99-27730. SEI Insurance Products Trust, et al.; Notice of Application  

  • [Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
    [Notices]
    [Pages 57493-57499]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-27730]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    
    [Rel. No. IC-24089; File No. 812-11722]
    
    
    SEI Insurance Products Trust, et al.; Notice of Application
    
    October 18, 1999.
    AGENCY: Securities and Exchange Commission (the ``Commission'').
    
    ACTION: Notice of application for an order under Section 6(c) of the 
    Investment Company Act of 1940 (``1940 Act'') granting exemptive relief 
    from Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rules 6e-
    2(b)(15) and 6e-3(T)(b)(15) thereunder.
    
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    SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
    necessary to permit shares of the SEI Insurance Products Trust (the 
    ``Trust'') and shares of any other investment company or portfolio that 
    is designed to fund insurance products and for which SEI Investments 
    Management Corporation (``SIMC''), or any of its affiliates, may serve 
    in the future, as investment adviser, administrator, manager, principal 
    underwriter, or sponsor (``Future Trusts'', together with Trust, 
    ``Trust'') to be sold to and held by (i) separate accounts funding 
    variable annuity and variable life insurance contracts issued by both 
    affiliated and unaffiliated life insurance companies, (ii) qualified 
    pension and retirement plans outside of the separate account context, 
    (iii) separate accounts that are not registered as investment companies 
    under the 1940 Act pursuant to exemptions from registration under 
    Section 3(c) of the 1940 Act, and (iv) SIMC or any of its affiliates 
    (representing seed money in any of the Trusts).
    
    APPLICANTS: The Trust and SIMC.
    
    FILING DATE: The application was filed on July 26, 1999, and amended 
    and restated on October 7, 1999. Applicants represent that they will 
    file an amended and restated application during the notice period to 
    conform to the representations set forth herein.
    
    HEARING OF NOTIFICATION OF HEARING: An order granting the application 
    will be issued unless the Commission orders a hearing. Interested 
    persons may request hearing by writing to the Secretary of the 
    Commission and serving Applicants with copy of the request, personally 
    or by mail. Hearing requests must be received by the Commission by 5:30 
    p.m. on November 12, 1999, 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 Fifth 
    Street, NW, Washington, DC 20549-0609. Applicants c/o Todd B. 
    Cipperman, Esq., SEI Investments Management Corporation, Oaks, 
    Pennsylvania 19546.
    
    FOR FURTHER INFORMATION CONTACT: Keith E. Carpenter, Senior Counsel, or 
    Kevin M. Kirchoff, Branch Chief, Office
    
    [[Page 57494]]
    
    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, 450 Fifth Street, NW 
    Washington, DC (tel (202) 942-8090).
    
    Applicants' Representations
    
        1. The Trust is a Massachusetts business trust and is registered 
    under the 1940 Act as an open-end management investment company. The 
    Trust currently consists of 13 separate portfolio (``Funds''). Each 
    Fund has its own investment objective or objectives, and policies.
        2. SIMC serves as the investment manager to the Trust, and operates 
    as a ``manager of managers.'' SIMC is registered as an investment 
    adviser under the Investment Advisers Act of 1940, and is a wholly 
    owned subsidiary of SEI Investments Company.
        3. Applicants state that, upon the granting of the exemptive relief 
    requested by the Application, the Trust intends to offer shares 
    representing interests in each Fund, and any other portfolio 
    established by the Trust (``Future Portfolio'') (Fund, together with 
    Future Portfolios, ``Portfolios'' or each a ``Portfolio''), to separate 
    accounts of both affiliated and unaffiliated insurance companies to 
    serve as the investment vehicle for variable annuity contracts and 
    variable life insurance contracts (collectively referred to herein as 
    ``Variable Contracts''). The Insurance Companies that elect to purchase 
    shares of one or more Portfolios are collectively referred to herein as 
    ``Participating Insurance Companies.'' The Participating Insurance 
    Companies will establish their own separate accounts (``Separate 
    Accounts'') and design their own variable contracts. Applicants also 
    propose that the Trust offer and sell shares representing interests in 
    its Portfolios directly to qualified pension and retirement plans 
    (``Qualified Plans'' or ``Plans'') outside of the separate account 
    context.
    
