[Federal Register Volume 63, Number 69 (Friday, April 10, 1998)]
[Notices]
[Pages 17913-17918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9465]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23101; File No. 812-10844]
STI Classic Variable Trust, et al.; Notice of Application
April 3, 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 (the ``1940 Act'') for exemptions from
the provisions of 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
STI Classic Variable Trust (the ``Trust'') and shares of any other
investment company or portfolio that is designed to fund insurance
products and for which STI Capital Management, N.A. may serve in the
future, as investment adviser, administrator, manager, principal
underwriter, or sponsor (together with the Trust, ``Trusts'') to be
sold to and held by: (1) separate accounts funding variable annuity and
variable life insurance contracts issued by both affiliated and
unaffiliated life insurance companies (``Participating Insurance
Companies''); and (2) qualified pension and retirement plans outside of
the separate account context (``Qualified Plans'' or ``Plans'').
APPLICANTS: STI Classic Variable Trust and STI Capital Management, N.A.
(``STI Capital'').
FILING DATE: The application was filed on October 28, 1997, and amended
and restated on February 9, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing 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 April 28, 1998, 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, NW., Washington, DC 20549.
Applicants, c/o Kevin P. Robins, Esq., SEI Investments Company, Oaks,
Pennsylvania 19456.
FOR FURTHER INFORMATION CONTACT:
Zandra Y. Bailes, Senior Counsel, or Mark C. Amorosi, Branch Chief,
Division of Investment Management, Office of Insurance Products, at
(202) 942-0670.
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, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust is a Massachusetts business trust and is registered
under the 1940 Act as an open-end management investment company. The
Trust currently consists of five separate portfolios (``Funds''), each
of which has its own investment objective or objectives and policies.
2. STI Capital, and investment adviser registered under the
Investment Advisers Act of 1940, serves as the investment adviser to
the Trust. STI Capital is an indirect wholly owned subsidiary of Sun
Trust Banks, Inc.
3. Shares representing interest in each Fund currently offered to
insurance companies as an investment vehicle for their separate
accounts that fund variable annuity contracts. The Trust intends to
offer shares representing interests in each Fund, and any other
portfolio established by the Trust in the future (``Future Portfolio'')
(Fund, together with Future Portfolios, ``Portfolios'' or each a
``Portfolio''), to separate accounts of Participating Insurance
Companies (``Separate Accounts'') to serve as the investment vehicle
for variable annuity contracts and variable life insurance contracts
(collectively, ``Variable Contracts'').
4. Applicants also propose that the Trusts offer and sell shares
representing interests in their Portfolios directly to Qualified Plans.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act granting exemptions 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
Trusts to be offered and sold to and held by: (a) both variable annuity
and variable life insurance separate accounts of the same life
insurance company or any affiliated life insurance company (``mixed
funding''); (b) separate accounts of unaffiliated life insurance
companies (``shared funding''); and (c) trustees of Qualified Plans.
2. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the
rules or regulations 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. The exemptions granted by Rule 6e-2(b)(15) are
available, however, only where all of the assets of the separate
account consist of the shares of one or more registered management
investment companies which offer their shares ``exclusively to variable
life insurance separate accounts of the life insurer, or of any
affiliated life insurance company.'' \1\ Therefore, the relief granted
by Rule 6e-2(b)(15) is not available with respect to a scheduled
premium variable life insurance separate account that owns shares of an
underlying fund that also offers its shares to a variable annuity or a
flexible
[[Page 17914]]
premium variable life insurance separate account of the same company or
of a flexible premium variable life insurance separate account of the
same company or of any affiliated life insurance company. In addition,
the relief granted by Rule 6e-2(b)(15) is not available if shares of
the underlying management investment company are offered to variable
annuity or variable life insurance separate accounts of unaffiliated
life insurance companies. Furthermore, the relief granted by Rule 6e-
2(b)(15) is not available if the scheduled premium variable life
insurance separate account owns shares of an underlying fund that also
offers its shares to Qualified Plans.
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\1\ The exemptions provided by Rule 6e-2 also are available to
the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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4. In connection with the funding of flexible premium variable life
insurance contracts issued through a separate account registered under
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides
similar partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. These exemptions, however, are available only if the
assets of the separate account consist of shares of one or more
registered management investment companies which offer their shares
``exclusively to separate accounts of the life insurer, or of any
affiliated life insurance company, offering either scheduled contracts
or flexible contracts, or both; or which also offer their shares to
variable annuity separate accounts of the life insurer or of an
affiliated life insurance company.'' \2\ Therefore, Rule 6e-3(T)
permits mixed funding with respect to a flexible premium variable life
insurance separate account but does not permit shared funding. Also,
the exemptions provided by Rule 6e-3(T) are not available if the
underlying fund sells its shares to Qualified Plans.
