[Federal Register Volume 63, Number 45 (Monday, March 9, 1998)]
[Notices]
[Pages 11463-11469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5892]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23054; File No. 812-10914]
St. Clair Funds, Inc. et al.; Notice of Application
March 2, 1998.
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 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)(b)(15) thereunder.
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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of
capital stock of certain series of St. Clair Funds, Inc. (the
``Funds'') or any other investment company (the Funds and such other
investment companies referred to collectively as the ``Insurance
Product Funds'') for which Munder Capital Management or any of its
affiliates may in the future serve as manager, investment adviser,
administrator, principal underwriter or sponsor to be sold to and held
by separate accounts (``Separate Accounts'') funding variable annuity
and variable life insurance contracts issued by both affiliated and
unaffiliated life insurance companies (``Participating Insurance
Companies''); and qualified pension and retirement plans outside of the
separate account context (``Plans''). Applicants: St. Clair Funds, Inc.
(the ``Company'') and Munder Capital Management (the ``Advisor'').
FILING DATES: The application was filed on December 22, 1997, and
amended on February 3, 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 on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on March 27, 1998, and must 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 requester'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, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Cynthia Surprise, Esq., State Street Bank and
Company, Legal Division, 1776 Heritage Drive, Mail Stop AFB4, North
Quincy, Massachusetts 02171.
FOR FURTHER INFORMATION CONTACT:
Laura A. Novack, Senior Attorney, 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
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Company is a Maryland corporation and is registered under
the 1940 Act as an open-end management investment company. It currently
consists of eleven separate series which operate as distinct investment
vehicles, five of which are Funds. The Company may in the future issue
shares of additional series and/or multiple classes of shares of each
Fund.
2. The Advisor is organized as a Delaware general partnership, the
partners of which are Woodbridge Capital Management, Inc.
(``Woodbridge''), WAM Holdings, Inc. (``WAM''), Old MCM, Inc. and
Munder Group, LLC. Woodbridge and WAM are wholly-owned subsidiaries of
Comerica Bank--Ann Arbor, which in turn is a wholly-owned subsidiary of
Comerica Inc., a publicly-held bank holding company. The Advisor serves
as
[[Page 11464]]
investment advisers to each of the Funds.
3. The Company initially intends to offer Fund shares to variable
annuity and variable life insurance separate accounts established by
Kemper Investors Life Insurance Company (``Kemper''). The Company may
offer Fund shares to Separate Accounts of additional insurance
companies, including insurance companies that are not affiliated with
Kemper, to serve as the investment medium for variable annuity
contracts and variable life insurance policies (including single
premium, scheduled premium, and flexible premium contracts)
(collectively, ``Contracts''). These Separate Accounts may or may not
be registered under the federal securities laws.
4. The Participating Insurance Companies will establish their own
Separate Accounts and design their own Contracts. Each Participating
Insurance Company will have the legal obligation of satisfying all
applicable requirements under the federal securities laws.
5. The Company also may offer shares of the Insurance Product Funds
to Plans described in Treasury Regulation Sec. 1.817-5(f)(3)(iii) and
Revenue Ruling 94-62.
6. The Plans may choose one or more of the Insurance Product 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
Insurance Product Funds, depending on the Plan itself. The trustees of
such Plans will hold the Fund shares, as required by Section 403(a) of
the Employee Retirement Income Security Act of 1974, as amended
(``ERISA''). The trustee or custodian of each Plan will have the legal
obligation of satisfying all requirements applicable to such Plan under
the federal securities laws.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act granting exemptive relief from Sections
9(a), 15(a) and 15(b) thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to: (a) permit ``mixed'' and
``shared'' funding as defined below; and (b) allow shares of the
Insurance Product Funds to be sold to Plans.
2. Section 6(c) authorizes the Commission to exempt any person,
security or transaction, or any class or classes of persons,
securities, or transactions, from the provisions of the 1940 Act, or
the rules 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.
3. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15)
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. These exemptions are available only where the
management investment company underlying the separate account offers
its shares ``exclusively to variable life insurance separate accounts
of the life insurer or of any affiliated life insurance company.''
4. The use of a common management investment company as the
underlying investment medium for both variable annuity and flexible
premium variable life insurance separate accounts of the same life
insurance company or of any affiliated life insurance company is
referred to as ``mixed funding.'' The use of a common management
company as the underlying investment medium for variable annuity or
variable life insurance separate accounts of one insurance company and
separate accounts funding variable contracts of one or more
unaffiliated life 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 also
offers its shares to a variable annuity separate account of the same
company or any other affiliated or unaffiliated company. Therefore,
Rule 6e-2(b)(15) precludes mixed and shared funding.
