[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Notices]
[Pages 14349-14354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7845]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21858; File No. 812-9852]
Berger Institutional Products Trust, et al.
March 26, 1996.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Berger Institutional Products Trust (the ``Trust'') and
Berger Associates, Inc. (``Berger Associates'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act 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.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit shares of the Trust and shares of any other
investment company that is designed to fund insurance products and for
which Berger Associates, or any of its affiliates, may serve as
investment adviser, administrator, manager, principal underwriter or
sponsor (collectively, with the Trust, the ``Funds'') to be sold to and
held by: (a) Variable annuity and variable life insurance companies
(the ``Participating Insurance Companies''); and (b) qualified pension
and retirement plans outside the separate account context (the
``Plans'').
FILING DATE: The application was filed on November 8, 1995, and amended
on March 20, 1996.
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 22, 1996, and 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.
20459. Applicants, Kevin R. Fay, Vice President--Finance and
Administration, Berger Associates, Inc., 210 University Boulevard #900,
Denver, Colorado 80206.
FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Deputy Chief, at
(202) 942-0670, Office of Insurance Products, Division of Investment
Management.
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. The Trust, an open-end, management investment company organized
as a Delaware business trust, currently consists of three separate
investment portfolios: the Growth Fund,
[[Page 14350]]
the Growth and Income Fund and the Small Company Fund. The Trust may
create additional portfolios in the future.
2. Berger Associates serves as the investment adviser for each of
the Trust's portfolios. Berger Associates is registered as an
investment adviser under the Investment Advisers Act of 1940.
3. Applicants state that the Trust initially intends to offer its
shares exclusively to Plans and to variable annuity separate accounts,
but, upon the granting of the order requested in this application,
contemplates offering its shares to one or more variable life insurance
separate accounts established by insurance companies that may or may
not be affiliated with one another.
4. The Participating Insurance Companies will establish their own
separate accounts (the ``Accounts'') and design their own variable
annuity and variable life insurance contracts (``Contracts'').
Applicants state that the role of the Fund under this arrangement will
consist of offering shares to the Accounts and fulfilling any
conditions that the Commission may impose upon granting the order
requested in the application.
5. Applicants state that the Funds can increase their asset base
through the sale of shares of the Funds to the Plans. The Plans may
choose any of the Funds as the sole investment option under a Plan or
as one of several investment options. Participants in the Plans may be
given an investment choice depending upon the Plan. Shares of any of
the Funds sold by the Plans will be held by the trustees of the Plans
as mandated by Section 403(a) of the Employee Retirement Income
Security Act (``ERISA''). Berger Associates will not act as investment
adviser to any of the Plans that will purchase shares of the Funds.
Applicants note that, pursuant to ERISA, pass-through voting is not
required to be provided to participate in the 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 Section 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 granted by Rule 6e-2(b)(15)
are available only where the management investment company underlying
the UIT offers its shares ``exclusively to variable life insurance
separate accounts of the life insurer, or of any affiliated life
insurance company.'' The use of a common management investment company
as the underlying investment medium for both variable annuity and
variable life insurance separate account is referred to as ``mixed
funding.'' The use of a common investment company as the underlying
investment medium for separate accounts of unaffiliated insurance
companies is referred to as ``shared funding.'' the relief granted by
Rule 6e-2(b)(15) is not available with respect to a scheduled premium
variable life insurance separate account that owns shares of an
underlying fund that offers its shares to 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) precludes mixed
funding as well as shared funding.
2. Applicants state that because the relief under Rule 6e-2(b)(15)
is available only where shares are offered exclusively to separate
accounts of insurance companies, additional exemptive relief is
necessary if shares of the Fund are also to be sold to Plans.
3. In connection with flexible premium variable life insurance
contracts 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
granted to a separate account by 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 permit shared funding.
4. Applicants state that because the relief under Rule 6e-3(T) is
available only where shares are offered exclusively to separate
accounts, additional exemptive relief is necessary if shares of the
Funds are also to be sold to Plans.
5. Applicants state that changes in the tax law have created the
opportunity for the Funds to increase their asset base through the sale
of Fund shares to the Plans. Applicants state that Section 817(h) of
the Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification standards on the underlying assets of the
Contracts held in the Funds. The Code provides that such Contracts
shall not be treated as annuity contracts or life insurance contracts
for any period in which the underlying assets are not, in accordance
with regulations prescribed by the Treasury Department, adequately
diversified. On March 2, 1989, the Treasury Department issued
regulations which established diversification requirements for the
investment portfolios underlying variable contracts. Treas. Reg.
