[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6397-6402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3101]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23677; File No. 812-11366]
Endeavor Series Trust, et al.; Notice of Application
February 2, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for exemptions from the
provisions of 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 an order to permit shares of
any current or future series of the Trust and shares of any other
investment company that is designed to fund insurance products or to
serve as an investment vehicle for qualified pension and retirement
plans and for which Endeavor or any of its affiliates may in the future
serve as investment adviser, administrator, manager, principal
underwriter or sponsor (the Trust and such other investment companies
are hereinafter referred to collectively as the ``Funds'') to be sold
to and held by (i) variable annuity and variable life insurance company
separate accounts of both affiliated and unaffiliated life insurance
companies (``Participating Insurance Companies'') and (ii) qualified
pension and retirement plans outside the separate account context
(``Plans'').
APPLICANTS: Endeavor Series Trust (``Trust'') and Endeavor Management
Co. (``Endeavor'' or ``Manager'').
FILING DATE: The application was filed on October 20, 1998, and amended
on December 21, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests must be received by the SEC by 5:30 p.m. on March 1, 1999, and
accompanied by proof of service on Applicants in the form of an
affidavit or, for lawyers, a certificate of service. Hearing requests
should state the nature of the writer's interest, the reason for the
request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the Secretary of the
SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, c/o Vincent J. McGuinness, Jr., President, Endeavor
Management Co., 2101 East Coast Highway, Suite 300, Corona del Mar,
California 92625.
FOR FURTHER INFORMATION CONTACT:
Elisa D. Metzger, Senior Counsel, or Susan M. Olson, Branch Chief,
Division of Investment Management, Office of Insurance Products, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Public Reference Branch of the SEC, 450 Fifth Street, NW,
Washington, DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust was organized on November 18, 1988 as a Massachusetts
business trust and is registered as an open-end management investment
company with the SEC. The Trust consists of multiple, separately
managed investment portfolios (``Portfolios'') and may in the future
issue shares of additional Portfolios.
2. Endeavor is registered under the Investment Advisers Act of
1940. Endeavor serves as Manager of the Trust. The Manager is
responsible for providing investment management and administrative
services to the Trust and in the exercise of such responsibility
selects other affiliated and unaffiliated registered investment
advisers (``Advisers'') for each of the Portfolios and monitors the
Advisers' investment programs and results, reviews brokerage matters,
oversees compliance matters and supervises the provision of services by
third parties such as the Trust's custodian. The Manager has entered
into or will enter into investment advisory agreements with the
Advisers that will be primarily responsible for the day-to-day
investment programs of each Portfolio. Vincent J. McGuinness, a trustee
of the Trust, together with his family members and trusts for the
benefit of his family members, owns all of Endeavor's outstanding
common stock.
3. The Funds (including the Trust) propose to offer shares of one
or more of their series to insurance company separate accounts that
fund variable annuity and variable life insurance contracts
(``Contracts'') established by Participating Insurance Companies. These
separate accounts may be registered as investment companies under the
Act or exempt from registration pursuant to Section 3(c)(l). Each
Participating Insurance Company will enter into a fund participation
agreement with the Funds in which the Participating Insurance Company
[[Page 6398]]
invests. Shares of the Trust are currently offered to variable annuity
separate accounts established by PFL Life Insurance Company and certain
of its affiliates.
4. The Funds also intend to offer shares of each series directly to
Plans outside of the separate account context. The Plans may choose
from one of several series of any of the Funds as the sole investment
under the Plan or as one of several investments. Plan participants may
or may not be given the right to select among Funds, depending on the
Plans. Plan participants include not only those participants of
qualified pension or retirement plans as set forth in Treasury
Regulation Sec. 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also
include the holders of annuity contracts described in sections 403(b)
of the Internal Revenue Code of 1986, as amended (``Code''), including
section 403(b)(7); holders of individual retirement accounts described
in section 408(b) of the Code; and holders of any other trust, account,
contract or annuity that is determined to be within the scope of
Regulation Sec. 1.817-5(f)(3)(iii).
