[Federal Register Volume 59, Number 69 (Monday, April 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8513]
[[Page Unknown]]
[Federal Register: April 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20189; File No. 812-8700]
Northwestern Mutual Life Insurance Company, et al.
April 4, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Northwestern Mutual Life Insurance Company
(``Northwestern''), Northwestern Mutual Index 500 Stock Fund, Inc.,
Northwestern Mutual Select Bond Fund, Inc., Northwestern Mutual Money
Market Fund, Inc., Northwestern Mutual Balanced Fund, Inc.,
Northwestern Mutual Aggressive Growth Stock Fund, Inc., Northwestern
Mutual International Equity Fund, Inc. (together, the ``Variable
Annuity Funds''), Northwestern Mutual Variable Life Series Fund, Inc.
(the ``Series Fund''), NML Variable Annuity Account B (``Account B''),
Northwestern Mutual Variable Life Account (the ``Variable Life
Account'') and Northwestern Mutual Investment Services, Inc.
(``NMIS'').
RELEVANT 1940 ACT SECTIONS: Exemption requested under section 17(b)
from the provisions of sections 17(a)(1) and 17(a)(2) of the 1940 Act
and pursuant to section 6(c) from sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rule 6e-2(b)(15) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order that would permit the
combination of each of the Variable Annuity Funds into the Series Fund.
Northwestern, the Series Fund and the Variable Life Account also seek
an order pursuant to 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 Rule
6e-2(b)(15) thereunder to the extent necessary to permit the shares of
the Series Fund to be purchased and held after the proposed combination
by the Variable Life Account as well as by any flexible premium
variable life insurance separate account that Northwestern may
establish in the future.
FILING DATES: The application was filed on November 26, 1993 and
amended on March 28, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving Applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on April
29, 1994, and should be accompanied by proof of service on the
Applicants, in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
may request notification of a hearing by writing to the Secretary of
the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, The Northwestern Mutual Life Insurance Company, 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
FOR FURTHER INFORMATION CONTACT:
Wendy Finck Friedlander, Senior Attorney, or Wendell M. Faria, Deputy
Chief at (202) 272-2060, Office of Insurance Products (Division of
Investment Management).
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.
Applicants' Representations
1. Northwestern is a mutual life insurance company that was
organized by a special act of the Wisconsin Legislature in 1857.
Northwestern is licensed to do business as a life insurance company in
all states and the District of Columbia, and has offered variable
annuity contracts since 1969 and variable life insurance policies since
1984.
2. Northwestern at present operates three variable annuity separate
accounts, including Account B, and the Variable Life Account for
variable life insurance. Account B and the Variable Life Account were
established in 1968 and 1983, respectively, as separate investment
accounts of Northwestern pursuant to the Wisconsin separate account
provisions, and are registered under the 1940 Act as unit investment
trusts. Account B is the separate account used for all variable annuity
contracts offered by Northwestern, except for contracts offered to tax-
qualified corporate pension and profit sharing plans and HR-10 plans.
Account B and each of the other variable annuity separate accounts
consist of six divisions and invest their assets entirely in shares of
the six corresponding Variable Annuity Funds. The Variable Life Account
consist of four divisions which invest in corresponding portfolios of
the Series Fund. The variable life insurance policies are scheduled
premium and single premium variable life insurance policies, all of
them ``variable life insurance contracts'' as defined by Rule 6e-
2(c)(1) under the 1940 Act.
3. The Variable Annuity Funds and the Series Fund are Maryland
corporations registered under the 1940 Act as open-end management
investment companies. The Series Fund is presently comprised of four
investment portfolios: The Index 500 Stock Portfolio, the Select Bond
Portfolio, the Money Market Portfolio and the Balanced Portfolio. The
investment objectives, policies and restrictions of each of these
portfolios are essentially identical to those of the corresponding
Variable Annuity Fund.
4. Shares of the Variable Annuity Funds and the Series Fund are
registered under the Securities Act of 1993 (the ``Securities Act''),
and are offered only to Northwestern and its separate accounts. As of
September 30, 1993, Account B owned 57.3% of the outstanding shares of
the International Equity Fund and more than two-thirds of the
outstanding shares of each of the other Variable Annuity Funds. The
remaining shares were held by other variable annuity separate accounts,
except that Northwestern held 4.5% of the outstanding shares of the
Aggressive Growth Stock Fund and 32.8% of the outstanding shares of the
International Equity Fund as general assets. These shares were acquired
by Northwestern when the Funds were organized. Northwestern has
redeemed these shares of the Aggressive Growth Stock Fund.