Sec. 1.817-5 (1989). The regulations provide that, to meet the
diversification requirements, all of the beneficial interests in the
investment company must be held by the segregated asset accounts of one
or more insurance companies. The regulations, 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 ability of shares in
the same investment company also to be held by the separate accounts of
insurance companies in connection with their variable contracts. Treas.
Reg. Sec. 1.817-5(f)(3)(iii).
6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
under the 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
Plans could not have been envisioned at the time of the adoption of
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
7. Applicants therefore request relief from Sections 9(a), 13(a),
15(a), and 15(b) of the 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 in connection with both mixed and shared
funding.
8. 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) and 6e-3(T)(b)(15) provide exemptions
from Section 9(a) under certain circumstances, subject to the
limitations on mixed and shared funding. The relief provided by Rules
6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person disqualified
under Section 9(a) to serve as an officer, director, or employee of the
life insurer, or any of its affiliates, so long as that
[[Page 14351]]
person does not participate directly in the management or
administration of the underlying fund. The relief provided by Rules 6e-
2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the life insurer to serve
as the underlying fund's investment adviser or principal underwriter,
provided that none of the insurer's personnel who are ineligible
pursuant to Section 9(a) participate in the management or
administration of the fund.
9. Applicants state that the partial relief from Section 9(a) found
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount
of monitoring necessary to ensure compliance with Section 9 to that
which is appropriate in light of the policy and purposes of the
Section. Applicants state that those 1940 Act rules recognize that it
is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the
provisions of Section 9(a) to the many individuals in a large insurance
company complex, most of whom will have no involvement in matters
pertaining to investment companies within that organization. Applicants
note that the Participating Insurance Companies are not expected to
play any role in the management or administration of the Funds.
Therefore, Applicants assert, applying the restrictions of Section 9(a)
serves no regulatory purpose. The application states that the relief
requested should not be affected by the proposed sale of shares of the
Funds to the Plans because the Plans are not investment companies and
are not, therefore, subject to Section 9(a).
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(a)(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 Contract
owners so long as the Commission interprets the 1940 Act to require
such privileges.
11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act provide exemptions from the pass-through voting requirement with
respect to several significant matters, assuming observance of the
limitations on mixed and shared funding imposed by the 1940 Act and the
rules thereunder.
Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that
the insurance company may disregard voting instructions of its contract
owners with respect to the investments of an underlying fund, or any
contract between a fund and its investment adviser, when required to do
so by an insurance regulatory authority.
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that
the insurance company may disregard voting instructions of its contract
owners if the contract owners initiate any change in the 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.
12. Applicants further represent that the Funds' sale of shares to
the Plans does not impact the relief requested in this regard. As noted
previously by Applicants, shares of the Funds sold to Plans would be
held by the trustees of such 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 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
exceptions stated in Section 403(a) applies, Plan trustees have the
exclusive authority and responsibility for voting proxies. Where a
named fiduciary appoints an investment manager, the investment manager
has the responsibility to vote the shares held unless the right to vote
such shares is reserved to the trustees or to the named fiduciary. In
any event, there is no pass-through voting to the participants in such
Plans. Accordingly, Applicants note that, unlike the case with
insurance company separate accounts, the issue of the resolution of
material irreconcilable conflicts with respect to voting is not present
with Plans.
13. Applicants state that no increased conflicts of interest would
be present by the granting of the requested relief. Applicants asset
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
domicile in different states, it is possible that the state insurance
regulatory body in a state in which one insurance company is domiciled
could required action that is inconsistent with the requirements of
insurance regulators in one or more other states in which other
insurance companies are domiciled. Applicants submit that this
possibility is no different and no greater than exists where a single
insurer and its affiliates offer their insurance products in several
states.
14. Applicants further submit that affiliation does not reduce the
potential, if any exists, for differences among state regulatory
requirements. In any event, the conditions (adapted from the conditions
included in Rule 6e-3(T)(b)(15)) discussed below are designed to
safeguard against any adverse effects that these differences may
produce. If a particular state insurance regulator's decision conflicts
with the majority of other state regulators, the affected insurer may
be required to withdraw its separate accounts's investment in the
relevant Fund.
15. Applicants also argue 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
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
Contract owner instructions represents a minority position or would
preclude a majority vote approving a particular change, such
Participating Insurance Company may be required, at the election of the
relevant Fund, to withdraw its investment in that Fund. No charge or
penalty will be imposed as a result of such withdrawal.