5. The relief granted by Rule 6e-2(b)(15) also 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.
6. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the 1940
Act, Rule 6e-3(T)(b)(15) provides partial exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, similar to those provided
by Rule 6e-2. 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 premium variable life
insurance contracts or flexible premium variable life insurance
contracts, or both, or which offer their shares to variable annuity
separate accounts of the life insurer or of an affiliated life
insurance company. Thus, Rule 6e-3(T)(b)(15) permits mixed funding with
respect to a flexible premium variable life insurance separate account,
but precludes shared funding or selling to Plans.
7. 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 underlying assets of the Contracts. The Code provides that such
Contracts shall not be treated as an annuity contract or life insurance
contract for any period during which the investments are not adequately
diversified in accordance with regulations prescribed by the Treasury
Department. 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 regulations do contain certain
exceptions to this requirement, however, one of which permits shares of
an investment company to be held by the trustee 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)).
8. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
preceded the issuance of these Treasury regulations. Applicants assert
that, given the then-current tax law, the sale of shares of the same
underlying fund to separate accounts and to Plans could not have been
envisioned at the time of the adoption of Rules 6e-2 and 6e-3(T).
9, Applicants assert that if the Insurance Product Funds were to
sell their respective shares only to Plans, no exemptive relief would
be necessary. Applicants state that none of the relief provided under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) relates to Plans or to a
registered investment company's ability to sell its shares of Plans.
Exemptive relief is requested in the Application
[[Page 11465]]
only because it is possible that some of the separate accounts that
will invest in the Insurance Product Funds will be themselves
investment companies seeking relief under Rules 6e-2 and 6e-3(T) and
thus would otherwise be denied such relief if the Insurance Product
Funds were to sell shares to Plans as well.
10. Section 9(a)(3) of the 1940 Act provides that it is unlawful
for any company to act as investment adviser to, or principal
underwriter of, any registered opened 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 and 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 the limitation on
mixed and shared funding. These exemptions limit the application of
eligibility restrictions to affiliated individuals of companies that
directly participate in the management or administration of the
underlying investment company.
11. Applicants state that the relief from Section 9(a) provided by
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 assert that it is not necessary for the protection of
investors or the purposes fairly intended by the policy and provisions
of the 1940 Act to apply the provisions of Section 9(a) to the many
individuals who may be involved in a large insurance company complex
but who have no involvement in matters pertaining to the investment
company funding the separate accounts.
12. Applicants state that there is no regulatory purpose in denying
the partial exemptions because of mixed and shared funding and sales to
Plans. Applicants assert that sales to Separate Accounts and Plans do
not change the fact that the purposes of the 1940 Act are not advanced
by applying the prohibitions of Section 9(a) to individuals who may be
involved in a life insurance complex but have no involvement in the
underlying fund.
13. Applicants submit that Rule 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) assume the existence of a ``pass-through voting''
requirement with respect to management investment company shares held
by a separate account. Applicants state that Rule 6e-2(b)(15)(iii) and
6e-3(T)(b)(15)(iii) provide exemptions from the pass-through voting
requirements with respect to several significant matters, assuming the
limitations on mixed and shared funding imposed by the 1940 Act and the
rules thereunder 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 an underlying investment company and its
investment advisor, 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)(B) provide that an insurance
company may disregard contract owners' voting instructions with regard
to changes initiated by the contract owners as to the investment
company's investment policies, principal underwriter or investment
adviser, provided that disregarding such voting instructions is
reasonable and complies with the other provisions of Rules 6e-2 and 6e-
3(T). In the case of such a change in the investment company's
investment policies, in order to disregard a contract owner's voting
instructions, the insurance company must make a good-faith
determination that such a change would: (a) Violate state law; or (b)
result in investment that either (i) would not be consistent with the
investment objectives of the separate account, or (ii) would vary from
the general quality and nature of investments techniques used by other
separate accounts of the company or of an affiliated life insurance
company with similar investment objectives. In the case of such a
change in an investment advisor, the insurance company, in order to
disregard a contract owner's voting instructions, must make a good-
faith determination that either: (a) The advisor's fees would exceed
the maximum rate that may be charged against the separate account's
assets; or (b) the proposed advisor may be expected to employ
investment techniques that either (i) would vary from the general
techniques used by the current advisor, or used to manage the
investments in a manner inconsistent with the investment objectives of
the separate account, or (ii) would result in investments that vary
from certain standards.