    Applicants' Legal Analysis
    
        1. Applicants request an order pursuant to Section 6(c) of the 1940 
    Act exempting them 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 Trusts to be offered and sold 
    to, and held by: (1) Both variable annuity and variable life insurance 
    separate accounts of the same life insurance company or of any 
    affiliated life insurance company (``mixed funding''); (2) Separate 
    accounts of unaffiliated life insurance companies (including both 
    variable annuity separate accounts and variable life insurance separate 
    accounts) (``shared funding''); (3) trustees of Qualified Plans; (4) 
    separate accounts that are not registered as investment companies under 
    the 1940 Act pursuant to exemptions from registration under Section 
    3(c) of the 1940 Act, and (5) SIMC or any of its affiliates 
    (representing seed money in any of the Trusts).
        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) 
    provides partial exemptions form Sections 9(a), 13(a), 15(a), and 15(b) 
    of the 1940 Act. These exemptions are available only if the separate 
    account is organized as a unit investment trust, all the assets of 
    which consist of the shares of one or more registered management 
    investment companies which offer their shares exclusively to variable 
    life insurance separate accounts of the life insurer or of any 
    affiliated life insurer. Thus, the exemptions provided by Rule 6e-2 are 
    not available if a scheduled premium variable life insurance separate 
    account owns shares of an underlying fund that also offers its shares 
    (i) to a variable annuity separate account or a flexible premium 
    variable life insurance separate account of the same insurance company, 
    (ii) to an unaffiliated life insurance company, or (iii) to an 
    investment manager that is unaffiliated with a Participating Insurance 
    Company (representing seed money shares). In addition, the relief 
    granted by Rule 6e-2(b)(15) is not available if the scheduled premium 
    variable life insurance separate account owns shares of an underlying 
    fund that also offers its shares to Qualified Plans.
        3. Rule 6e-3(T)(b)(15) provides similar partial exemptions in 
    connection with flexible premium variable life insurance contracts 
    issued through a separate account registered under the 1940 Act as a 
    unit investment trust. These exemptions, however, are available only if 
    all 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 
    premium variable life insurance contacts or flexible premium variable 
    life insurance 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, the exemptions provided by 
    Rule 6e-3(T)(b)(15) are available if the underlying fund is engaged in 
    mixed funding, but are not available if the fund is engaged in shared 
    funding, sells seed money shares to an unaffiliated person of a 
    Participating Insurance Company or sells shares to Qualified Plans.
        4. Applicants state that current tax law permits the Trust to 
    increase its asset base through the sale of its 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, such as those in each Fund. 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, to meet these diversification requirements, all of the 
    beneficial interests in the investment company must be held by the 
    segregated asset accounts of one or more life insurance companies. 
    Notwithstanding this, the Regulations also contain an exception to this 
    requirement that permits trustees of a qualified pension or retirement 
    plan to hold shares of an investment company, the shares of which are 
    also held by insurance company segregated asset accounts, without 
    adversely affecting the status of the investment company as an 
    adequately diversified underlying investment for Variable Contracts 
    issued through such segregated asset accounts (Treas. Reg. 1.817-
    5(f)(3)(iii)).
        5. The promulgation of Rules 6e-2 and 6e-3(T) preceded the issuance 
    of these Regulations. Applicants state that, given the then-current tax 
    law, the sale of shares of the same investment company to both the 
    separate accounts of insurers and to Qualified Plans could not have 
    been envisioned at the time of the adoption of Rules 6e-2(b)(5) and 6e-
    3(T)(b)(15).
        6. Section 9(a)(3) of the 1940 Act provides, among other things, 
    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
    