16. Applicants state that there is no reason why the investment
policies of a Fund with mixed funding would or should be materially
different from what those policies would or should be if such
investment company or series thereof funded only variable annuity or
variable life insurance contracts. Applicants therefore argue that
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, Applicants represent that the Funds will
not be managed to favor or disfavor any particular insurance company or
type of Contract.
17. Section 817(h) imposes certain diversification standards on the
underlying assets of variable annuity contracts and variable life
insurance
[[Page 14352]]
contracts held in the portfolios of management investment companies.
Treasury Regulation 1.817.5(f)(3)(iii), which established
diversification requirements for such portfolios, specifically permits
``qualified pension or retirement plans'' and separate accounts to
share the same underlying management investment company. Therefore,
Applicants have concluded that neither the Code, 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.
18. Applicants state that while there are differences in the manner
in which distributions are taxed for variable annuity contracts,
variable life insurance contracts and Plans, these tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and the separate account or the Plan is unable to net purchase payments
to make the distributions, the separate account or the Plan will redeem
shares of the Funds at their respective net asset 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 variable contract.
19. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving such voting rights to
Contract owners and to the trustees of Plans. Applicants represent that
the transfer agent for the Funds will inform each Participating
Insurance Company of its share ownership in each separate account, and
will inform the trustees of Plans of their holdings. Each Participating
Insurance Company will then solicit voting instructions in accordance
with the ``pass-through'' voting requirement.
20. Applicants contend that the ability of the Funds to sell their
respective shares directly to Plans does not create a ``senior
security,'' as such term is defined under Section 18(g) of the 1940
Act, with respect to any Contract owner as opposed to a participant
under a Plan. Regardless of the rights and benefits of participants and
Contract owners under the respective Plans and Contracts, the Plans and
the Accounts have rights only with respect to their shares of the
Funds. Such shares may be redeemed only at net asset value. No
shareholder of any of the Funds has any preference over any other
shareholder with respect to distribution of assets or payment of
dividends.
21. Finally, Applicants state that there are no conflicts between
Contract owners and participants under the Plans with respect to the
state insurance commissioners' veto powers (direct with respect to
variable life insurance and indirect with respect to variable
annuities) over investment objectives. The basic premise of shareholder
voting is that not all shareholders may agree that there are inherent
conflicts of interest between shareholders. The state insurance
commissioners have been given the veto power in recognition that
insurance companies usually are unable simply to redeem their separate
accounts out of one fund and invest those monies in another fund.
Generally, to accomplish such redemptions and transfers, complex and
time consuming transactions must be undertaken. Conversely, trustees of
Plans can make the decision quickly and implement redemption of shares
from a Fund and reinvest the monies in another funding vehicle without
the same regulatory impediments or, as is the case with most Plans,
even hold cash pending suitable investment. Based on the foregoing,
Applicants represent that even should there arise issues where the
interests of Contract owners and the interests of Plans conflict, the
issues can be almost immediately resolved because the trustees of the
Plans can, independently, redeem shares out of the Funds.
22. Applicants state that various factors have kept certain
insurance companies from offering variable annuity and variable life
insurance contracts. According to Applicants, these factors include:
the cost of organizing and operating an investment funding medium; the
lack of expertise with respect to investment management (principally
with respect to stock and money market investments); and the lack of
name recognition by the public of certain insurers as investment
professionals. Applicants contend that use of the Funds as common
investment media for the Contracts would ease these concerns.
Participating Insurance Companies would benefit not only from the
investment and administrative expertise of Berger Associates, but also
from the cost efficiencies and investment flexibility afforded by a
large pool of funds. Applicants state that making the Funds available
for mixed and shared funding may encourage more insurance companies to
offer variable contracts such as the Contracts which may then increase
competition with respect to both the design and the pricing of variable
contracts. Applicants submit that this can be expected to result in
greater product variation and lower charges. Thus, Applicants represent
that Contract owners would benefit because mixed and shared funding
will eliminate a significant portion of the costs of establishing and
administering separate funds. Moreover, Applicants assert that sales of
shares of the Funds to Plans should increase the amount of assets
available for investment by the Funds. This should, in turn, promote
economies of scale, permit increased safety of investments through
greater diversification, and make the addition of new portfolios more
feasible.
23. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Additionally,
Applicants note the previous issuance of orders permitting mixed and
shared funding where shares of a fund were sold directly to qualified
plans such as the Plans.
Applicants' Conditions
Applicants have consented to the following conditions if the order
requested in the application is granted:
1. A majority of the Board of Trustees or Board of Directors of
each Fund (each, a ``Board'') shall consist of persons who are not
``interested persons'' of the Funds, 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
Contract owners of all the Accounts investing in the respective 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 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 Funds are managed; (e) a
difference in voting
[[Page 14353]]
instructions given by owners of variable annuity contracts and owners
of variable life insurance contracts; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
Contract owners.