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\2\ The exemptions provided by Rule 6e-3(T) also are available
to the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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5. Applicants state that changes in the federal tax law have
created the opportunity for the Trust to substantially increase its net
assets by selling shares to Qualified Plans. Section 817(h) of the
Internal Revenue Code of 1986, as amended (the ``Code''), imposes
certain diversification standards on the assets underlying Variable
Contracts. The Code provides that Variable Contracts will not be
treated as annuity contracts or life insurance contracts, as the case
may be, for any period (or any subsequent period) for which the
underlying assets are not, in accordance with regulations issued by the
Treasury Department (the ``Regulations''), adequately diversified. On
March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established specific diversification requirements for
investment portfolios underlying Variable Contracts. The Regulations
generally provide that, in order to meet these diversification
requirements, all of the beneficial interests in such portfolios must
be held by the segregated asset accounts of one or more life insurance
companies. Notwithstanding this, the Regulations also contain an
exception to this requirement that permits trustees of Qualified Plans
to hold shares of an investment company portfolio, the shares of which
are also held by insurance company segregated asset accounts, without
adversely affecting the status of the investment company portfolio as
an adequately diversified underlying investment for variable contracts
issued through such segregated asset accounts (Treas. Reg. 1.817-
5(f)(3)(iii)).
6. Applicants maintain that there is no policy reason for the sale
of the Portfolios' shares to Qualified Plans to prohibit or otherwise
limit a Participating Insurance Company from relying on the relief
provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). Applicants note that
if the Portfolios were to sell their shares only to Qualified Plans,
exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be
necessary. The relief provided under Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) does not relate to Qualified Plans or to a registered
investment company's ability to sell its shares to such plans.
7. Applicants also note that the promulgation of Rules 6e-2(b)(15)
and Rule 6e-3(T)(b)(15) preceded the issuance of the Regulations. Thus,
the sale of shares of the same portfolio to both separate accounts and
Qualified Plans was not contemplated at the time of the adoption of
Rules 6e-2(b)(15) and Rule 6e-3(T)(b)(15).
8. Section 9(a)(3) of the 1940 Act provides that it is unlawful for
any company to serve as investment adviser or principal underwriter of
any registered open-end investment company if an affiliated person of
that company is subject to a disqualification enumerated in Sections
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 application of the eligibility restrictions to
affiliated individuals or companies that directly participate in the
management of the underlying management company.
9. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 limits,
in effect, the amount of monitoring necessary to ensure compliance with
Section 9 to that which is appropriate in light of the policy and
purposes of Section 9. Applicants state that those 1940 Acts 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 individuals in a large
insurance company complex, most of whom will have no involvement in
matters pertaining to investment companies in that organization.
10. Applicants state that neither the Participating Insurance
Companies nor the Qualified Plans are expected to play any role in the
management of the Trusts. Those individuals who participate in the
management of the Trusts will remain the same regardless of which
Separate Accounts or Qualified Plans use the Trusts. Applicants
maintain that applying the monitoring requirements of Section 9(a)
because of investment by separate accounts of other insurers or
Qualified Plans would be unjustified and would not serve any regulatory
purpose. Moreover, Qualified Plans, unlike separate accounts, are not
themselves investment companies, and therefore are not subject to
Section 9. Furthermore, it is not anticipated that a Qualified Plan
would be an affiliated person of any of the Trusts by virtue of its
shareholders.
11. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide exemptions from the pass-through voting
requirement with respect to several significant matters, assuming the
limitations on mixed and shared funding are observed. More
specifically, Rules 6e-22(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting
instructions of its contract owners with respect to the investments of
an underlying fund or any contract between a fund and its investment
adviser, when required to do so by an insurance regulatory authority
and subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A)
of Rules 6e-2 and 6e-3(T). In addition, Rules 6e-2(b)(15)(iii)(B) and
6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may
disregard the voting instructions of its contract owners if the
contract owners initiate any change in such insurance company's
investment policies, principal underwriter or any investment
[[Page 17915]]
adviser (provided that disregarding such voting instructions is
reasonable and subject to the other provisions of paragraphs (b)(5)(ii)
and (b)(7)(ii)(B) and (C) of Rules 6e-2 and 6e-3(T)).
