[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6392-6397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3102]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23678; File No. 812-11302]
AAL Variable Product Series Fund, Inc., et al.; Notice of
Application
February 2, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order pursuant to section 6(c) of
the Investment Company Act of 1940 (``1940 Act'') granting relief from
sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder.
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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of
certain series of the AAL Variable Product Series Fund, Inc. that are
designed to fund insurance products (``Funds'') and shares of any other
investment company that is designed to fund insurance products and for
which Aid Association for Lutherans or any of its affiliates may serve
as investment adviser, administrator, manager, principal underwriter,
or sponsor (collectively with the Funds, the ``Insurance Product
Funds'') to be sold to and held by: (1) Separate accounts funding
variable annuity and variable life insurance contracts (``Separate
Accounts'') of both affiliated and unaffiliated life insurance
companies (``Participating Insurance Companies''); and (2) qualified
pension and retirement plans (``Plans'').
APPLICANTS: The AAL Variable Product Series Fund, Inc. (``Company'')
and Aid Association for Lutherans (``Adviser'').
FILING DATE: The application was filed on September 11, 1998, and
amended and restated on December 9, 1998.
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 SEC
and serving applicants with a copy of the request, personally or by
mail. Hearing requests must be received by the Commission by 5:30 p.m.
on March 1, 1999, and should be accompanied by proof of service on the
Applicants in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
may request notification of the date of a hearing by writing to the
Secretary of the SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington DC 20549. Applicants, 125 North Superior
Avenue, Appleton, Wisconsin 54911.
FOR FURTHER INFORMATION CONTACT:
Elisa D. Metzger, Senior Counsel, or Susan Olson, Branch Chief, 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 SEC, 450 Fifth Street, NW., Washington
DC 20549 (tel. (202) 942-8090).
Applicant's Representations
1. The Company is a Maryland corporation and is organized under the
1940 Act as a diversified, open-end management investment company. The
Company is comprised of seven series, each with its own investment
objective or objectives and policies.
2. The Company may in the future create additional series and/or
issue multiple classes of shares of each series.
3. The Adviser, is registered under the Investment Advisers Act of
1940 and is a non-profit, non-stock membership organization licensed to
do business as a fraternal benefit society.
4. Shares of the Funds may be offered to Separate Accounts, which
are either registered or unregistered under the federal securities
laws, that fund variable annuity contracts or variable life insurance
policies (``Contracts''). Shares of the Funds may also be offered to
Plans.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the
rules promulgated thereunder, if and to the extent that such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the 1940 Act.
2. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) under
the 1940 Act provides partial exemptions from sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act. The exemptions granted by Rule 6e-
2(b)(15) are available, however, only where 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 variable life insurance separate accounts of the life insurer, or of
any affiliated life insurance company'' (emphasis added). Therefore,
the relief granted by Rule 6e-2(b)(15) is not available with respect to
a scheduled premium variable life insurance separate account that owns
shares of a management company that also offers its shares to variable
annuity and variable life insurance separate accounts of the same
insurance company or any other insurance company or to trustees of a
Plan. The use of a common management investment company as the
underlying investment medium for a variable annuity or a variable life
insurance separate account of the same insurance company or of any
affiliated life insurance company is referred to herein as ``mixed
funding.'' In addition, the
[[Page 6393]]
relief granted by Rule 6e-2(b)(15) is not available if the scheduled
premium variable life insurance separate account owns shares of any
underlying investment company that also offers its shares to separate
accounts funding variable contracts of one or more unaffiliated life
insurance companies. The use of a common management company as the
underlying investment medium for separate accounts of unaffiliated life
insurance companies is referred to herein as ``shared funding.''
Furthermore, 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 management company that also offers its shares
to Plans.
3. In connection with the funding of flexible premium variable life
insurance contracts issued through a separate account registered under
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) under the
1940 Act provides partial exemptions from sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act. These exemptions, however, are available
only where 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 contracts or flexible contracts, or both; or which also offer
their shares to variable annuity separate accounts of the life insurer
or of an affiliated life insurance company'' (emphasis added).
Therefore, Rule 6e-3(T) grants the exemptions if the underlying fund
engages in mixed funding, subject to certain conditions, but not if it
engages in shared funding or sells its shares to Plans.