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    person of that company is subject to a disqualification enumerated in 
    Sections 9(a)(1) or (2) of the 1940 Act. Rules 6e-2(b)(15)(i) and (ii) 
    and Rules 6e-3(T)(b)(15)(i) and (ii) under the 1940 Act provide 
    exemptions from Section 9(a) under certain circumstances, subject to 
    the limitations on mixed and shared funding imposed by the 1940 Act and 
    the rules thereunder. These exemptions limit the application of the 
    eligibility restrictions to affiliated individuals or companies that 
    directly participate in the management of the underlying management 
    company.
        7. 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, 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 Section 9. 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 companies in 
    that organization. Applicants state that it is unnecessary to apply 
    Section 9(a) to individuals in various unaffiliated Participating 
    Insurance Companies (or affiliated companies of Participating Insurance 
    Companies) that may utilize the Trusts as the funding medium for 
    Variable Contracts. According to Applicants, there is no regulatory 
    purpose in extending the Section 9(a) monitoring requirements because 
    of mixed or shared funding. The Participating Insurance Companies and 
    Qualified Plans are not expected to play any role in the management or 
    administration of the Trusts. Moreover, those individuals who 
    participate in the management or administration of the Trusts will 
    remain the same regardless of which Separate Accounts, or Qualified 
    Plans use the Trusts. Applicants argue that applying the monitoring 
    requirements of Section 9(a) because of investment by other insurers' 
    separate accounts would be unjustified and would not serve any 
    regulatory purpose. Further, the increased monitoring costs would 
    reduce the net rates of return realized by contract owners.
        8. Applicants also state that in the case of Qualified Plans, the 
    Plans, unlike the 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 an 
    affiliated person of any of the Trusts by virtue of its shareholders.
        9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(iii) under the 1940 Act 
    provide exemptions from the pass-through voting requirement with 
    respect to several significant matters, assuming that the limitations 
    on mixed and shared funding imposed by the 1940 Act and the rules 
    promulgated thereunder are observed.
        10. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act give 
    the Participating Insurance Companies the right to disregard voting 
    instructions of contract owners. Rules 6e-2(b)(15)(iii)(A) and 6e-
    3(T)(b)(15)(iii)(A) each provide that the insurance company may 
    disregard the voting instructions of its contract owners with respect 
    to the investments of an underlying fund, or any contract between a 
    fund and its investment adviser, when required to do so by an insurance 
    regulatory authority (subject to the provisions of paragraphs (b)(5)(i) 
    and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T) under the 1940 Act). Rules 
    6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) each provide that the 
    insurance company may disregard voting instructions of contract owners 
    if the contract owners initiate any change in the underlying investment 
    company's investment policies, principal underwriter, or any investment 
    adviser (subject to the provisions of paragraphs (b)(5)(ii), 
    (b)(7)(ii)(B), and (b)(7)(ii)(C) of Rules 6e-2 and 6e-3(T) under the 
    1940 Act). Applicants represent that these rights do 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 voting instructions of contract 
    owners only with respect to certain specified items. Applicants also 
    note that the potential for disagreement among Separate Accounts is 
    limited by the requirements in Rules 6e-2 and 6e-3(T) that a 
    Participating Insurance Company's disregard of voting instructions be 
    reasonable and based on specific good faith determinations.
        11. Applicants further represent that the offer and sale of 
    Portfolio shares to Qualified Plans will not have any impact on the 
    relief requested in this regard. With respect to the Qualified Plans, 
    which are not registered as investment companies under the 1940 Act, 
    there is 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 ERISA, shares of a portfolio 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: (1) When the Plan expressly provides that the trustee(s) 
    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 
    (2) 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.
        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.
        Where a Qualified Plan does not provide participants with the right 
    to give voting instructions, Applicants do not see any potential for 
    material irreconcilable conflicts of interest between or among variable 
    contract owners and Plan investors with respect to voting of the 
    respective Portfolio'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.
        12. Some Qualified Plans, however, may provide participants with 
    the right to give voting instructions. Applicants note that there is 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 contract owners. Applicants, therefore, 
    submit that the purchase of shares of the Portfolios by Qualified Plans 
    that provide voting rights does not present
    