5. NMIS is a wholly-owned, second tier subsidiary of Northwestern,
and is the investment adviser to the Variable Annuity Funds and the
Series Fund. NMIS is registered as an investment adviser under the
Investment Advisers Act of 1940, and is a registered broker-dealer
under the Securities Exchange Act of 1934.
6. On November 4, 1993, the directors of the Variable Annuity Funds
and the Series Fund unanimously adopted resolutions approving a
proposal to combine the Variable Annuity Funds into the Series Fund on
or about May 1, 1994. The proposal contemplates that the Index, Bond,
Money Market and Balanced Funds will each be combined into the
corresponding portfolio of the Series Fund, and that two additional
portfolios will be created within the Series Fund with investment
objectives, policies and restrictions identical to those of the
Aggressive Growth Stock Fund and the International Equity Fund in order
that those two funds may be combined into the respective new
portfolios. The principal purpose of the proposed combination is to
achieve economies of scale and administrative efficiency.
7. The Agreement and Plan of Reorganization (``Agreement'') adopted
by the directors provides that each Variable Annuity Fund on the
closing date will transfer all of its assets to the corresponding
portfolio of the Series Fund in exchange for shares of that portfolio
having an aggregate net asset value equal to the aggregate value of the
net assets acquired from each Variable Annuity Fund. For purposes of
the transaction, the assets and liabilities of each Variable Annuity
Fund and each Portfolio of the Series Fund will be valued as of the
close of trading on the New York Stock Exchange on the business day
next preceding the closing date in accordance with the valuation
procedures described in the Funds' registration statements. Thereafter,
each Variable Annuity Fund will distribute the shares of the
corresponding Series Fund Portfolio to the Variable Annuity Fund
shareholders in exchange for their Variable Annuity Fund shares, on a
pro rata basis. The Series Fund shares issued in the transaction were
registered under the Securities Act on Form N-14.\1\ Northwestern will
pay all expenses of the Funds attributable to the proposed combination.
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\1\A registration statement on Form N-14 (File No. 33-75638) was
filed for the Series Fund on February 24, 1994. The registration
statement including all exhibits thereto and financial statements,
is incorporated into the application.
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8. A special meeting of the shareholders of each of the Variable
Annuity Funds is planned to take place in April 1994. Prior to the
meeting, Northwestern will solicit voting instructions from the Account
B variable annuity contractowners and payees, and Northwestern will
vote the Account B shares of each Variable Annuity Fund in accordance
with the instructions it receives, as required by the provisions of the
Account B variable annuity contracts. The Account B shares of each
Variable Annuity Fund for which no voting instructions are received
will be voted in the same proportions as those for which instructions
are received.
9. The rest of the shares of the Variable Annuity Funds (except for
the shares held as Northwestern's general assets) are held by variable
annuity separate accounts funding contracts for tax-qualified corporate
pension and profit sharing plans and HR-10 plans. These separate
accounts are not investment companies by reason of Section 3(c)(11) of
the 1940 Act. The employee plans that hold the contracts funded by the
separate accounts are subject to requirements of the Employee
Retirement Income Security Act of 1974 (``ERISA''), which generally
provide that assets of the plans must be administered solely in the
interest of plan participants and beneficiaries. According to
Applicants, ERISA has been interpreted by its administrators and the
courts to mean that proxies for securities held as plan assets must be
voted in accordance with ERISA fiduciary concepts. The Variable Annuity
Fund shares held for the pension separate accounts are not plan assets
as such because the plan holds contracts issued by the pension separate
accounts rather than shares of the Variable Annuity Funds. Applicants
state, however, that the policy of ERISA suggests that the Variable
Annuity Fund shares should be voted based on the intelligent exercise
of discretionary authority on behalf of plan participants and
beneficiaries. Northwestern intends to vote the Variable Annuity Fund
shares held for these pension separate accounts, and the shares held as
Northwestern's general assets, in favor of the proposed transaction.