14. Applicants state that Rule 6e-2 recognizes that a variable life
insurance contract has important elements unique to insurance contracts
and are subject to extensive state regulations of insurance. Applicants
maintain, therefore, that in adopting Rule 6e-2, the Commission
expressly recognized that state insurance regulators have authority to
disapprove or require changes in investment policies, investment
advisors, or principal underwriters. Applicants also maintain that the
Commission expressly recognized that exemptions from pass-through
voting requirements were necessary to assure the solvency of the life
insurer and the performance of its contractual obligations by enabling
an insurance regulatory authority or the life insurer to act when
certain proposals reasonably could be expected to increase the risks
undertaken by the life insurer. Applicants assert that flexible premium
variable life insurance contracts and variable annuity contracts are
subject to substantially the same state insurance regulatory authority,
and therefore corresponding provisions of Rule 6e-3(T) presumably were
adopted in recognition of the same considerations as the Commission
applied in adopting Rule 6e-2.
15. Applicants assert that the offer and sale of shares of the
Insurance Product Funds to Plans will not have any impact on the relief
requested in this regard. The trustees of such Plans will hold the
shares, as required by Section 403(a) of ERISA, or applicable
provisions of the Code. Section 403(c) 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. Under one of the two exceptions
stated in Section 403(a) applies, the Plan trustees have 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 the named fiduciary. In any
event, ERISA permits, but does not require, pass-through voting to the
participants in Plans. Accordingly, Applicants assert that, unlike the
case with the insurance company separate accounts, the issue of the
resolution of material irreconcilable conflicts with respect to voting
is not present with respect to Plans because they are not entitled to
pass-through voting privileges.
16. Applicants acknowledge that some Plans may provide participants
[[Page 11466]]
with the right to give voting instructions. Applicants assert that
there is no reason to believe, however, that participants in Plans
generally, or those in a particular Plan, whether as a single group or
in combination with other Plans, would vote in a manner that would
disadvantage Contract owners. Therefore, Applicants submit that the
purchase of the shares of the Insurance Product Funds by Plans that
provide voting rights to participants does not present any
complications occasioned by mixed and shared funding.
17. Applicants state that no increased conflict of interest would
be presented by the granting of the requested relief. Applicants submit
that shared funding by unaffiliated insurance companies does not
present any issues that do not already exist where a single insurance
company is licensed to do business in several or all states. In this
regard, Applicants note that it is possible that a particular state
insurance regulatory body in a state in which a Participating Insurance
Company's is licensed to do business could require action that is
inconsistent with the requirements of other insurance regulators in one
or more other states in which the Participating Insurance Company
offers its policies. That different insurers may be domiciled in
different states does not create a significantly different or enlarged
problem.
18. Applicants assert that shared funding by unaffiliated insurers,
in this respect, is not 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. Affiliated insurers may be
domiciled in different states and be subject to differing state law
requirements. Applicants thereby assert that affiliation does not
reduce the potential, if any exists, for differences in state
regulatory requirements. In any event, the conditions set forth in the
application and later in this notice (which are adapted from the
conditions included in Rule 6e-3(T)(b)(15)) are designed to safeguard
against, and provide procedures for resolving, and adverse effects that
differences among state regulatory requirements may produce. If a
particular state insurance regulator's decision conflicts with the
majority of other state regulators, the affected insurer may be
required to withdraw its Separate Account's investment in the relevant
Insurance Product Funds.
19. Applicants assert 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. The potential for disagreement is limited by the
requirements that disregarding voting instructions be reasonable and
based on specified good faith determinations. However, if a particular
insurer's decision to disregard Contract owner voting instructions
represents a minority position or would preclude a majority vote
approving a particular change, then the insurer may be required, at the
election of the relevant Insurance Product Funds, to withdraw its
Separate Account's investment in that Insurance Product Fund, and no
charge or penalty will be imposed upon the Contract owners as a result
of such withdrawal.
20. Applicants submit that there is no reason why the investment
policies of an Insurance Product Fund with mixed funding would or
should be materially different from what those policies would or should
be if such Insurance Product Fund funded only variable annuity or
variable life insurance contracts. Applicants state that each type of
insurance product is designed as a long-term investment program.
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 these diverse factors in order to attract and retain
purchasers. Applicants submit that permitting mixed and shared funding
will provide economic support for the continuation of the Insurance
Product Funds. In addition, permitting mixed and shared funding also
will facilitate the establishment of additional Insurance Product Funds
serving diverse goals. The broader base of contract owners can be
expected to provide economic support for the creation of additional
Insurance Product Funds with a greater variety of investment objectives
and policies.
21. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity
contracts and variable life insurance contracts held in the portfolios
of management investment companies. Treasury Regulation Sec. 1.817-
5(f)(3)(iii), which established diversification requirements for such
portfolios, specifically permits, among other things, ``qualified
pension or retirement plans'' and insurance company separate accounts
to share the same underlying investment company. Therefore, Applicants
assert that neither the Code, nor the Treasury regulations, nor the
revenue rulings thereunder, present any inherent conflicts of interest
if Plans, variable annuity separate accounts, and variable life
insurance separate accounts all invest in the same management
investment company.
22. While there may be differences in the manner in which
distributions are taxed for variable annuity contracts, variable life
insurance contracts and Plans, Applicants state that the tax
consequences do not raise any conflicts of interest. When distributions
are to be made, and the Separate Account or Plan cannot net purchase
payments to make the distributions, the Separate Account or Plan will
redeem shares of the Insurance Product Funds at their respective net
asset value. The Plan will then 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.
23. Applicants submit that the ability of the Insurance Product
Funds to sell their respective shares directly to qualified plans does
not create a ``senior security,'' as such term is defined under Section
18(g) of the 1940 Act, with respect to any Contract owner as opposed to
a participant under a Plan. As noted above, 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 only can 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.
24. Applicants assert that there are no conflicts between the
Contract owners of the separate accounts and Plan participants with
respect to state insurance commissioners' veto powers over investment
objectives. A basic premise of shareholder voting is that not all
shareholders may agree with a particular proposal. While time-
consuming, complex transactions must be undertaken to accomplish
redemptions and transfers by separate accounts, trustees of Plans can
quickly redeem shares from Insurance Product Funds and reinvest in
other funding vehicles without the same regulatory impediments or, as
in the case with most Plans, even hold cash pending suitable
alternative investment. Applicants maintain that even if there should
arise issues where the interests of Contract owners and the interests
of
[[Page 11467]]
participants in Plans are in conflict, the issues can be almost
immediately resolved because the trustees of the Plans can, on their
own, redeem shares out of the Insurance Product Funds.
25. Applicants submit that it is possible to provide an equitable
means of giving voting rights to Contract owners and to Plans. In
connection with any meeting of shareholders, the Insurance Product
Funds will inform each shareholder, including each Separate Account and
each Plan, of information necessary for the 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.
26. Applicants submit that mixed and shared funding should provide
benefits to 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 Advisor, but also from the cost
efficiencies and investment flexibility afforded by a larger pool of
assets. Mixed and shared funding also would permit a greater amount of
assets available for investment by the Insurance Product Funds, thereby
promoting economies of scale, by permitting increased safety through
greater diversification and by making the addition of new funds more
feasible. Therefore, making the Insurance Product Funds available for
mixed and shared funding will encourage more insurance companies to
offer Contracts, and this should result in increased competition with
respect to both Contract design and pricing, which can be expected to
result in more product variation and lower charges to investors. The
sale of shares of the Insurance Product Funds to Plans also can be
expected to increase the amount of assets available for investment by
the Insurance Product Funds and thus promote economies of scale and
greater diversification.
27. Applicants assert that there is no significant legal impediment
to permitting mixed and shared funding. Separate accounts historically
have been employed to accumulate shares of mutual funds which have not
been affiliated with the depositor or sponsor of the separate account.
Applicants do not believe that mixed and shared funding, and sales to
Plans, will have any adverse federal income tax consequences.
28. Applicants state that each Insurance Product Fund will be
managed to attempt to achieve the investment adjective of that
Insurance Product Fund and not to favor or disfavor any particular
Participating Insurance Company or type of insurance product.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of each Insurance Product Fund's Board of Directors
or Board of Trustees (``Board'') 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, 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 remaining Board members; (b) for a period of 60 days, if a vote
of shareholders is required to file the vacancy or vacancies; or (c)
for such longer period as the Commission may prescribe by order upon
application.
2. Each Insurance Product Fund's Board will monitor the 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 Plan participants investing in the
Insurance Produce Funds. 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
Contract owners and trustees of Plans; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
Contract owners; or (g) if applicable, a decision by a Plan to
disregard the voting instructions of Plan participants.