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    any complications not otherwise occasioned by mixed or shared funding.
        13. Applicants state that no increased conflicts of interest would 
    be presented by the granting of the requested relief. 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. 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 
    policies. The fact that different insurers may be domiciled in 
    different states does not create a significantly different or enlarged 
    problem.
        14. Applicants submit that shared funding by unaffiliated insurers, 
    in this respect, is no different that 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) under the 1940 Act permit. Affiliated 
    insurers may be domiciled in different states and be subject to 
    differing state law requirements. Affiliated does not reduce the 
    potential, if any exists, for differences in state regulatory 
    requirements. In any event, Applicants state that the conditions set 
    forth below are designed to safeguard against, and provide procedures 
    for resolving, any adverse effects that differences among state 
    regulatory requirements may produce. If a particular state insurance 
    regulator's decision conflicts with the majority of other state 
    regulators, then the affected insurer will be required to withdraw its 
    Separate Account's investment in the Portfolios. This requirement will 
    be provided for in agreements that will be entered into by 
    Participating Insurance Companies with respect to their participation 
    in the relevant Portfolio.
        15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act give 
    the insurance company the right to disregard the voting instructions of 
    the contract owners. This right 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 contract owner voting instructions only with 
    respect to certain specified items. 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 adviser initiated by contract owners. The 
    potential for disagreement is limited by the requirements in Rules 6e-2 
    and 6e-3(T) under the 1940 Act that the insurance company's disregard 
    of voting instructions be reasonable and based on specific good-faith 
    determinations.
        16. A particular insurer's disregard of voting instructions, 
    nevertheless, could conflict with the majority of contract owners' 
    voting instructions. The insurer's action possibly could be different 
    than the determination of all or some of the other insurers (including 
    affiliated insurers) that the voting instructions of contract owners 
    should prevail, and either could 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, then 
    the insurer may be required, at the relevant Trust's election, to 
    withdraw its Separate Account's investment in such Portfolio, and no 
    charge or penalty will be imposed as a result of such withdrawal. This 
    requirement will be provided for in the agreements entered into with 
    respect to participation by the Participating Insurance Companies in 
    the Portfolios.
        17. Applicants submit that there is no reason why the investment 
    policies of the Portfolios would or should be materially different from 
    what these policies would or should be if the Portfolios funded only 
    variable annuity contracts or variable life insurance policies, whether 
    flexible premium or scheduled premium policies. Each type of insurance 
    product is designed as a long-term investment program. Each Portfolio 
    will be managed to attempt to achieve the investment objective or 
    objectives of such Portfolio, and not to favor or disfavor any 
    particular Participating Insurance Company or type of insurance 
    product.
        18. Furthermore, Applicants assert that no one investment strategy 
    can be identified as appropriate to a particular insurance period. Each 
    pool of variable annuity and variable life insurance contract owners is 
    composed of individuals of diverse financial status, age, insurance, 
    and investment goals. A Portfolio supporting even one type of insurance 
    product must accommodate these diverse factors in order to attract and 
    retain purchasers. Permitting mixed and shared funding will provide 
    economic justification for the continuation of the relevant Portfolio. 
    Mixed and shared funding will broaden the base of contract owners which 
    will facilitate the establishment of additional portfolios serving 
    diverse goals.
        19. Applicants do not believe that the sale of the shares of the 
    Portfolios 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 contract owners.
        20. As noted above, Section 817(h) of the Code 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. The Code provides that a variable 
    contract shall not be treated as an annuity contract or life insurance, 
    as applicable, for any period (and any subsequent period) for which the 
    investments are not, in accordance with Regulations, adequately 
    diversified.
        21. Regulations issued under Section 817(h) provide that, to meet 
    the statutory diversification requirements, all of the beneficial 
    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 allows shares in an 
    underlying mutual fund to be held by the trustees of a qualified 
    pension or retirement plan without adversely affecting the ability of 
    shares in the underlying fund also to be held by separate accounts of 
    insurance companies in connection with their variable contracts. 
    (Treas. Reg. 1.817-5(f)(3)(iii)). Thus, the Regulations specifically 
    permit ``qualified pension or retirement plans'' and separate accounts 
    to invest in the same portfolio of an underlying fund. For this reason, 
    Applicants assert that neither the Code, nor the Regulations, nor the 
    Revenue Rulings thereunder, present any inherent conflicts of interest.
        22. 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 Trusts. When 
    distributions are to be made, and a Separate Account or a Qualified 
    Plan is unable to net purchase payments to make the distributions, the 
    Separate Account and Qualified Plan will redeem shares of the relevant 
    Portfolio at their respective net asset value in conformity with Rule 
    22c-1 under the 1940 Act (without the imposition of any sales charge) 
    to provide proceeds to meet distribution needs. A Participating 
    Insurance Company then will make distributions in accordance with the 
    terms of its Variable Contract, and a Qualified Plan then will make 
    distributions in accordance with the terms of the Plan.
        23. Applicants state that it is possible to provide an equitable 
    means of giving
    