12. Applicants assert that Qualified Plans, which are not
registered as investment companies under the 1940 Act, have no
requirement to pass through voting rights to Plan participants. Indeed,
to the contrary, applicable law expressly reserves voting rights
associated with Plan assets to certain specified persons. Under Section
403(a) of the Employee Retirement Income Security Act (``ERISA''),
shares of a portfolio of a fund sold to a Qualified Plan must be held
by the trustees of the Plan. Section 403(a) also provides that the
trustee(s) must have exclusive authority and discretion to manage and
control the Plan with two exceptions: (a) when the Plan expressly
provides that the trustees are subject to the direction of a named
fiduciary who is not a trustee, in which case the trustees are subject
to proper directions made in accordance with the terms of the Plan and
not contrary to ERISA, and (b) when the authority to manage, acquire or
dispose of assets of the Plan is delegated to one or more investment
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the
above two exceptions stated in Section 403(a) applies, Plan trustees
have the exclusive authority and responsibility for voting proxies.
13. Where a named fiduciary to a Qualified Plan appoints an
investment manager, the investment manager has the responsibility to
vote the shares held unless the right to vote such shares is reserved
to the trustees or the named fiduciary. The Qualified Plans may have
their trustee(s) or other fiduciaries exercise voting rights
attributable to investment securities held by the Qualified Plans in
their discretion. Some of the Qualified Plans, however, may provide for
the trustee(s), an investment adviser (or advisers) or another named
fiduciary to exercise voting rights in accordance with instructions
from participants.
14. Where a Qualified Plan does not provide participants with the
right to give voting instructions, Applicants do not see any potential
for material irreconcilable conflicts of interest between or among
variable contract holders and Plan investors with respect to voting of
the respective Portfolio's shares. Accordingly, 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 respect to such Qualified Plans since the Qualified Plans are not
required to pass-through voting privileges.
15. Even if a Qualified Plan were to hold a controlling interest in
a Portfolio, Applicants do not believe that such control would
disadvantage other investors in such Portfolio to any greater extent
than is the case when any institutional shareholder holds a majority of
the voting securities of any open-end management investment company. In
this regard, Applicants submit that investment in a Portfolio by a Plan
will not create any of the voting complications occasioned by mixed
funding or shared funding. Unlike mixed or shared funding, Plan
investor voting rights cannot be frustrated by veto rights of insurers
or state regulators.
16. Where a Plan provides participants with the right to give
voting instructions, Applicants see no reason to believe that
participants in Qualified Plans generally or those in a particular
Plan, either as a single group or in combination with participants in
other Qualified Plans, would vote in a manner that would disadvantage
variable contract holders. The purchase of shares of Portfolios by
Qualified Plans that provide voting rights does not present any
complications not otherwise occasioned by mixed or shared funding.
17. Applicants submit that the prohibitions on mixed and shared
funding might reflect concern regarding possible different investment
motivations among investors. Applicants assert that shared funding does
not present any issues that do not already exist where a single
insurance company is licensed to do business in several or all states.
A particular state insurance regulatory body could require action that
is inconsistent with the requirements of other states in which the
insurance company offers its policies. The fact that different insurers
may be domiciled in different states does not create a significantly
different or enlarged problem.
18. Applicants submit that shared funding is, in this respect, no
different than the use of the same investment company as the funding
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
(T)(b)(15) permit. Affiliated insurers may be domiciled in different
states and be subject to differing state law requirements. Affiliation
does not reduce the potential, if any exists, for differences in state
regulatory requirements. In any event, Applicants submit that the
conditions set forth in the application and included in this notice are
designed to safeguard against and provide procedures for resolving any
adverse effects that differences among state regulatory requirements
may produce.
19. Applicants assert that the right of an insurance company under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to disregard the voting
instructions of the contract owners does not raise any issues different
from those raised by the authority of state insurance administrators
over separate accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an
insurer can disregard contract owner voting instructions only with
respect to certain specified items. Affiliation does not eliminate the
potential, if any exists, for divergent judgments as to the
advisability or legality of a change in investment policies, principal
underwriter, or investment adviser initiated by contract owners. The
potential for disagreement is limited by the requirements in Rules 6e-2
and 6e-3(T) that an insurance company's disregard of voting
instructions be reasonable and based on specific good faith
determinations.