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 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 Act. The relief provided by Rule 6e-2 is available to a separate
account's investment adviser, principal underwriter, and sponsor or
depositor. The exemptions granted by Rule 6e-2(b)(15) are available
only where the management investment company underlying the UIT offers
its shares ``exclusively to variable life insurance separate accounts
of the life insurer, or of any affiliated life insurance company.'' The
use of a common management investment company as the underlying
investment medium 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 variable annuity and variable life insurance
separate accounts 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 also are to be sold to Plans.
3. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the 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 Act. The exemptions granted to a
separate account by Rule 6e-3(T)(b)(15) are available only where all of
the assets of the separate account consist of the shares of one or more
registered management investment companies which offer their shares
``exclusively to separate accounts of the life insurer, or of any
affiliated life insurance company, offering either scheduled or
flexible contracts, or both; or which also offer their shares to
variable annuity separate accounts of the life insurer or of an
affiliated life insurance company.'' Thus, Rule 6e-3(T) permits mixed
funding, but does not permit shared funding.
4. Applicants state that because the relief under Rule 6e-3(T) is
available only where shares are offered exclusively to separate
accounts, additional relief is necessary if shares of the Funds also
are to be sold to Plans. Applicants assert that the relief granted by
paragraph (b)(15) of Rules 6e-2 and 6e-3(T) should not be affected by
the proposed sale of Fund shares to Plans because such sales may allow
for the development of larger pools of assets, resulting in the
potential for greater investment and diversification opportunities and
for decreased expenses at higher asset levels resulting in greater cost
efficiencies.
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 Code, imposes certain diversification requirements 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 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 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 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, and
to be sold directly to Plans. Relief is requested for a class or
classes of persons and transactions consisting of Participating
Insurance Companies and their scheduled premium variable life insurance
separate accounts and flexible premium variable life insurance accounts
(and, to the extent necessary, any investment adviser, principal
underwriter and depositor of such separate accounts) investing in any
of the Funds.
Disqualification
8. Section 9(a) of the Act provides that it is unlawful for any
company to serve as an investment adviser to or principal underwriter
for any registered open-end investment company if an affiliated person
of that company is subject to a disqualification enumerated in section
9(a)(1) or (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide exemptions
from
[[Page 6399]]
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
adviser or principal underwriter, provided that none of the insurer's
personnel who are ineligible pursuant to section 9(a) participate in
the management or administration of the 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 section 9.
Applicants state that those Rules recognize that it is not necessary
for the protection of investors or the purposes fairly intended by the
policy and provisions of the Act to apply the provisions of section
9(a) to the many individuals employed by the Participating Insurance
Companies, most of whom will have no involvement in matters pertaining
to investment companies within that organization. Applicants note that
the Participating Insurance Companies are not expected to play any role
in the management or administration of the Funds. Therefore, Applicants
assert, applying the restrictions of section 9(a) serves no regulatory
purpose. Applicants state 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).
Pass-Through Voting
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 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 Act to require such privileges.
11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 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 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 the voting
instructions of its Contract owners with respect to the investments of
an underlying fund, or any contract between a fund and its investment
adviser, when required to do so by an insurance regulatory authority.
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that the
insurance company may disregard voting instructions of its Contract
owners if the Contract owners initiate any change in the investment
company's investment policies, principal underwriter, or any investment
adviser, provided that disregarding such voting instructions is
reasonable and subject to the other provisions of paragraphs (b)(5)(ii)
and (b)(7)(ii)(B) and (C) of each Rule.
12. Applicants further state that shares of the Funds sold to Plans
will be held by the trustees of such Plans as required by section
403(a) of ERISA. Section 403(a) also provides that the trustees must
have exclusive authority and discretion to manage and control the Plan
with two exceptions: (a) when the Plan expressly provides that the
trustees are subject to the direction of a named fiduciary who is not a
trustee, in which case the trustees are subject to proper directions
made in accordance with the terms of the Plan and not contrary to
ERISA; and (b) when the authority to manage, acquire or dispose of
assets of the Plan is delegated to one or more investment managers
pursuant to section 402(c)(3) of ERISA. Unless one of the 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
irreconcilable material conflicts with respect to voting is not present
with Plans because the Plans are not entitled to pass-through voting
privileges. Applicants further assert that investments in the Funds by
Plans will not create any of the voting complications occasioned by
mixed and shared funding because Plan investor voting rights cannot be
frustrated by veto rights of insurers or state regulators.
