[Federal Register Volume 63, Number 60 (Monday, March 30, 1998)]
[Notices]
[Pages 15236-15241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8200]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23073; File No. 812-10920]
The Guardian Insurance and Annuity Company, Inc. et al.
March 23, 1998.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 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 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(6)(15) thereunder.
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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of
The Guardian Cash Fund, Inc. and the other investment company
applicants listed below (``Existing Funds'') and any other investment
company that is designed to fund insurance products and for which
[[Page 15237]]
Guardian Investor Services Corporation or Guardian Baillie Gifford
Limited, or any of their affiliates, may serve as investment adviser,
administrator, manager, principal underwriter or sponsor (``Future
Funds,'' together with Existing Funds, ``Funds'') to be sold to and
held by: (a) variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(``Participating Insurance Companies''); and (b) qualified pension and
retirement plans outside the separate account context (``Qualified
Plans'').
APPLICANTS: The Guardian Insurance & Annuity Company, Inc. (``GIAC''),
The Guardian Separate Account B (``Account B''), The Guardian Separate
Account C (``Account C''), The Guardian Separate Account K (``Account
K''), The Guardian Separate Account M (``Account M'') (Accounts B, C, K
and M together, the ``Accounts''), The Guardian Cash Fund, Inc., The
Guardian Bond Fund, Inc., The Guardian Stock Fund, Inc., GIAC Funds,
Inc., Gabelli Capital Series Funds, Inc., Guardian Investor Services
Corporation (``GISC''), and Guardian Baillie Gifford Limited
(``GBGL'').
FILING DATE: The application was filed on December 23, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on April 17, 1998, 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 interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Richard T. Potter, Jr., Esq., The Guardian
Insurance & Annuity Company, Inc., 201 Park Avenue, New York, New York
10003.
FOR FURTHER INFORMATION CONTACT:
Joyce Merrick Pickholz, Senior Counsel, or Kevin M. Kirchoff, 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, N.W., Washington,
D.C. (tel. (202) 942-8090).
Applicants' Representations
1. GIAC, a wholly owned subsidiary of The Guardian Life Insurance
Company of America, is a stock life insurance company organized under
the laws of Delaware.
2. The Accounts are separate investment accounts established by
GIAC to fund variable life insurance contracts. Each Account is
registered under the 1940 Act as a unit investment trust and has
several investment divisions each of which invests in a designated
investment portfolio of an Existing Fund or other underlying fund or
trust.
3. The Existing Funds are Maryland corporations registered under
the 1940 Act as open-end diversified management investment companies.
The Guardian Cash Fund, Inc., The Guardian Bond Fund, Inc. and The
Guardian Stock Fund, Inc. each has authorized capital stock that
presently consists of one class of stock, but in the future may create
one or more additional classes of stock, each corresponding to a
portfolio of securities. GIAC Funds, Inc. is a diversified series
company that presently consists of three investment portfolios: The
Guardian Small Cap Stock Fund, Baillie Gifford International Fund and
Baillie Gifford Emerging Markets Fund Gabelli Capital Series Funds,
Inc. is also a diversified series company that presently has one
investment portfolio, the Gabelli Capital Asset Fund.
4. GISC is the investment adviser for The Guardian Cash Fund, Inc.,
The Guardian Bond Fund, Inc., The Guardian Stock Fund, Inc. and the
Guardian Small Cap Fund. GISC is a wholly owned subsidiary of GIAC and
is registered with the Commission as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act'').
5. GBGL, an investment management company registered under the laws
of Scotland, serves as the investment manager for Baillie Gifford
International Fund and Baillie Gifford Emerging Markets Fund. GBGL was
formed as a joint venture between GIAC and Baillie Gifford Overseas
Limited (``BG Overseas''). GIAC owns 51% and BG Overseas owns 49% of
the voting shares of GBGL. GB Overseas is an investment management
company incorporated in Scotland. Both GB Overseas and GBGL are
registered with the Commission as investment advisers under the
Advisers Act.
6. The Existing Funds currently offer their shares to GIAC as the
investment vehicle for its separate accounts supporting variable
annuity and variable life insurance contracts (``Variable Contracts'').
The Existing Funds intends to offer their shares to unaffiliated
insurance companies as the investment vehicle for their separate
accounts supporting variable annuity and variable life insurance
contracts (``Participating Separate Accounts'').