20. A particular insurer's disregard of voting instructions,
nevertheless, could conflict with the majority of contract owners'
voting instructions. The insurer's action possibly could be different
from the determination of all or some of the other insurers (including
affiliated insurers) that the voting instructions of contract owners
should prevail, and could either preclude a majority vote approving the
change or could represent a minority view. If the insurer's judgment
represents a minority position or would preclude a majority vote, then
the insurer may be required, at the election of the relevant Trust, to
withdraw its Separate Account's investment in such Portfolio, and no
charge or penalty would be imposed as a result of such withdrawal.
21. Applicants submit that there is no reason why the investment
policies of the Portfolios would or should be materially different from
what those policies would or should be if the Portfolios funded only
variable annuity contracts or variable life insurance policies whether
flexible premium or scheduled premium policies. In this regard,
Applicants note that each type of insurance product is designed as a
long-term investment program. In addition, Applicants represent that
each Portfolio will be managed to attempt to achieve the investment
objective or objectives of such portfolio and not to favor or disfavor
any particular Participating Insurance Company or type of insurance
product.
22. Furthermore, Applicants submit that no one investment strategy
can be identified as appropriate to a particular insurance product.
Each pool of variable
[[Page 17916]]
annuity and variable life insurance contract owners is composed of
individuals of diverse financial status, age, insurance and investment
goals. A Portfolio supporting even one type of insurance product must
accommodate these factors in order to attract and retain purchasers.
23. Applicants do not believe that the sale of shares of the
Portfolios to Qualified Plan will increase the potential for material
irreconcilable conflicts of interest between or among different types
of investors. In particular, Applicants see very little potential for
such conflicts beyond that which would otherwise exist between variable
annuity and variable life insurance contract owners. Applicants note
that Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable contracts held in an
underlying mutual fund. The Regulations issued under Section 817(h)
provide that, in order to meet the statutory 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. However, the Regulations specifically permit ``qualified
pension or retirement plans'' and separate accounts to invest in the
same underlying fund. For this reason, Applicants have concluded that
neither the Code, nor the Regulations, nor Revenue Rulings thereunder,
present any inherent conflicts of interest.
24. Applicants note that while there are differences in the manner
in which distributions from Variable Contracts and Qualified Plans are
taxed, these differences will have no impact on the Trusts. When
distributions are to be made, and a Separate Account or Qualified Plan
is unable to net purchase payments to make the distributions, the
Separate Account and Qualified Plan will redeem shares of the relevant
Portfolio at their respective net asset value. A Participating
Insurance Company then will make distributions in accordance with the
terms of its Variable Contract, and a Qualified Plan will make
distributions in accordance with the terms of the Plan.
25. With respect to voting rights, Applicants determined that it is
possible to provide an equitable means of giving voting rights to
contract owners in the Separate Account and to Qualified Plans.
Applicants represent that the Trusts will inform each shareholder,
including each Separate Account and Qualified Plan, of information
necessary for the shareholder meeting, including their respective share
of ownership in the relevant Portfolio. Each Participating Insurance
Company then will solicit voting instructions in accordance with Rules
6e-2 and 6e-3(T), as applicable, and its agreement with a Trust
concerning participation in the relevant Portfolio. Shares held by
Qualified Plans will be voted in accordance with applicable law. The
voting rights provided to Qualified Plans with respect to shares of the
Portfolios would be no different from the voting rights that are
provided to Qualified Plans with respect to shares of funds sold to the
general public.
26. Applicants contend that the ability of the Trusts to sell
shares of Portfolios directly to Qualified Plans does not create a
``senior security'' as such term is defined under Section 18(g) of the
1940 Act. Regardless of the rights and benefits of participants under
Qualified Plans, or contract owners under Variable Contracts, the
Qualified Plans and the Separate Accounts only have rights with respect
to their respective shares of the Portfolios. They only can redeem such
shares at net asset value. No shareholder of a Portfolio has any
preference over any other shareholder with respect to distribution of
assets or payment of dividends.