4. Applicants state that the current tax law permits the Insurance
Product Funds to increase their asset base through the sale of shares
to Plans. Section 817(h) of the Internal Revenue Code of 1986, as
amended (the ``Code''), imposes certain diversification standards on
the assets underlying the Contracts. The Code provides that such
Contracts will not be treated as annuity contracts or life insurance
contracts for any period (and any subsequent period) during which the
investments are not adequately diversified in accordance with
regulations prescribed by the Treasury Department (the
``Regulations''). Treasury Regulations provide that, to meet the
diversification requirements, all of the beneficial interests in an
investment company must be held by the segregated asset accounts of one
or more insurance companies. The Treasury Regulations do contain
certain exceptions to this requirement, however. One such exception
permits shares of an investment company to be held by the trustees of a
Plan without adversely affecting the ability of shares in the same
investment company also to be held by the separate accounts of
insurance companies in connection with their Contracts (Treas. Reg.
Sec. 1.817-5(f)(3)(iii)).
5. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) preceded the issuance of the Regulations. Thus, the sale
of shares 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), given the then-current tax law.
6. Moreover, Applicants assert that if the Insurance Product Funds
were to sell their shares only to 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 Plans or to the ability
of a registered investment company to sell its shares to Plans.
7. Section 9(a)(3) of the 1940 Act makes it 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 any disqualification specified in either
Sections 9(a)(1) or 9(a)(2) of the 1940 Act. Rules 6e-2(b)(15) (i) and
(ii) and 6e-3(T)(b)(15) (i) and (ii) provide partial exemptions from
section 9(a) under certain circumstances, subject to limitations on
mixed and shared funding. These exemptions limit the application of the
eligibility restrictions to affiliated individuals or companies that
directly participate in the management of the underlying fund.
8. Applicants state that the partial relief granted under Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of section 9, 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 submit that Rules 6e-2 and 6e-3(T)
recognize 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 who may be involved in an insurance
company complex, but who would have no involvement in matters
pertaining to investment companies funding the separate accounts.
Applicants assert, therefore, that there is no regulatory purpose in
denying the partial exemptions because of mixed and shared funding and
sales to Plans.
9. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide exemptions from the pass-through voting
requirement with respect to several significant matters, assuming the
limitations on mixed and shared funding are observed. More
specifically, Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting
instructions of its contract owners with respect to the investments of
an underlying investment company or any contract between the underlying
investment company and its investment adviser, when required to do so
by an insurance regulatory authority and subject to certain
requirements. In addition, Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contract owners' voting instructions if the contract owners initiate
any change in an underlying 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 Rules 6e-2 and 6e-3(T)).
10. Applicants assert that the offer and sale of shares of the
Insurance Product Funds to Plans will not have an impact on the relief
requested. Under Section 403(a) of the Employment Retirement Income
Security Act (``ERISA''), shares of the Insurance Product Funds sold to
Plans must be held by the trustees of the Plan. Section 403(a) also
provides that the trustee(s) must have exclusive authority and
discretion to manage and control the Plan with two exceptions:
(a) When the Plan expressly provides that the trustee(s) is (are)
subject to the direction of a named fiduciary who is not a trustee, in
which case the trustee(s) is (are) subject to proper directions made in
accordance with the terms of the Plan and not contrary to ERISA; and
(b) When the authority to manage, acquire or dispose of assets of
the Plan is delegated to one or more investment managers pursuant to
section 402(c)(3) of ERISA.
Unless one of the two above exceptions stated in section 403(a)
applies, Plan trustees have the exclusive authority and responsibility
for voting proxies.
11. Where a named fiduciary to a 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
[[Page 6394]]
fiduciary. In any event, Applicants assert that ERISA does not require
pass-through voting to participants in Plans. Some of the Plans,
however, may provide participants with the right to give voting
instructions.
12. Where a Plan provides participants with the right to give
voting instructions, Applicants assert 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 participants in
other Plans, would vote in a manner that would disadvantage Contract
owners. The purchase of shares of the Insurance Product Funds by Plans
that provide voting rights to participants does not present any
complications not otherwise occasioned by mixed and shared funding.
13. Applicants also maintain that no increased conflicts of
interest would be presented by the granting of the requested relief. In
this regard, Applicants assert that shared funding does not present any
issues that do not already exist where a single insurance company is
licensed to do business in several or all states. A particular state
insurance regulatory body could require action that is inconsistent
with the requirements of insurance regulators 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 is, in this respect, no
different than the use of the same investment company as the funding
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) permit under various circumstances. Affiliated insurers may
be domiciled in different states and be subject to differing state law
requirements. Affiliation does not reduce the potential, if any exists,
for differences in state regulatory requirements. In any event,
Applicants submit that the conditions set forth in the application and
included in this notice are designed to safeguard against, and provide
procedures for, resolving any adverse effects that differences among
state regulatory requirements may produce.