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    voting rights to contract owners in the Separate Accounts and to 
    Qualified Plans. In connection with any meeting of shareholders, the 
    Trusts will inform each shareholder, including each Separate Account 
    and Qualified Plan, of information necessary for the meeting, including 
    their respective share of ownership in the relevant Portfolio. Each 
    Participating Insurance Company then will solicit voting instructions 
    in accordance with Rule 6e-2 and 6e-3(T), as applicable, and its 
    participation agreement with the relevant Trust. 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 
    Trusts 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.
        24. Applicants submit that the ability of the Portfolios to sell 
    their shares directly to Qualified Plans does not create a ``senior 
    security'' as such term is defined under Section 18(g) of the 1940 Act. 
    ``Senior security'' is defined under Section 18(g) of the 1940 Act to 
    include ``any stock of a class having priority over any other class as 
    to distribution of assets or payment of dividends.'' As noted above, 
    regardless of the rights and benefits of participants under Qualified 
    Plans, or contract owners under Variable Contracts, the Qualified Plans 
    and the Separate Accounts only have rights with respect to their 
    respective shares of the Portfolios. They only can redeem such shares 
    at net asset value. No shareholder of the Portfolios has any preference 
    over any other shareholder with respect to distribution of assets or 
    payment of dividends.
        25. Applicants assert that there are no conflicts between the 
    contract owners of the Separate Accounts and participants under the 
    Qualified Plans with respect to the state insurance commissioners' veto 
    powers over investment objectives. Applications note that the basic 
    premise of corporate democracy and shareholder voting is that not all 
    shareholders may agree with a particular proposal. Although the 
    interests and opinions of shareholders may differ, this does not mean 
    that inherent conflicts of interest exist between or among such 
    shareholders. State insurance commissioners have been given the veto 
    power in recognition of the fact that insurance companies usually 
    cannot simply redeem their separate accounts out of one fund and invest 
    in another . Generally, time-consuming, complex transactions must be 
    undertaken to accomplish such redemptions and transfers.
        26. 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 Portfolios 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.
        27. Applicants also assert that there is no greater potential for 
    material irreconcilable conflict arising between the interest of 
    participants in the Qualified Plans and contract owners of the Separate 
    Accounts from future changes in the federal tax laws than that which 
    already exist between variable annuity contract owners and variable 
    life insurance contract owners.
        28. Applicants state that various factors have kept more insurance 
    companies from offering variable annuity and variable life insurance 
    contracts than currently offer such 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 
    with whom the public feels comfortable entrusting their investment 
    dollars. Use of a Portfolio as a common investment media for variable 
    contracts would reduce or eliminate these concerns. Mixed and shared 
    funding also should provide several benefits to variable contract 
    owners by eliminating a significant portion of the costs of 
    establishing and administering separate funds. Participating Insurance 
    Companies will benefit not only from the investment and administrative 
    expertise of SIMC, but also from the cost efficiencies and investment 
    flexibility afforded by a large pool of funds. Mixed and shared funding 
    also would permit a greater amount of assets available for investment 
    by a Portfolio, thereby promoting economics of scale, by permitting 
    increased safety through greater diversification, or by making the 
    addition of new Portfolios more feasible. Therefore, making the 
    Portfolios available for mixed and shared funding will encourage more 
    insurance companies to offer variable contracts, and this should 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 also assert that the sale of shares of 
    the Portfolios to Qualified Plans in addition to the Separate Accounts 
    will result in an increased amount of assets available for investment 
    by such Portfolios. 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.
        29. Applicants see 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. As noted above, Applicants assert that 
    mixed and shared funding will have any adverse Federal income tax 
    consequences.
    
    Applicants' Conditions
    
        Applicants have consented to the following conditions:\1\
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        \1\ Applicants agree that in the event SEI Insurance Products 
    Trust, or any other Trust, operates as a ``feeder'' in a ``master/
    feeder'' structure, such Trust shall insure that, to the extent 
    necessary, the ``master,'' as well as such Trust, will comply with 
    the conditions hereof.
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        1. A majority of the Board of each Trust will consist of persons 
    who are not ``interested persons'' of such Trust, 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 trustees, then the operation of this 
    condition will 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 Trust for the existence 
    of any material irreconcilable conflict between the interests of the 
    contract owners of all Separate Accounts and participants of all 
    Qualified Plans investing in such Trust, 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 
    interpretative letter, or any similar action by insurance, tax, or 
    securities regulatory authorities; (c) an administrative or
    
