well as shares it owns,
in the same proportion as those shares for which voting instructions
are received. Participating Insurance Companies shall be responsible
for assuring that each of their Separate Accounts investing in an
Investment Company calculates voting privileges in a manner consistent
with other Participating Insurance Companies. The obligation to
calculate voting privileges in a manner consistent with all other
Separate Accounts investing in an Investment Company shall be a
contractual obligation of all Participating Insurance Companies under
their participation agreements with the Investment Companies. Each
Qualified Plan will vote as required by applicable law and governing
Plan documents.
8. Each Investment Company will notify all Participants that
prospectus disclosure regarding potential risks of mixed and shared
funding may be appropriate. Each Investment Company shall disclose in
its prospectus that: (a) Its shares may be offered to insurance company
separate accounts of both variable annuity and variable life insurance
contracts and to Qualified Plans; (b) because of differences in tax
treatment or other considerations, the interests of Variable Contract
owners investing in the Investment Company and the interests of
Qualified Plans investing in the Investment Company may conflict; and
(c) its Board will monitor for any material conflicts and determine
what action, if any, should be taken.
9. All reports received by the Board regarding potential or
existing conflicts, and all action of the Board with respect to
determining the existence of a conflict, notifying Participants of a
conflict, and determining 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. Such minutes or
other records shall be made available to the Commission upon request.
10. If, and to the extent that, Rule 6e-2 or Rule 6e-3(T) is
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules thereunder with respect
[[Page 55341]]
to mixed and shared funding on terms and conditions materially
different from any exemptions granted in the order requested, then the
Investment Companies and/or the Participants, as appropriate, shall
take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
11. Each Investment Company 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
Investment Companies), and, in particular, will comply with Section
16(a) and, if and when applicable, Section 16(b). Further, each
Investment Company will act in accordance with the interpretation of
the Commission of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission
may adopt with respect thereto.
12. The Participants shall submit to the Boards, at least annually,
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 these stated conditions. 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 upon reasonable request of the Boards shall be a contractual
obligation of the Participant under its participation agreement with an
Investment Company.
13. None of the Investment Companies will accept a purchase order
from a Plan if such purchase would make the Plan an owner of 10 percent
or more of the assets of an Investment Company, unless such Qualified
Plan executes a fund participation agreement with such Investment
Company. A qualified Plan will execute an application containing an
acknowledgment of this condition upon its initial purchase of the
shares of an Investment Company.
Conclusion
For the reasons stated above, Applicants assert that the requested
exemptions are appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27390 Filed 10-24-96; 8:45 am]
BILLING CODE 8010-01-M