15. Applicants assert that the right of an insurance company under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to disregard contract owners'
voting instructions does not raise any issues different from those
raised by the authority of state insurance administrators over separate
accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can
disregard 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)
that an 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 owner voting
instructions. The insurer's action could be different from the
determination of all or some of the other insurers (including
affiliated insurers) that the contract owners' voting instructions
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, the
insurer may be required, at the election of the relevant Insurance
Product Fund, to withdraw its Separate Account's investment in that
Insurance Product Fund, and no charge or penalty would be imposed as a
result of such withdrawal.
17. Applicants submit that there is no reason why the investment
policies of the Insurance Product Funds would or should be materially
different from what those policies would or should be if the Insurance
Product Funds funded only annuity contracts or only scheduled or
flexible premium life contracts. In this regard, Applicants note that
each type of insurance product is designed as a long-term investment
program. In addition, Applicants represent that each Insurance Product
Fund will be managed to attempt to achieve the investment objective of
that Insurance Product Fund and not to favor or disfavor any particular
insurer or type of insurance product.
18. Furthermore, Applicants submit that no one investment strategy
can be identified as appropriate to a particular insurance product or
to a Plan. 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 fund supporting even one type of
insurance product must accommodate those factors in order to attract
and retain purchasers.
19. Applicants note that section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity
and variable life insurance contracts held in the portfolios of
management investment companies. The Regulations specifically permit
``qualified pension or retirement plans'' and insurance company
separate accounts to share the same underlying investment company. For
this reason, Applicants have concluded that neither the Code, nor the
Treasury Regulations, nor the revenue rulings thereunder, present any
inherent conflicts of interest of Plans, variable annuity separate
accounts, and variable life insurance separate accounts all invest in
the same management investment company.
20. Applicants note that while there are differences in the manner
in which distributions from variable annuity contracts, variable life
insurance contracts and Plans are taxed, the tax consequences do not
raise any conflicts of interest. When distributions are to be made, and
a Separate Account or Plan is unable to net purchase payments to make
the distributions, the Separate Account or the Plan will redeem shares
of the Insurance Product Fund at their net asset value. A Plan will
make distributions in accordance with the terms of the Plan, and the
Participating Insurance Company will make distributions in accordance
with the terms of the Contract.
21. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving voting rights to
Contract owners and to Plans. Applicants represent that the Insurance
Product Funds will inform each shareholder, including each Separate
Account and each Plan, of information necessary for the shareholder
meeting, including its respective share of ownership in the respective
Insurance Product Fund. Each Participating Insurance Company will then
solicit voting instructions in accordance with the ``pass-through''
voting requirement.
22. Applicants content that the ability of the Insurance Product
Funds to sell their shares directly to Plans does not crease a ``senior
security,'' as that term is defined in section 18(g) of the 1940 Act.
Regardless of the rights and benefits of participants under the Plans
or Contract owners under the Contracts, the Plans and the Separate
Accounts have rights only with respect to their respective shares of
the Insurance Product Funds. They can only redeem such shares at their
net asset value. No shareholder of any of the Insurance Product Funds
has any preference over any other shareholder with respect to
distribution of assets or payments of dividends.
23. Applicants submit that there are no conflicts between the
Contract
[[Page 6395]]
owners of the Separate Accounts and Plan participants with respect to
the state insurance commissions' veto powers over investment
objectives. State insurance commissioners have been given the veto
power in recognition of the fact that insurance companies usually
cannot simply redeem their separate accounts out of one fund and invest
another. Generally, time-consuming complex transactions must be
undertaken to accomplish such redemptions and transfers. Conversely,
trustees of Plans can make the decision quickly and redeem their
interest in an Insurance Product Fund and reinvest in another funding
vehicle without the same regulatory impediments faced by separate
accounts or, as is the case with most Plans, even hold cash pending
suitable investment. Based on the foregoing, Applicants have concluded
that even if there should arise issues where the interest of Contract
owners and the interests of participants in Plans are in conflict, the
issues can be resolved almost immediately because the trustees of Plans
can, on their own, redeem the shares out of the Insurance Product Fund.