    [[Page 57498]]
    
    judicial decision in any relevant proceeding; (d) the manner in which 
    the investments of such Trust are being managed; (e) a difference in 
    voting instructions given by variable annuity contract owners, variable 
    life insurance contract owners, and trustees of the Plans; (f) a 
    decision by a Participating Insurance Company to disregard the voting 
    instructions of contract owners; or (g) if applicable, a decision by a 
    Qualified Plan to disregard the voting instructions of Plan 
    participants.
        3. Participating Insurance Companies, SIMC or an affiliate, and any 
    Qualified Plan that executes a participation agreement upon becoming an 
    owner of 10 percent or more of the assets of any Portfolio 
    (collectively, the ``Participants'') will report any potential or 
    existing conflicts to the relevant Board. Participants will be 
    responsible for assisting the relevant Board in carrying out the 
    Board's responsibilities under these conditions by providing the Board 
    with all information reasonably necessary for the Board to consider any 
    issues raised. This includes, but is not limited to, an obligation by 
    each Participating Insurance Company to inform the relevant Board 
    whenever contract owner voting instructions are disregarded, and, if 
    pass-through voting is applicable, an obligation by each Qualified Plan 
    to inform the Board whenever it has determined to disregard Plan 
    participant voting instructions. The responsibility to report such 
    information and conflicts, and to assist the Board, will be a 
    contractual obligation of all Participating Insurance Companies under 
    their participation agreements with the Trusts, and these 
    responsibilities will be carried out with a view only to the interests 
    of the contract owners. The responsibility to report such information 
    and conflicts, and to assist the Board, also will be contractual 
    obligations of all Qualified Plans with participation agreements, and 
    such agreements will provide that these 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 
    the disinterested trustees of such Board, that a material 
    irreconcilable conflict exists, then the relevant Participant will, at 
    its expense and to the extent reasonably practicable (as determined by 
    a majority of the disinterested trustees), take whatever steps are 
    necessary to remedy or eliminate the material irreconcilable conflict, 
    up to and including: (a) Withdrawing the assets allocable to some or 
    all of the Separate Accounts from the relevant Portfolio and 
    reinvesting such assets in a different investment medium, including 
    another Portfolio, or in the case of insurance company participants 
    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., 
    annuity contract owners or life insurance 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 (b) establishing a new registered management 
    investment company or managed separate account. If a material 
    irreconcilable conflict arises because of a decision by a Participating 
    Insurance Company to disregard contract owner voting instructions, and 
    that decision represents a minority position or would preclude a 
    majority vote, then the insurer may be required, at the election of the 
    relevant Trust, to withdraw such insurer's Separate Account's 
    investment in such Trust, 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 represents a 
    minority position or would preclude a majority vote, the Plan may be 
    required, at the election of the relevant Trust, to withdraw its 
    investment in such Trust, 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 will be a 
    contractual obligation of all Participants under their agreements 
    governing participation in the Trusts, and these responsibilities will 
    be carried out with a view only to the interests of contract owners and 
    Plan participants.
        For purposes of this Condition 4, a majority of the disinterested 
    members of a Board will determine whether or not any proposed action 
    adequately remedies any material irreconcilable conflict, but, in no 
    event, will any Trust, SIMC, or SIMC's affiliate, as relevant, be 
    required to establish a new funding medium for any variable contract. 
    No Participating Insurance Company will be required by this Condition 4 
    to establish a new funding medium for any variable contract if any 
    offer to do so has been declined by vote of a majority of the contract 
    owners materially and adversely affected by the material irreconcilable 
    conflict. Further, no Qualified Plan will be required by this Condition 
    4 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 such 
    decision without a Plan participant vote.
        5. A Board's determination of the existence of a material 
    irreconcilable conflict and its implications will be made known in 
    writing promptly to all Participants.
        6. As to Variable Contracts issued by Separate Accounts registered 
    under the 1940 Act, Participating Insurance Companies will provide 
    pass-through voting privileges to all contract owners as required by 
    the 1940 Act. However, as to Variable Contracts issued by unregistered 
    Separate Accounts, pass-through voting privileges will be extended to 
    contract owners to the extent granted by the issuing insurance company. 
    Accordingly, such Participants, where applicable, will vote shares of 
    the applicable Portfolio held in its Separate Accounts in a manner 
    consistent with voting instructions timely received from contract 
    owners. Participating Insurance Companies will be responsible for 
    assuring that each Separate Account investing in a Portfolio calculates 
    voting privileges in a manner consistent with other Participants. The 
    obligation to calculate voting privileges as provided in this 
    Application will be a contractual obligation of all Participating 
    Insurance Companies under their agreement with the Trusts governing 
    participation in a Portfolio. 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 and governing Plan documents.
        7. As long as the 1940 Act requires pass-through voting privileges 
    to be provided to variable contract owners, SIMC or any of its 
    affiliates will vote its shares of any Fund in the same proportion of 
    all variable contract owners having voting rights with respect to that 
    Fund; provided, however, that SIMC or any of its affiliates shall vote 
    its shares in such other manner as may be required by the Commission or 
    its staff.
        8. Each Trust will comply with all provisions of the 1940 Act 
    requiring voting by shareholders, and, in particular, each Trust will 
    either provide for annual meetings (except to
    