13. Applicants state that some Plans may provide participants with
the right to give voting instructions. Applicants submit that there is
no reason to believe that participants in Plans generally, or those in
a particular Plan, either as a single group or in combination with
other Plans, would vote in a manner that would disadvantage Contract
owners. Accordingly, Applicants assert that the purchase of Fund shares
by Plans that provide voting rights to participants does not present
any complications not otherwise occasioned by mixed and shared funding.
Conflicts of Interest
14. Applicants state that no increased conflicts of interest would
be present by the granting of the requested relief. Applicants assert
that shared funding does not present any issues that do not already
exist where a single insurance company is licensed to do business in
several states. Applicants note that where different Participating
Insurance Companies are domiciled in different states, it is possible
that the state insurance regulatory body in a state in which one
Participating Insurance Company is domiciled could require action that
is inconsistent with the requirements of insurance regulators in one or
more other states in which other Participating Insurance Companies are
domiciled. Applicants submit that this possibility is no different or
greater than exists where a single insurer and its affiliates offer
their insurance products in several states.
15. Applicants further submit that affiliation does not reduce the
potential for differences in state regulatory requirements. In any
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15) discussed below) are designed to safeguard against any
adverse effects that these differences may produce. If a particular
state insurance regulator's decision conflicts with the majority of
other state regulators, the affected insurer may be required to
withdraw its separate account's investment in the relevant Funds.
16. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard Contract owner voting
instructions. Potential disagreement is limited by the requirement that
the Participating Insurance Company's disregard of voting instructions
be both reasonable and based on specified good faith determinations.
However, if a
[[Page 6400]]
Participating Insurance Company's decision to disregard Contract owner
instructions represents a minority position or would preclude a
majority vote approving a particular change, such Participating
Insurance Company may be required, at the election of the relevant
Fund, to withdraw its separate account's investment in that Fund. No
charge or penalty will be imposed as a result of such a withdrawal.
17. Applicants submit that there is no reason why the investment
policies of a Fund with mixed funding would, or should, be materially
different from what those policies would, or should, be if such
investment company or series thereof funded only variable annuity or
variable life insurance contracts. Applicants therefore argue that
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, Applicants represent that the funds will
not be managed to favor or disfavor any particular insurer or type of
Contract.
18. Section 817(h) of the Code imposes certain diversification
requirements on the underlying assets of variable annuity and variable
life insurance contracts held in the portfolios of management
investment companies. Treasury Regulation Sec. 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,
the Treasury regulations, nor the revenue rulings thereunder present
any inherent conflicts of interest if Plans, variable annuity and
variable life insurance separate accounts all invest in the same
management investment company.
19. 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 states 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 values. The Plan will then make distributions in accordance
with the terms of the Plan. The life insurance company will make
distributions in accordance with the terms of the variable contract.
20. Applicants state that they do not see any greater potential for
irreconcilable material conflicts arising between the interests of
participants under the Plans and owners of the Contracts issued by the
separate accounts of Participating Insurance Companies 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.
21. 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 a Fund will
inform each shareholder, including each separate account and Plan, of
information necessary for the shareholder meeting, including their
respective share ownership in the Fund. A Participating Insurance
Company will then solicit instructions in accordance with the ``pass-
through'' voting requirements of Rules 6e-2 and 6e-3(T).
22. 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 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 separate accounts have rights only with respect to their shares of
the Funds. Such shares may be redeemed only at net asset value. No
shareholder of any of the Funds has any preference over any other
shareholder with respect to distributions of assets or payment of
dividends.
23. Applicants state that there are no conflicts of interest
between Contract owners and participants under the Plans with respect
to the state insurance commissioners' veto powers over investment
objectives. The state insurance commissioners have been given the veto
power to prevent insurance companies indiscriminately redeeming their
separate accounts out of one fund and investing those monies in another
fund. Generally, to accomplish such redemptions and transfers, complex
and time consuming transactions must be undertaken. Conversely,
trustees of Plans or the participants in participant-directed Plans can
make the decision quickly and implement redemption of shares from a
Fund and reinvest the monies in another funding vehicle without the
same regulatory impediments or, as is the case with most Plans, even
hold cash pending a suitable investment. Based on the foregoing,
Applicants represent that even should there arise issues where the
interests of Contract owners and the interests of Plans and Plan
participants conflict, the issues can be almost immediately resolved in
that trustees of the Plans can, independently, redeem shares out of the
Funds.