24. Applicants assert that various factors have limited the number
of insurance companies that offer variable annuities and variable life
insurance contracts. These factors include the costs of organizing and
operating a funding medium, the lack of expertise with respect to
investment management (principally with respect to stock and money
market investments), and the lack of name recognition by the public of
certain insurers as investment experts. In particular, some smaller
life insurance companies may not find it economically feasible, or
within their investment or administrative expertise, to enter the
variable contract business on their own.
25. Applicants content that the use of the Insurance Product Funds
as common investment vehicles for variable contracts would reduce or
alleviate these concerns. Mixed and shared funding 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 the Adviser, but
also from the cost efficiencies and investment flexibility afforded by
a larger pool of assets. Therefore, making the Insurance Product Funds
available for mixed and shared funding will encourage more insurance
companies to offer variable contracts, and accordingly 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
Insurance Product Funds to Plans can also be expected to increase the
amount of assets available for investment by the Insurance Product
Funds and thus promote economies of scale and diversification.
Applicants' Conditions
Applicants Consent to the Following Conditions
1. A majority of the Board of each Insurance Product Fund shall
consist of persons who are not ``interested persons'' thereof, 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 Board Member or Members, than 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 remaining Board
Members; (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. The Board will monitor their respective Insurance Product Fund
for the existence of any material irreconcilable conflict among the
interests of the Contract owners of all Separate Accounts investing in
the Insurance Product Funds and of the Plans participants investing in
the Insurance Product Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) An action by any State insurance regulatory authority; (b) a change
in applicable Federal or State insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of the Insurance Product Funds are being managed; (e) a
difference in voting instructions given by variable annuity Contract
owners, variable life insurance Contract owners, and trustees of Plans;
(f) a decision by an insurer to disregard the voting instructions of
Contract owners; or (g) if applicable, a decision by a Plan to
disregard the voting instructions of Plan participants.
3. Participating Insurance Companies, the Adviser, and any Plan
that executes a fund participation agreement upon becoming an owner of
10 percent or more of the assets of an Insurance Product Fund (a
``Participating Plan''), will report any potential or existing
conflicts of which it becomes aware to the Board of any relevant
Insurance Product Fund. Participating Insurance Companies, the Adviser
and the Participating Plans will be responsible for assisting the Board
in carrying out its responsibilities under these conditions by
providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This responsibility includes, but
is not limited to, an obligation by each Participating Insurance
Company to inform the Board whenever voting instructions of Contract
owners are disregarded and, if pass-through voting is applicable, an
obligation by each 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 Board, will be contractual obligations of all Participating
Insurance Companies investing in the Insurance Product Funds under
their agreements governing participation in the Insurance Product
Funds, and such agreements shall provide that 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, will be contractual obligations of all
Participating Plans under their agreements governing participation in
the Insurance Product Funds, and such agreement will provide that their
responsibilities will be carried out with a view only to the interests
of Plan participants.
4. If it is determined by a majority of the Board of an Insurance
Product Fund, or by a majority of the disinterested Board Members, that
a material irreconcilable conflict exists, the relevant Participating
Insurance Companies and Participating Plans will, at their own expense
and to the extent reasonably practicable as determined by a majority of
the disinterested Board Members, take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps
could include: (a) In the case of Participating Insurance Companies,
withdrawing the assets allocable to some or all of the Separate
Accounts from the Insurance Product Fund or any portfolio thereof and
reinvesting such assets in a different investment medium,
[[Page 6396]]
including another portfolio of an Insurance Product Fund or another
Insurance Product Fund, or submitting the question as to whether such
segregation should be implemented to a vote of all affected Contract
owners and, as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity Contract owners 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; (b) in the
case of Participating Plans, withdrawing the assets allocable to some
or all of the Plans from the Insurance Product Fund and reinvesting
such assets in a different investment medium; and (c) 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 Insurance Product Fund's election, to withdraw the
insurer's Separate Account investment in such Insurance Product Fund,
and no charge or penalty will be imposed as a result of such
withdrawal. If a material irreconcilable 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 Insurance Product Fund's election, to withdraw its
investment in such Insurance Product Fund, and no charge or penalty
will be imposed as a result of such withdrawal. The responsibility to
take remedial action in the event of a determination by a Board of a
material irreconcilable conflict and to bear the cost of such remedial
action will be a contractual obligation of all Participating Insurance
Companies and Participating Plans under their agreements governing
participation in the Insurance Product Funds, and these
responsibilities will be carried out with a view only to the interest
of Contract owners and Plan participants.