10. Applicants represent that in accordance with Maryland General
Corporation Law, the proposed combination will not take place unless it
has been approved by the affirmative vote of at least two-thirds of the
outstanding shares of each of the Variable Annuity Funds. In addition,
Applicants represent that they will not proceed with implementation of
the proposal unless the proposal also receives the support of at least
two-thirds of the Account B shares of each Fund.
11. In addition to the required approval by the shareholders of
each of the Variable Annuity Funds, the Agreement provides that the
Funds must receive from the Commission the requested order of
exemption, and must receive an opinion of tax counsel to the effect
that the combination of the Funds will qualify as a tax-free
reorganization under the Internal Revenue Code of 1986.
12. Implementation of the proposed combination of the funds will
have no economic impact on values, fees or charges under the variable
annuity contracts or the rights or interests of owners and payees. The
proposed transactions also will have no economic impact on owners of
Northwestern's variable life insurance policies except for the indirect
effect on the Series Fund's investment performance and expenses which
may result from an increase in the size of its assets.
Applicants' Legal Analysis Under Section 17
1. Because Northwestern owns all of the outstanding voting
securities of each of the Variable Annuity Funds and each of the
Portfolios of the Series Fund and Section 2(a)(9) of the 1940 Act
establishes a presumption that a person owning 25% or more of another
person's outstanding voting securities controls the latter person, each
of the Variable Annuity Fund and each Portfolio of the Series Fund are
presumed to be under the common control of Northwestern. The Variable
Annuity Funds are therefore affiliated persons of the Series Fund and
its Portfolios.
2. Section 17(a) of the 1940 Act makes it unlawful for any
affiliated person of a registered investment company, or any affiliated
person of such a person, acting as principal (a) knowingly to sell any
security or other property to such registered company or (b) knowingly
to purchase from such registered company any security or other
property. Because the Funds are affiliated persons of each other, the
sale of the assets of the Variable Annuity Funds to the Series Fund,
and their purchase by the Series Fund, would violate Section 17(a).
3. Rule 17a-8 under the 1940 Act permits affiliated registered
investment companies to merge under certain conditions, notwithstanding
the prohibitions of section 17(a). One of those conditions stipulates
that the investment companies be affiliated solely because they share
common officers, directors, or a common investment adviser. Applicants
believe that the exemption provided by Rule 17a-8 may not be available
to them, in that the Variable Annuity Funds and the Series Fund may be
deemed to be affiliated in ways not contemplated by the rule.
Nonetheless, Applicants have complied with Rule 17a-8's other
conditions. Specifically, the directors of the Variable Annuity Funds
and the Series Fund, including a majority of the disinterested
directors, have determined that the proposed combination is in the best
interest of the shareholders of the Variable Annuity Funds and the
Series Fund, and have approved the form of the Agreement.
4. Section 17(b) of the 1940 Act provides that the Commission, upon
application, shall grant an order exempting a proposed transaction
otherwise barred by section 17(a) if evidence establishes that (a) the
terms of the proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned; (b) the proposed
transaction is consistent with the policy of each registered investment
company concerned, as recited in its registration statement and reports
filed under the 1940 Act; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act. The Applicants
contend that the proposed transaction meets these tests.
5. In considering and evaluating the proposed combination from the
perspective of both the Variable Annuity Funds and the Series Fund and
its Portfolios, and their respective shareholders, the directors
recognized that the investment objectives, policies and restrictions of
each of the existing Portfolios of the Series Fund are identical in all
relevant respects to the investment objectives, policies and
restrictions of the corresponding Variable Annuity Funds. The directors
recognized, further, that the two Portfolios to be created and added to
the Series Fund will have investment objectives, policies and
restrictions identical to the other two Variable Annuity Funds, i.e.,
the Aggressive Growth Stock Fund and the International Equity Fund.