    [[Page 57499]]
    
    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 Trusts are not one of the trusts described in the 
    Section 16(c) of the 1940 Act), as well as with Section 16(a) of the 
    1940 Act and, if and when applicable, Section 16(b) of the 1940 Act. 
    Further, each Trust will act in accordance with the Commission's 
    interpretation of the requirements of Section 16(a) with respect to 
    periodic elections of trustees and with whatever rules the Commission 
    may promulgate with respect thereto.
        9. The Trusts will notify all Participants that separate account 
    prospectus disclosure regarding potential risks of mixed and shared 
    funding may be appropriate. Each Trust will disclose in its prospectus 
    that (a) Shares of such Trust may be offered to insurance company 
    separate accounts of both variable annuity and variable life insurance 
    contracts and to Qualified Plans, (b) due to differences in tax 
    treatment and other considerations, the interests of various contract 
    owners participating in such Trust and the interests of Qualified Plans 
    investing in such Trust may conflict, and (c) the Trust's Board of 
    Trustees will monitor events in order to identify the existence of any 
    material irreconcilable conflicts and to determine what action, if any, 
    should be taken in response to any such conflict.
        10. If and to the extent that Rule 6e-2 and rule 6e-3(T) under the 
    1940 Act are amended, or proposed Rule 6e-3 under the 1940 Act is 
    adopted, to provide exemptive relief from any provision of the 1940 
    Act, or the rules promulgated thereunder, with respect to mixed or 
    shared funding, on terms and conditions materially different from any 
    exemptions granted in the Order requested in this Application, then the 
    Trusts and/or Participating Insurance Companies, as appropriate, shall 
    take such steps as may be necessary to comply with Rules 6e-2 and 6e-
    3(T), or Rule 6e-3, as such rules are applicable.
        11. The Participants, at least annually, will submit to the Board 
    of each Trust such reports, materials, or data as a Board reasonably 
    may request so that the trustees of the Board may fully carry out the 
    obligations imposed upon a Board by the conditions contained in this 
    Application, and said reports, materials, and data will be submitted 
    more frequently if deemed appropriate by a Board. The obligations of 
    the Participants to provide these reports, materials, and data to a 
    Board, when it so reasonably requests, will be a contractual obligation 
    of all Participants under their agreements governing participation in 
    the Portfolios.
        12. All reports of potential or existing conflicts received by a 
    Board, and all Board action with regard 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 relevant Board or other 
    appropriate records, and such minutes or other records shall be made 
    available to the Commission upon request.
        13. The Trusts will not accept a purchase order from a Qualified 
    Plan if such purchase would make the Plan shareholder an owner of 10 
    percent or more of the assets of such Portfolio unless such Plan 
    executes an agreement with the relevant Trust governing participation 
    in such Portfolio that includes the conditions set forth herein to the 
    extent applicable. A Plan will execute an application containing an 
    acknowledgment of this condition at the time of its initial purchase of 
    shares of any Portfolio.
    
    Conclusion
    
        For the reasons stated above, Applicants believe that the requested 
    exemptions, in accordance with the standards of Section 6(c), 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. 99-27730 Filed 10-22-99; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
10/25/1999
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of application for an order under Section 6(c) of the Investment Company Act of 1940 (``1940 Act'') granting exemptive relief from Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rules 6e- 2(b)(15) and 6e-3(T)(b)(15) thereunder.
Document Number:
99-27730
Dates:
The application was filed on July 26, 1999, and amended and restated on October 7, 1999. Applicants represent that they will file an amended and restated application during the notice period to conform to the representations set forth herein.
Pages:
57493-57499 (7 pages)
Docket Numbers:
Rel. No. IC-24089, File No. 812-11722
PDF File:
99-27730.pdf