5. For purposes of Condition 4, a majority of the disinterested
Board Members of the applicable Board will determine whether or not any
proposed action adequately remedies any material irreconcilable
conflict, but in no event will the relevant Insurance Product Fund or
the Adviser be required to establish a new funding medium for any
Contract. No Participating Insurance Company shall be required by
Condition 4 to establish a new funding medium for any 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 Participating Plan shall be required by Condition
4 to establish a new funding medium for any Participating 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 a Plan participant vote.
6. The determination of the Board of the existence of a material
irreconcilable conflict and its implications will be made known in
writing promptly to all Participating Insurance Companies and
Participating Plans.
7. Participating Insurance Companies will provide pass-through
voting privileges to Contract owners who invest in registered Separate
Accounts so long as and to the extent that the Commission continues to
interpret the 1940 Act as requiring pass-through voting privileges for
Contract owners. As to Contracts issued by unregistered Separate
Accounts, pass-through voting privileges will be extended to
participants to the extent granted by issuing insurance companies. Each
Participating Insurance Company will also vote shares of the Insurance
Product Funds held in its Separate Accounts for which no voting
instructions from Contract owners are timely received, as well as
shares of the Insurance Product Funds which the Participating Insurance
Company itself owns, in the same proportion as those shares of the
Insurance Product Funds for which voting instructions from contract
owners are timely received. Participating Insurance Companies will be
responsible for assuring that each of their registered Separate
Accounts participating in the Insurance Product Funds 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 registered Separate Accounts investing in the
Insurance Product Funds will be a contractual obligation of all
Participating Insurance Companies under their agreements governing
their participation in the Insurance Product Funds. Each Participating
Plan will vote as required by applicable law and governing Plan
documents.
8. All reports of potential or existing conflicts received by the
Board of an Insurance Product Fund and all action by such Board with
regard to determining the existence of a conflict, notifying
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
meetings of such Board or other appropriate records, and such minutes
or other records shall be made available to the Commission upon
request.
9. Each Insurance Product Fund will notify all Participating
Insurance Companies that separate disclosure in their respective
Separate Account prospectuses may be appropriate to advise accounts
regarding the potential risks of mixed and shared funding. Each
Insurance Product Fund shall disclose in its prospectus that (a) the
Insurance Product Fund is intended to be a funding vehicle for variable
annuity and variable life insurance contracts offered by various
insurance companies and for qualified pension and retirement plans; (b)
due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Insurance
Product Fund and/or the interests of Plans investing in the Insurance
Product Fund may at some time be in conflict; and (c) the Board of such
Fund 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. Each Insurance Product Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders (which, for these
purposes, will be the persons having a voting interest in the shares of
the Insurance Product Funds), and, in particular, the Insurance Product
Funds will either provide for annual shareholder meetings (except
insofar as 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 Insurance Product Funds are not the type of trust
described in 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 Insurance Product Fund will act in accordance
with the Commission's interpretation of the requirements of section
16(a) with respect to periodic elections of Board Members and with
whatever rules the Commission may promulgate with respect thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act
is amended, or proposed Rule 6e-3 under the 1940
[[Page 6397]]
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 the application, then the
Insurance Product Funds and/or Participating Insurance Companies and
Participating Plans, as appropriate, shall take such steps as may be
necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or
proposed Rule 6e-3, as adopted, to the extent that such Rules are
applicable.
12. The Participating Insurance Companies and Participating Plans
and/or the Adviser, at least annually, will submit to the Board such
reports, materials or data as the Board may reasonably request so that
the Board may fully carry out obligations imposed upon it by the
conditions contained in the application. Such reports, materials and
data will be submitted more frequently if deemed appropriate by the
Board. The obligations of the Participating Insurance Companies and
Participating Plans to provide these reports, materials and data to the
Board, when the Board so reasonably requests, shall be a contractual
obligation of all Participating Insurance Companies and Participating
Plans under their agreements governing participation in the Insurance
Product Funds.
13. If a Plan should ever become a holder of ten percent or more of
the assets of an Insurance Product Fund, such Plan will execute a
participation agreement with the Insurance Product Fund that includes
the conditions set forth herein to the extent applicable. A Plan will
execute an application containing an acknowledgment of this condition
upon such Plan's initial purchase of the shares of any Insurance
Product Fund.
Conclusion
For the reasons summarized above, Applicants submit that the
exemptive relief requested is necessary and 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. 99-3102 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M