27. Applicants considered whether there are any conflicts between
the contract owners of the Separate Accounts and Qualified Plan
participants with respect to the state insurance commissioners' veto
powers over investment objectives. Applicants note that state insurance
commissioners have been given the veto power in recognition of the fact
that insurance companies usually cannot simply redeem their separate
accounts out of one fund and invest in another. Generally, time-
consuming complex transactions must be undertaken to accomplish such
redemptions and transfers. Conversely, the trustees of Qualified Plans
or the participants in participant-directed Qualified Plans can make
the decision quickly and redeem their interest in the Portfolios and
reinvest in another funding vehicle without the same regulatory
impediments faced by Separate Accounts or, as is the case with most
Qualified Plans, even hold cash pending suitable investment. Based on
the foregoing, Applicants have concluded that even if there should
arise issues where the interests of contract owners and the interests
of Qualified Plans are in conflict, the issues can be almost
immediately resolved since the trustees of (or participants in) the
Qualified Plans can, on their own, redeem the shares out of the
Portfolios.
28. Applicants state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of
participants in Qualified Plans and contract owners of Separate
Accounts from future changes in the federal tax laws than that which
already exist between variable annuity contract owners and variable
life insurance contract owners.
29. Applicants assert that various factors have limited the number
of insurance companies that offer variable annuities and variable life
insurance contracts. These factors include the costs of organizing and
operating a funding medium, the lack of expertise with respect to
investment management (principally with respect to stock and money
market investment), and the lack of name recognition by the public of
certain insurers as investment experts. In particular, some smaller
life insurance companies may not find it economically feasible, or
within their investment or administrative expertise, to enter the
variable contract business on their own.
30. Applicants contend that the use of Portfolios as common
investment media for variable contracts would reduce or alleviate these
concerns. Participating Insurance Companies will benefit not only from
the investment and administrative expertise of STI Capital, but also
from the cost efficiencies and investment flexibility afforded by a
large pool of funds. Therefore, making the Portfolios available for
mixed and shared funding will encourage more insurance companies to
offer variable contracts, and this should result in increased
competition with respect to both variable contract design and pricing,
which can be expected to result in more product variation and lower
charges. Applicants also assert that the sale of shares of the
Portfolios to Qualified Plans in addition to the Separate Accounts will
result in an increased amount of assets available for investment by
such Portfolios. This may benefit variable contract owners by promoting
economies of scale, by permitting increased safety of investment
through greater diversification, and by making the addition of new
portfolios more feasible.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of each Trust shall consist of persons
who are not ``interested persons'' of such Trust, 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
[[Page 17917]]
condition is not met by reason of the death, disqualification or bona
fide resignation of any trustee or trustees, then the operation of this
condition shall be suspended: (a) for a period of 45 days if the
vacancy or vacancies may be filed 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 Trust for the existence
of any material irreconcilable conflict among the interests of the
contract holders of all Separate Accounts and of participants of
Qualified Plans investing in such Trust 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
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 such Trust are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable
life insurance contract owners and trustees of the 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
Qualified Plan to disregard the voting instructions of Plan
participants.
3. Participating Insurance Companies, STI Capital, and any
Qualified Plan that executes a participation agreement upon becoming an
owner of 10% or more of the assets of any Portfolio (collectively, the
``Participants'') will report any potential or existing conflicts to
the relevant Board. Participants will be responsible for assisting the
relevant Board in carrying out the Board's responsibilities under these
conditions by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by each Participating Insurance
Company to inform the relevant Board whenever contract owner voting
instructions are disregarded, and, if pass-through voting is
applicable, an obligation by each Qualified Plan to inform the Board
whenever it has determined to disregard Plan participant voting
instructions. The responsibility to report such conflicts and
information, and to assist the Board will be contractual obligations of
all Participating Insurance Companies under their participation
agreements with the Trusts, and these responsibilities will be carried
out with a view only to the interests of the contract owners. The
responsibility to report such information and conflicts, and to assist
the Board, also will be contractual obligations of all Qualified Plans
with participation agreements, and such agreements will provide that
these responsibilities will be carried out with a view only to the
interests of Plan participants.
4. If it is determined by a majority of a Board, or a majority of
the disinterested trustees of such Board, that a material
irreconcilable conflict exists, then the relevant Participant will, at
its expense and to the extent reasonably practicable (as determined by
a majority of the disinterested trustees, 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 Separate Accounts from the relevant Portfolio and
reinvesting such assets in a different investment medium, including
another Portfolio, or, in the case of insurance company participants,
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.,
annuity contract owners or life insurance contract owners of one or
more Participating Insurance Company) that votes in favor of such
segregation, or offering to the affected contract owners 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 decision by a Participating
Insurance Company to disregard contract owner voting instruction, and
that decision represents a minority position or would preclude a
majority vote, then the insurer may be required, at the election of the
relevant Trust, to withdraw such insurer's Separate Account's
investment in such Trust, 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 relevant Trust, to withdraw its
investment in such Trust, 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, will be a
contractual obligation of all Participants under their agreements
governing participation in the Trust, and these responsibilities will
be carried out with a view only to the interest of contract owners and
Plan participants.