24. Applicants state that various factors have kept certain
insurance companies from offering variable annuity and variable life
insurance contracts. According to Applicants, these factors include:
the cost of organizing and operating an investment funding medium; the
lack of expertise with respect to investment managers (principally with
respect to stock and money market investments); and the lack of public
name recognition as investment experts. Specifically, Applicants state
that smaller life insurance companies may not find it economically
feasible, or within their investment or administrative expertise, to
enter the Contract business on their own. Applicants argue the use of
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 Endeavor and the
Advisers, 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 such
Funds. This should, in turn promote economies of scale, permit
increased safety of investments through greater diversification, and
make the addition of new portfolio more feasible.
25. Applicants state that, regardless of the types of Fund
shareholders, Endeavor is legally obligated to manage the Funds in
accordance with each Fund's investment objectives, policies and
restrictions as well as any guidelines established by the relevant
Board of Directors or Trustees of the Funds. Applicants assert that
Endeavor works with a pool of money without consideration for the
identity of shareholders, and, thus, manages the Funds in the same
manner as any other mutual fund.
[[Page 6401]]
26. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding.
Applicants' Conditions
Applicants have consented to the following conditions if the order
requested in the application is granted:
1. A majority of the Trustees or Board of Directors (each, a
``Board'') of each Fund will consist of persons who are not
``interested persons'' thereof, as defined by section 2(a)(19) of the
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 death, disqualification, or bona fide resignation of any trustee(s)
or director(s), then the operation of this condition shall be
suspended: (a) For a period of 45 days if the vacancy or vacancies may
be filled by the Board; (b) for a period of 60 days if a vote of
shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
2. The Boards will monitor their respective Funds for the existence
of any irreconcilable material conflict between the interests of
Contract owners of all separate accounts and of Plan Participants and
Plans investing in the Funds, and determine what action, if any, should
be taken in response to such conflicts. An irreconcilable material
conflict may arise for a variety of reasons, which may include: (a) An
action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity and variable life insurance
Contract owners or trustees of Eligible Plans; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
Contract owners; and (g) if applicable, a decision by a Plan to
disregard the voting instructions of Plan participants.
3. The Manager, Advisers (or any other investment adviser of a
Fund), any Participating Insurance Company and any Plan that executes a
fund participation agreement upon becoming an owner of 10% or more of
the issued and outstanding shares of a Fund (such Plans referred to
hereafter as ``Participating Plans'') will report any potential or
existing conflicts to the Board of any relevant fund. The Manager,
Advisers (or any other investment adviser of a Fund), Participating
Insurance Companies and Participating Plans 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
includes, but it not limited to, an obligation by a Participating
Insurance Company to inform the Board whenever it has determined to
disregard Contract owner voting instructions and, if pass-through
voting is applicable, an obligation by a Participating 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 Boards, will be contractual obligations of
all Participating Insurance Companies and Participating Plans investing
in 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 and if
applicable, Plan participants.
4. If a majority of the Board of a Fund, or a majority of its
disinterested trustees or directors, determine that an irreconcilable
material conflict exists, the relevant Participating Insurance
Companies and Participating Plans, at their expense and to the extent
reasonably practical (as determined by a majority of the disinterested
trustees or directors), will take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict. Such steps
could include: (a) Withdrawing the assets allocable to some or all of
the separate accounts from the Fund or any series and reinvesting such
assets in a different investment medium, which may include another
series of a Fund or another Fund; (b) submitting the question of
whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity or variable life
insurance Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (c)
establishing a new registered management investment company or managed
separate account. If an irreconcilable material 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, the Participating
Insurance Company may be required, at the election of the Fund, to
withdraw its separate account's investment in such Fund, and no charge
or penalty will be imposed as a result of such withdrawal. If an
irreconcilable material conflict arises because of a Participating
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 Participating Plan may be required, at
the election of the Fund, to withdraw its investment in such Fund, and
no charge or penalty will be imposed as a result of such withdrawal. To
the extent permitted by applicable law, the responsibility of taking
remedial action in the event of a Board determination of an
irreconcilable material conflict and bearing the cost of such remedial
action will be a contractual obligation of all Participating Insurance
Companies and Participating Plans under their agreements governing
participation in the Funds, and these responsibilities will be carried
out with a view only to the interests of Contract owners and Plans
participants, as applicable.