3. Participating Insurance Companies, the Advisor (or any other
primary investment adviser of the Insurance Product Funds), and any
Plan that executes a fund participation agreement upon becoming an
owner of 10% 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 relevant Board. Participating
Insurance Companies, the Advisor 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 responsibility includes, but is not limited to, an
obligation by each Participating Insurance Company to inform the
appropriate Board whenever Contract owner voting instructions 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 Boards will
be contractual obligations of all Participating Insurance Companies and
Plans 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.
4. If a majority of an Insurance Product Fund's Board members, or a
majority of the disinterested Board members, determine that a material
irreconcilable conflict exists, the relevant Participating Insurance
Companies and Participating Plans, at their expense and to the extent
reasonably practicable (as determined by a majority of the
disinterested Board members), shall take whatever steps are necessary
to remedy or eliminate the material irreconcilable conflict. Such steps
could include: (a) 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,
which may include another portfolio of an Insurance Product Fund or
another Insurance Product Fund; (b) in the case of Participating
Insurance Companies, 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., 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; (c) in the
case of
[[Page 11468]]
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 (d) 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 Contract owner voting
instructions, and this decision represents a minority position or would
preclude a majority vote, then that Participating Insurance Company may
be required, at the Insurance Product Fund's election, 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 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 election of the Insurance Product Fund, to withdraw its investment
in such 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 Board
determination of a material irreconcilable conflict and to bear the
cost of such remedial action shall 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
interests of the Contract owners and Plan participants.
5. For purposes of Condition 4, a majority of the disinterested
members of the applicable Board shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. In no
event will the relevant Insurance Product Fund or the Advisor 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 a majority of
Contract owners materially and adversely affected by the material
irreconcilable conflict, vote to decline such offer. 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 material irreconcilable
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.
6. All Participating Insurance Companies and Participating Plans
will be informed promptly in writing of a Board's determination of the
existence of an irreconcilable material conflict and its implications.
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 privileges will be extended to participants to
the extent granted by issuing insurance companies. Each Participating
Insurance Company also will vote shares of the Insurance Product Fund
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 investing in an Insurance
Product Fund 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
registered Separate Accounts investing in the Insurance Product Funds
will be a contractual obligation of all Participating Insurance
Companies under their agreements governing 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 a
Board, and all Board action with regard to: (a) Determining the
existence of a conflict; (b) notifying Participating Insurance
Companies and Participating Plans of a conflict; and (c) determining
whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the meetings of the appropriate
Board or other appropriate records. 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 Account prospectus disclosure
regarding potential risks of mixed and shared funding may be
appropriate. Each Insurance Product Fund shall disclose in its
registration statement that: (a) The Insurance Product Fund is intended
to be a funding vehicle for Contracts offered by various insurance
companies, and for Plans; (b) differences in tax treatment or other
considerations may cause the interests of various Contract owners
participating in the Insurance Product Fund or the interests of Plans
investing in the Insurance Product Fund to conflict; and (c) the Board
will monitor the Insurance Product Fund for any material conflicts and
determine what action, if any, should be taken.
10. Each Insurance Product Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders (for these purposes, the
persons having a voting interest in the shares of the Insurance Product
Funds). In particular, each such Insurance Product Fund either will
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, 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 that Rule 6e-2 or Rule 6e-3(T) under the
1940 Act is amended, or Rule 6e-3 under the 1940 Act is adopted, to
provide exemptive relief from any provision of the 1940 Act, or the
rules thereunder, with respect to mixed or shared funding, on terms and
conditions materially different from any exemptions granted in the
order requested by Applicants, then the Insurance Product Funds,
Participating Insurance Companies or Participating Plans, as
appropriate, shall take such steps as may be necessary to comply with
Rules 6e-2 or 6e-3(T), as amended, or Rule 6e-3, as adopted, to the
extent such rules are applicable.
12. The Participating Insurance Companies and Participating Plans
or the Advisor, at least annually, shall submit to each Board such
reports, materials or data as each Board may reasonable request so that
such Boards may fully carry out the obligations imposed upon them by
the conditions stated in the application. Such reports, materials and
data shall be submitted more frequently if deemed appropriate by the
Boards. The obligations of the
[[Page 11469]]
participants to provide these reports, materials and data upon
reasonable request of a Board shall be a contractual obligation of all
participants under their agreements governing participation in the
Insurance Product Funds.
13. If a Plan should be come a holder of 10% or more of the assets
of an Insurance Product Fund, such Plan will execute a participation
agreement with such fund. 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 assert that the
requested exemptions are 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-5892 Filed 3-6-98; 8:45 am]
BILLING CODE 2010-01-M