For the purposes of this Condition 4, a majority of the
disinterested members of a Board will determine whether or not any
proposed action adequately remedies any material irreconcilable
conflict, but in no event will any Trust or STI Capital be required to
establish a new funding medium for any variable contract. No
Participating Insurance Company will be required by this Condition 4 to
establish a new funding medium for any variable contract if an offer to
do so has been declined by the vote of a majority of the contract
owners materially and adversely affected by the material irreconcilable
conflict. Further, no Qualified Plan will be required by this Condition
4 to establish a new funding medium for the Plan if: (a) A majority of
the Plan participants materially and adversely affected by the
irreconcilable material 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.
5. A Board's determination of the existence of a material
irreconcilable conflict and its implications will be made known in
writing promptly to all Participants.
6. Participating Insurance Companies will provide pass-through
voting privileges to all contract owners as required by the 1940 Act.
Accordingly, such Participants, where applicable, will vote shares of
the applicable Portfolio held in its Separate Accounts in a manner
consistent with voting instructions timely received from contract
owners. Participating Insurance Companies will be responsible for
assuring that each Separate Account investing in a Portfolio calculates
voting privileges in a manner consistent with other Participants. The
obligation to calculate voting privileges as provided in the
application will be a contractual obligation of all Participating
Insurance Companies under their agreement with the Trust governing
participation in a Portfolio. Each Participating Insurance Company will
vote shares for which it has not received timely voting
[[Page 17918]]
instructions as well as shares it owns in the same proportion as it
votes those shares for which it has received voting instructions. Each
Qualified Plan will vote as required by applicable law and governing
Plan documents.
7. Each Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and, in particular, each Trust 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
Trusts are not one of the trusts described in Section 16(c) of the 1940
Act), as well as with Section 16(a) of the 1940 Act and, if and when
applicable, Section 16(b) of the 1940 Act. Further, each Trust will act
in accordance with the Commission's interpretation of the requirements
of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
8. The Trusts will notify all Participants that separate account
prospectus disclosure regarding potential risks of mixed and shared
funding may be appropriate. Each Trust will disclose in its prospectus
that: (a) Shares of such Trust may be offered to insurance company
separate accounts of both variable annuity and variable life insurance
contracts, and to Qualified Plans; (b) due to differences in tax
treatment and other considerations, the interests of various contract
owners participating in such Trust and the interests of Qualified Plans
investing in such Trust may conflict; and (c) the Trust's Board of
Trustees will monitor events in order to identify the existence of any
material irreconcilable conflicts and to determine what action, if any,
should be taken in response to such conflict.
9. If and to the extent Rule 6e-2 and 6e-3(T) under the 1940 Act
are amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to
provide exemptive relief from any provision of the 1940 Act, or the
rules promulgated thereunder, with respect to mixed or shared funding,
or terms and conditions materially different from any exemptions
granted in the order requested in the application, then the Trusts and/
or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-2 or 6e-3(T), or
Rule 6e-3, as such rules are applicable.
10. The Participants, at least annually, will submit to the Board
of each Trust such reports, materials, or data as a Board reasonably
may request so that the trustees of the Board may fully carry out the
obligations imposed upon a Board by the conditions contained in the
application, and said reports, materials and data will 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, when it so reasonably requests, will be a contractual obligation
of all Participants under their agreements governing participation in
the Portfolios.
11. All reports of potential or existing conflicts received by a
Board, and all Board action with regard to determining the existence of
a conflict, notifying Participants of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the relevant Board or other
appropriate records, and such minutes or other records will be made
available to the Commission upon request.
12. The Trusts will not accept a purchase order from a Qualified
Plan if such purchase would make the Plan shareholder an owner of 10
percent or more of the assets of such Portfolio unless such Plan
executes an agreement with the relevant Trust governing participation
is such Portfolio that includes the conditions set forth herein to the
extent applicable. A Plan will execute an application containing an
acknowledgment of this condition at the time of its initial purchase of
shares of any Portfolio.
Conclusion
For the reasons 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. 98-9465 Filed 4-9-98; 8:45 am]
BILLING CODE 8010-01-M