7. Each Participating Insurance Company has or will have the legal
obligation of satisfying all applicable requirements under both state
and federal law and each has or will enter into a participation
agreement with an Existing Fund on behalf of its Participating Separate
Account. The Existing Funds will offer shares to the Participating
Separate Accounts and fulfills any conditions that the Commission may
impose upon granting the order requested in the application.
8. The Funds also wish to increase their respective asset bases by
selling shares to qualified pension and retirement plans (``Qualified
Plans''). Existing Fund shares sold to the Qualified Plans would be
held by the Trustee of said Plans as required by Section 403(a) of the
Employee retirement and Security Act (``ERISA''). ERISA does not
require pass-through voting to be provided to participants in Qualified
Plans.
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust (``UIT''), Rule 6e-
2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a),
and 15(b) of the 1940 Act. The relief provided by Rule 6e-2 is
available to a separate account's investment adviser, principal
underwriter, and depositor. The exemptions provided under 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 is referred to as
``mixing funding.'' The use of a common investment company as the
underlying investment medium for separate accounts of unaffiliated
[[Page 15238]]
insurance companies is referred to as ``shared funding.'' The relief
provided under Rule 6e-2(b)(15) is not applicable to a scheduled
premium variable life insurance separate account that owns shares of an
underlying fund where the underlying fund offers its shares to a
variable annuity separate account of the same company or of any other
affiliated or unaffiliated life insurance company. Therefore, Rule 6e-
2(b)(15) does not provide exemptive relief for either mixed funding or
shared funding.
2. Applicants state that Rule 6e-2(b)(15) does not contemplate that
shares of the underlying fund might also be sold to Qualified Plans.
The use of a common management investment company as the underlying
investment medium for variable annuity and variable life separate
accounts of affiliated and unaffiliated insurance companies and
Qualified Plans is referred to as ``extended mixed and shared
funding.''
3. In connection with flexible premium variable life insurance
contacts issued through a separate account registered under the 1940
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act. The exemptions
provided under Rule 6e-3(T)(b)(15) are available only where 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 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.'' Therefore, Rule 6e-3(T) permits
mixed funding, but does not permits shares funding or extended mixed
and shares funding.
4. Applicants state that changes in the tax law have created the
opportunity for a Fund to increase its asset base through the sale of
its shares to Qualified Plans. Applicants state that Section 817(h) of
the Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification standards on the assets underlying Variable
Contracts. Specifically, the Code provides the Variable Contracts will
not be treated as annuity contracts or life insurance contracts for any
period in writing 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 ``Treasury Regulations''). The Treasury
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
Treasury Regulations, however, contain certain exceptions to this
requirement, one of which allows shares in an investment company to be
held by the trustee of a qualified pension or retirement plan without
adversely affecting the status of the investment company as an
adequately diversified underlying investment for Variable Contracts
issued through such segregated accounts.
5. Applicants state that the promulgation of Rules 63-2 and 6e-3(T)
under the 1940 Act preceded the issuance of these Treasury Regulations.
Applicants assert that, given the then current tax law, the sale of
shares of the same investment company to both separate accounts and
Qualified Plans could not have been envisioned at the time of the
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
6. Applicants therefore request relief from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder to the extent necessary to permit shares of the
Funds to be offered and sold to Qualified Plans and to variable annuity
and variable life separate accounts in connection with both mixed and
shared funding and extended mixed and shared funding.
7. Section 9(a) of the 1940 Act provides that it is unlawful for
any company to serve as 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)(i) and (ii) and 6e-3(T)(b)(15)(i) and
(ii) provide exemptions from Section 9(a) under certain circumstances,
subject to the limitations on mixed and shared funding. These
exemptions limit the disqualification to affiliated individuals or
companies that participate directly in the management or administration
of the underlying investment company.
8. Applicants state that the partial relief from Section 9(a) found
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount
of monitoring necessary to ensure compliance with Section 9 to that
which is appropriate in light of the policy and purposes of the
Section. Applicants state that those 1940 Act rules recognize that it
is not necessary 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
within that organization. Applicants note that neither the
Participating Insurance Companies nor the Qualified Plans are expected
to play any role in the management or administration of the Funds.
Therefore, Applicants assert, applying the restrictions of Section 9(a)
serves no regulatory purpose. The application states that the relief
requested should not be affected by the proposed sale of shares of the
Funds to Qualified Plans because the Plans are not investment companies
and are not, therefore, subject to Section 9(a) and it is not
anticipated that a Qualified Plan would be an affiliated person of a
Fund by virtue of its shareholders.