3. The Participating Insurance Companies, Berger Associates (or any
other investment adviser of the Funds), and any 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 of which they become aware to the Board.
Participants 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 Participant to inform the Board
whenever it has determined to disregard voting instructions of Contract
owners. The responsibility to report such information and conflicts and
to assist the Board will be contractual obligations of all Participants
investing in the Funds under their agreements governing participation
in the Funds and such agreements shall provide that these
responsibilities will be carried out with a view only to the interests
of Contract owners and Plan participants.
4. It if is determined by a majority of the Board, or by a majority
of its disinterested trustees or directors, that a material
irreconcilable conflict exists, the relevant Participant shall at its
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees or directors), take whatever
steps are necessary to remedy or eliminate the irreconcilable material
conflict, including: (a) Withdrawing the assets allocable to some or
all of the Accounts from the Funds and reinvesting such assets in a
different investment medium including another portfolio of the relevant
Fund or another Fund, or submitting the question of whether such
segregation should be implemented to a vote of all affected Contract
owners; and, as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity Contract owners or variable life
insurance Contract owners of one or more Participants) that votes in
favor of such segregation, or offering to the affected Contract owners
the option of making such a change; (b) withdrawing the assets
allocable to some or all of the Plans from the affected Fund or
individual Fund thereof and reinvesting those assets in a different
investment medium, including another Fund; and (c) 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 of the
owners of the Contracts, and that decision represents a minority
position or would preclude a majority vote, the Participating Insurance
Company may be required, at the election of the relevant Fund, to
withdraw its Account's investment in that 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 an irreconcilable material 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. The responsibility to take such material action shall be carried
out with a view only to the interests of Contract owners and
participants in Plans. For purposes of this Condition (4), a majority
of the disinterested members of the applicable Board shall determine
whether any proposed action adequately remedies any material
irreconcilable conflict, but, in no event will the relevant Fund or
Berger Associates or any Plan be required to establish a new funding
medium for any Contract. Further, no Participating Insurance Company
shall be required by this Condition (4) to establish a new funding
medium for any Contract if an offer to do so has been declined by a
vote of a majority of Contract owners materially affected by the
irreconcilable material conflict.
5. Any 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.
6. Participating Insurance Companies will provide pass-through
voting privileges to all Contract owners so long as the Commission
continues to interpret the 1940 Act as requiring pass-through voting
privileges for Contract owners. Accordingly, the Participating
Insurance Companies will vote shares of the Fund held in their Accounts
in a manner consistent with voting instructions timely received from
Contract owners. Participating Insurance Companies will be responsible
for assuring that each of their Accounts that participates in the 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 Accounts will be a
contractual obligation of all Participating Insurance Companies under
the agreements governing their participation in the Funds. Each
Participating Insurance Company will vote shares for which it has not
received voting instructions as well as shares attributable to it in
the same proportion as it votes shares for which it has received voting
instructions.
7. All reports received by the Board of potential or existing
conflicts, and all Board action with regard to: (a) Determining the
existence of a conflict; (b) notifying Participants 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.
8. Each Fund will notify all Participating Insurance Companies that
separate account prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate. Each Fund will disclose in
its prospectus that: (a) Shares of the fund may be offered to insurance
company separate accounts of both annuity and life insurance variable
contracts, and to Plans; (b) material irreconcilable conflicts may
arise from mixed and shared funding; and (c) the Fund's Board will
monitor the Funds for any material conflicts and determine what action,
if any, should be taken.
9. 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 the Funds), 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 Funds are not within the 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 or trustees and with whatever rules the Commission may
promulgate with respect thereto.
10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive
relief from any provision of the 1940 Act or the rules thereunder with
respect to mixed and
[[Page 14354]]
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.
11. No less than annually, the Participants shall submit to the
Boards such reports, materials, or data as those Boards may reasonably
request so the Boards may carry out fully the conditions contained in
these express conditions. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Boards. The
obligations of the Participants to provide these reports, materials,
and data to the Boards shall be a contractual obligation of all
Participants under the agreements governing their participation in the
Funds.
12. If a Plan becomes an owner of 10% or more of the assets of a
Fund, such Plan will execute a fund participation agreement with that
Fund. A Plan will execute an application containing an acknowledgement
of this condition at the time of its initial purchase of the shares of
the Fund.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-7845 Filed 3-29-96; 8:45 am]
BILLING CODE 8010-01-M