For purposes of this Condition 4, a majority of the disinterested
members of the applicable Board will determine whether or not any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will a Fund, Manager, Advisers (or any other
investment adviser of the Funds) be required to establish a new funding
medium for any Contract. No Participating Insurance Company shall be
required by this Condition 4 to establish a new funding medium for any
Contract if a majority of Contract owners materially affected by the
irreconcilable material conflict, vote to decline such offer. No
Participating Plan shall be required by this Condition 4 to establish a
new funding medium for such Plan if (a) a majority of Plan participants
materially and adversely affected by the irreconcilable material
conflict vote to decline such offer, or (b) pursuant to governing plan
documents and applicable law, the Participating Plan makes such
decision without Plan participant vote.
5. The Manager, Advisers, all Participating Insurance Companies and
Participating Plans will be promptly informed in writing of any Board's
determination that an irreconcilable material conflict exists, and its
implications.
[[Page 6402]]
6. Participating Insurance Companies will provide pass-through
voting privileges to all Contract owners so long as the SEC interprets
the Act to require pass-through voting privileges for Contract owners.
Accordingly, the Participating Insurance Companies will vote shares of
a Fund held in their separate accounts in a manner consistent with
voting instructions received from Contract owners. Participating
Insurance Companies will be responsible for assuring that each of their
separate accounts calculates voting privileges in a manner consistent
with all other Participating Insurance Companies. The obligation to
calculate voting privileges in a manner consistent with all other
separate accounts investing in the Fund will be a contractual
obligation of all Participating Insurance Companies under the
agreements governing participation in the Fund. Each Participating
Insurance Company will vote shares for which it has not received voting
instructions as well as shares attributable to it in the same
proportion as it votes shares for which it has received instructions.
Each Participating Plan will vote as required by applicable law and
governing plan documents.
7. All reports of potential or existing conflicts of interest
received by a Board, and all Board action with regard to determining
the existence of a conflict, notifying the Manager, Advisers,
Participating Insurance Companies and Participating Plans of a
conflict, and determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of the
appropriate Board or other appropriate records, and such minutes or
other records shall be made available to the Commission upon request.
8. Each Fund will notify all Participating Insurance Companies that
separate account prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate. Each Fund will 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 Plans; (b) due to differences of tax treatment and
other considerations, the interests of various Contract owners
participating in the Fund and the interests of Plans investing in the
Fund may conflict; and (c) the Board will monitor events in order to
identify the existence of any material conflicts of interest and to
determine what action, if any, should be taken in response to any such
conflict.
9. Each Fund will comply with all the provisions of the 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 such Fund will either provide for annual meetings
(except to the extent that the SEC may interpret section 16 of the Act
not to require such meetings) or comply with section 16(c) of the Act
(although the Funds are not within the trusts described in section
16(c) of the Act) as well as section 16(a) and, if applicable, section
16(b) of the Act. Further, each Fund will act in accordance with the
SEC's interpretation of the requirements of section 16(a) with respect
to periodic elections of directors (or trustees) and with whatever
rules the SEC 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 Act is adopted) to provide exemptive relief
from any provisions of the Act or the rules promulgated 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, the Participating Insurance Companies
and Participating Plans, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rules 6e-3, as adopted, to the extent applicable.
11. No less than annually, the Manager, Advisers (or any other
investment adviser of a Fund), the Participating Insurance Companies
and Participating Plans shall submit to the Boards such reports,
materials, or data as such Boards may reasonably request so that the
Boards may carry out all 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
applicable Boards. The obligations of the Participating Insurance
Companies and Participating Plans to provide these reports, materials
and data to the Boards shall be a contractual obligation of all
Participating Insurance Companies and Participating Plans under the
agreements governing their participation in the Funds.
12. If a Plan or Plan participant shareholder should become an
owner of 10% or more of the issued and outstanding shares of a Fund,
such Plan will execute a participation agreement with such Fund
including the conditions set forth herein to the extent applicable. A
Plan or Plan participant shareholder will execute an application
containing an acknowledgment of this condition at the time of its
initial purchase of shares of the Fund.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the policy and provisions of the Act.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3101 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M