9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act assume the existence of a pass-through voting requirement with
respect to management investment company shares held by a separate
account. The application states that the Participating Insurance
Companies will provide pass-through voting privileges to all
contractowners so long as the Commission interprets the 1940 Act to
require such privileges.
10. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide
that the insurance company may disregard voting instructions of its
contractowners 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. Also, Rules 6e-
2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the
insurance company may disregard voting instructions of its
contractowners if the contractowners initiate any change in the
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)(15)(ii) and (b)(7)(ii)(B) and (C) of each rule.
11. Applicants represent that the sale of Fund shares to Qualified
Plans does not affect the relief requested in this regard. Shares of
the Funds sold to Qualified Plans would be held by the trustees of such
Qualified Plans as required by Section 403(a) of ERISA. Section 403(a)
also provides that the trustee(s) must have exclusive authority and
discretion to manage and control the Qualified Plan with two
exceptions: (a) when the Qualified Plan expressly provides that the
trustee(s) is (are) subject to the direction of a named
[[Page 15239]]
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
Qualified Plan and not contrary to ERISA; and (b) when the authority to
manage, acquire or dispose of assets of the Qualified Plan is delegated
to one or more investment managers pursuant to Section 402(c)(3) of
ERISA. Unless one of the two exceptions stated in Section 403(a)
applies, Qualified 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 Qualified Plans.
Accordingly, Applicants note that, unlike the case with insurance
company separate accounts, the issue of the resolution of material
irreconcilable conflicts with respect to voting is not present with
such Qualified Plans. However, Applicants state that some Qualified
Plans may provide for the trustee, an investment adviser or other named
fiduciary to exercise voting rights in accordance with instructions
from participants. Where a Qualified Plan provides participants with
the right to give voting instructions, the Applicants see no reason why
such participants would vote in a manner that would disadvantage
variable contract holders. Applicants submit that the purchase of Fund
shares by Qualified Plans that provide voting rights does not present
any complications not otherwise occasioned by mixed or shared funding.
12. Applicants state that no increased conflicts of interest would
be present by the granting of the requested relief. Applicants assert
that shared funding does not present any issues that do not already
exist where a single insurance company is licensed to do business in
several, or all, states. Applicants note that where insurers are
domiciled in different states, it is possible that the state insurance
regulatory body in a state in which one insurance company is domiciled
would require action that is inconsistent with the requirements of
insurance regulators in other states in which other insurance companies
are domiciled. Applicants submit that the fact that a single insurer
and its affiliates offer their insurance products in several states
does not create a significantly different or enlarged problem.
13. Applicants further submit that affiliation does not reduce the
potential for differences among state regulatory requirements. In any
event, the conditions set forth 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 Fund.
14. Applicants also state that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to the
advisability or legality of a change in investment policies, principal
underwriter, or investment adviser initiated by owners of the Variable
Contracts. Potential disagreement is limited by the requirement that
the Participating Insurance Company's disregard of voting instructions
be both reasonable and based on specified good faith determinations.
However, if a Participating Insurance Company's decision to disregard
contractowner 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 a
Fund, to withdraw its investment in that Fund. No charge or penalty
will be imposed as a result of such withdrawal.
15. Applicants state that there is no reason why the investment
policies of a Fund would or should be materially different from what
those policies would or should be if that Fund served as a funding
medium for only variable annuity or only variable life insurance
contracts. Moreover, Applicants represent that the Funds will not be
managed to favor or disfavor any particular insurance company or type
of Variable Contract.
16. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of Variable
Contracts held in the portfolios of management investment companies.
However, the Treasury Regulation which established diversification
requirements for such portfolios, specifically permits ``qualified
pension or retirement plans'' and separate accounts to invest in the
same underlying management investment company. Therefore, Applicants
have concluded that neither the Code, or the Treasury Regulations or
the Revenue Rulings thereunder present any inherent conflicts of
interest if Qualified Plans, variable annuity separate accounts and
variable life insurance separate accounts all invest in the same
management investment company.
17. Applicants state that while there are differences in the manner
in which distributions are taxed for variable annuity and variable life
insurance contracts and Qualified Plans, these tax consequences do not
raise any conflicts of interest. When distributions are to be made, and
the Separate Account or the Qualified Plan is unable to net purchase
payments to make the distributions, the Separate Account or the
Qualified Plan will redeem shares of a Fund at their net asset value.
The Qualified Plan will then make distributions in accordance with the
terms of the Qualified Plan and Participating Insurance Company will
make distributions in accordance with the terms of the Variable
Contract.
18. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving such voting rights to
Participating Separate Account contractowners and to the trustees of
Qualified Plans. Applicants represent that the Funds will inform each
Participating Insurance Company and Qualified Plan of information
necessary for the meeting, including their respective share ownership
in the relevant Fund. Each Participating Insurance Company will then
solicit voting instructions in accordance with Rules 6e-2 and 6e-3(T)
and its participation agreement with a fund. Shares held by qualified
plans will be voted in accordance with applicable law.
19. Finally, Applicants state that there are no conflicts between
contractowners and participants under the Qualified Plans with respect
to the state insurance commissioners' veto powers over investment
objectives. The basic premise of shareholder voting is that not all
shareholders may agree with a particular proposal. This does not mean
that there are inherent conflicts of interest between shareholders. The
state insurance commissioners have been given the veto power in
recognition of the fact that an insurance company cannot simply request
redemption of shares held in its separate account and have those shares
redeemed out of one Fund and the proceeds invested in another Fund.
Generally, to accomplish such redemptions and transfers, complex and
time consuming transactions must be undertaken. In contrast, trustees
of Qualified Plans or participants in participant directed Qualified
Plans can make the decision quickly and implement the 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
Qualified Plans, even hold cash pending suitable investment. Based on
the foregoing, Applicants represent that even should there arise issues
where the interests of countractowners and the
[[Page 15240]]
interests of Qualified Plans conflict, the issues can be almost
immediately resolved because the trustees of the Qualified Plans can,
independently, redeem shares out of the Funds.
20. Applicants state that various factors have limited the number
of insurance companies that offer 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 management; and the lack
of name recognition by the public of certain insurers as investment
professions. Applicants contend that use of the Fund as common
investment media for the Variable Contracts would ease these concerns.
Participating Insurance Companies would benefit not only form the
investment and administrative expertise of GISC and GBGL, 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 contracts such as the Variable 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 represent
that contractowners 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 Qualified Plans should increase the amount of
assets available for investment by the Funds. This should, in turn,
promote economies of scale, permit increased safety of investments
through greater diversification.
Applicants' Conditions
Applicants have consented to the following conditions if an order
is granted:
1. A majority of the Board of Directors of a Fund (``Board'') shall
consist of persons who are not ``interested persons'' of the Fund, as
defined by Section 2(a)(19) of the 1940 Act and the rules thereunder
and as modified by any applicable orders of the Commission, except
that, if this condition is not met by reason of the death,
disqualification, or bona fide resignation of any trustee or director,
then the 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 Commission may prescribe by order upon application.
2. Each Board will monitor its respective Fund for the existence of
any material irreconcilable conflict among the interests of the
contractowners of all Participating Separate Accounts and of
participants of Qualified Plans investing in the Fund 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 judicial decision in any relevant proceeding; (d) the
manner in which the investments of the Fund are managed; (e) a
difference in voting instructions given by variable annuity
contractowners and variable life insurance contractowners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contractowners; or (g) if applicable, a decision by a
Qualified Plan to disregard the voting instructions of plan
participants.
3. The Participating Insurance Companies, GISC and GBGL and any
Qualified Plan that executes a fund participation agreement upon
becoming an owner of 10% or more of the assets of a Fund (the
``Participants''), will report any potential or existing conflicts to
the applicable Board. Participants 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 contractowner voting instructions
are disregarded, and, if pass-through voting is applicable, an
obligation by each Participant 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 Participants under
their agreements governing participation in the Funds and such
agreements, in the case of Participating Insurance Companies, shall
provide that such responsibilities will be carried out with a view only
to the interests of contractowners and for Qualified Plans, that these
responsibilities will be carried out with a view only to the interest
of Plan participants.
4. If it is determined by a majority of the Board, or by a majority
of its disinterested directors, that a material irreconcilable conflict
exists, the relevant Participants shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested directors), 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
Participating Separate Accounts from a Fund and reinvesting such assets
in a different investment medium, which may include another portfolio
of that Fund, or submitting the question of whether such segregation
should be implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity contractowners or variable life insurance
contractowners of one or Variable Contractowners of one or more
Participants) that votes in favor of such segregation, or offering to
the affected contractowners 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 Participating Insurance Company's decision to disregard 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 a Fund, to withdraw its separate account's
investment in that Fund, 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 Fund, to withdraw its investment in
such Fund, and no charge or penalty will be imposed as a result of such
withdrawal.
5. The responsibility to take remedial action in the event of a
Board determination of an material irreconcilable conflict and to bear
the cost of such remedial action shall be a contractual obligation of
all Participants under the agreements governing their participation in
the Funds and, in the case of Participating Insurance Companies, will
be carried out with a view only to the interest of contractowners and,
in the case of
[[Page 15241]]
Qualified Plans, will be carried out with a view only to the interests
of plan participants. A majority of the disinterested members of the
Board shall determine whether any proposed action adequately remedies
any material irreconcilable conflict, but, in no event will a Fund,
GISC or GBGL be required to establish a new funding medium for any
Variable Contract. Further, no Participating Insurance Company shall be
required to establish a new funding medium for any Variable Contracts
if an offer to do so has been declined by a vote of a majority of
contractowners materially and adversely affected by the material
irreconcilable conflict. Also, no Qualified Plan will be required to
establish a new funding medium for the Plan if: (a) a majority of the
plan participants materially and adversely affected by the material
irreconcilable conflict vote to decline such offer, or (b) pursuant to
documents governing the Qualified Plan, the Plan makes each decision
without a plan participant vote.
6. A Board's determination of the existence of an irreconcilable
material conflict and its implications will be made known promptly and
in writing to all Participants.
7. Participating Insurance Companies will provide pass-through
voting privileges to all contractowners to the extent that the
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for contractowners. Accordingly, the
Participating Insurance Companies will vote shares of a Fund held in
their separate accounts in a manner consistent with voting instructions
timely received from contractowners. Each Participating Insurance
Company will vote shares of a Fund held in its separate accounts for
which no voting instructions from contractowners are timely received,
as well as shares of that Fund which the Participating Insurance
Company itself owns, in the same proportion as those shares of the Fund
for which voting instructions from contractowners are timely received.
Participating Insurance Companies will be responsible for assuring that
each of their separate accounts participating in a Fund calculates
voting privileges in a manner consistent with other Participating
Insurance Companies. The obligation to calculate voting privileges in a
manner consistent with all other separate accounts will be a
contractual obligation of all Participating Insurance Companies under
the agreements governing their participation in the Funds. Each
Participating Plan will vote as required by applicable Plan documents.
8. All reports received by a Board of potential or existing
conflicts, and all Board action with regard to: (a) determining the
existence of a conflict; (b) notifying Participants of the existence of
a conflict; and (c) determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of the
appropriate Board or other appropriate records. Such minutes or other
records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that
separate account prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate. Further, each Fund will
disclose in its prospectus that (a) shares of the Fund may be offered
to insurance company separate accounts funding both variable annuity
and variable life insurance contracts, and to Qualified Plans; (b) due
to differences of tax treatment and other considerations, the interest
of various contractowners participating in such Fund and the interest
of Qualified Plans investing in the Fund may conflict; and (c) the
Board will monitor the Fund for any material conflicts and determine
what action, if any, should be taken.
10. Each Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders (which, for these purposes, shall be
the persons having a voting interest in the shares of a Fund), and, in
particular, each Fund will either provide for annual meetings (except
to the extent that the Commission may interpret Section 16 of the 1940
Act not to require such meetings) or comply with Section 16(c) of the
1940 Act, (although the Fund is not within the type of trusts described
in Section 16(c) of the 1940 Act), as well as with Section 16(a), and,
if applicable, Section 16(b) of the 1940 Act. Further, each Fund will
act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the Commission may promulgate with
respect thereto.
11. If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940
Act are amended (or if Rule 6e-3 is adopted) to provide exemptive
relief from any provision of the 1940 Act or the rules thereunder with
respect to mixed and shared funding on terms and conditions materially
different from any exemptions granted in the order requested by
Applicants, then the Funds and/or the Participants, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
12. No less frequently than annually, the Participants shall submit
to the relevant Board such reports, materials, or data as that Board
may reasonably request so that the Board may fully carry out the
obligations contained in these express conditions. Such reports,
materials, and data shall 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 shall be a contractual
obligation under the agreements governing their participation in the
Fund.
13. A Fund will not accept a purchase order from a Qualified Plan
if such purchase would make the Plan an owner of 10% or more of the
assets of such Fund unless the Plan executes a fund participation
agreement with the relevant Fund including the conditions set forth
above to the extent applicable. A Plan will execute an application
containing an acknowledgment of this condition at the time of its
initial purchase of Fund shares.
Conclusion
For the reasons and upon the facts summarized above, Applicants
assert that the requested exemptions are appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8200 Filed 3-27-98; 8:45 am]
BILLING CODE 8010-01-M