6. Applicants state that the directors have given particular
attention to the management fees and other expenses paid and incurred
by the respective Funds currently and in the context of the proposed
combination. For the Series Fund the present management agreement
provides for compensation at the annual rate of \3/10\ of 1% of the
Fund's net assets. The manager pays all expenses of the Series Fund
except interest, taxes and brokerage commissions, and any extraordinary
or non-recurring expenses incurred in connection with the operation of
the Fund. The Series Fund accordingly has never incurred any expenses
except for brokerage commissions and the management fee of 30 basis
points. The present advisory agreement for the Index Fund provides for
a management fee at the annual rate of \2/10\ of 1% of the Fund's net
assets. The Index Fund bears certain internal expenses not borne by the
Series Fund Portfolios, but these are falling as a percentage of the
Index Fund's assets as the Index Fund's size increases. Total expenses
for the Index Fund in 1992 were 26 basis points. The proposed
combination of the Index Fund into the Index 500 Stock portfolio of the
Series Fund requires that the management agreement for the Series Fund
be revised to conform the expense structure to that of the present
Index Fund arrangement. For the Bond Fund and the Balanced Fund the
present investment advisory agreements provide for management
compensation at the annual rate of \5/10\ of 1% of assets on assets in
excess of $50 million and further reduced to \3/10\ of 1% on assets in
excess of $100 million. This was also the schedule for the Money Market
Fund until May 1, 1993, when the management fee was reduced to 30 basis
points. Each of these three funds bears certain internal expenses. For
the Balanced Fund, with assets in excess of $1.5 billion, total
expenses came to about 31 basis points in 1992, including the
management fee. For the Bond Fund and the Money Market Fund the
corresponding expenses were about 47 and 48 basis points, respectively,
reflecting the fact that these Funds are much smaller. The proposed
combination of the funds will retain the present cost and fee structure
for the Select Bond Portfolio, Money Market Portfolio and the Balanced
Portfolio of the Series Fund, with expenses of 30 basis points. The
directors recognized that this proposal should substantially benefit
the present shareholders of the Bond Fund and also result in a slightly
lower expense level for the present shareholders of the Balanced Fund
and the Money Market Fund. For the Aggressive Growth Stock Fund and the
International Equity Fund, the management fees and other expenses are
higher, and the existing structure of costs and fees for these Funds
will be retained for the two corresponding Series Fund Portfolios
proposed to be created. Applicants acknowledge that the proposed
combination of these two Funds into the Series Fund will not have an
immediate effect on costs, but they note that the availability of these
investment options will be advantageous for the present owners of
variable life insurance policies and the participation of the Variable
Life Account in these Portfolios should tend to increase the rate of
growth for these Portfolios, with corresponding efficiencies which
should be consistent with enhanced performance for the present
shareholders as well.
7. The Applicants note that the combination of the Funds as
proposed will reduce revenues received from the present shareholders of
the Bond and Balanced Funds and the Index Portfolio of the Series Fund,
and the Funds' adviser will bear increased expenses. Based on 1992
asset sizes, Applicants have calculated that the cost impact of the
proposed changes would amount to $356,000. With the proposed
combination of the Funds, these costs would be at least partly offset
by anticipated savings, primarily for accounting staff and audit fees.
In addition, Northwestern expects to add three new investment options
for both variable life insurance and variable annuities by May 1994,
and may develop additional options in the future. The Applicants state
that these plans can be accommodated most efficiently by combining all
of the present operations into the Series Fund and adding more series
as management and the directors of the Fund may determine.
8. Applicants believe that the proposed combination of the Funds
will have no adverse tax consequences for the Funds or their
shareholders. Northwestern will pay the costs of the transaction,
including the cost of soliciting voting instructions from
contractowners and any costs incurred by the Series Fund in liquidating
any securities received from the Variable Annuity Funds that are
inconsistent with the investment objectives and policies of the
respective Portfolios of the Series Fund. There will be no dilution of
any investor's interest as a result of the transaction.
9. Applicants assert that, as a mutual life insurance company,
Northwestern has no reason to prefer one group of its contractowners
over another group. From Northwestern's perspective, the sole purpose
of the Funds is to serve as investment funding vehicles for
Northwestern's variable contracts.
Applicants' Legal Analysis Under Section 6(c)
1. After the Substitution, the Series Fund will be used as the
underlying investment vehicle for both Account B and the Variable Life
Account, and may be used by any flexible premium variable life
insurance separate account that Northwestern may establish in the
future. The use of a single management company as the underlying
investment vehicle for both variable annuities and variable life
insurance is referred to as ``mixed funding.'' Rule 6e-2(b)(15) under
the 1940 Act precludes mixed funding. However, Northwestern and the
Variable Life Account rely on Rule 6e-2 for certain exemptions from the
1940 Act as they offer scheduled premium variable life insurance
policies. Applicants therefore request an exemption under section 6(c)
of the 1940 Act from sections 9(a), 13(a), 15(a) and 15(b) of the 1940
Act, and Rule 6e-2(b)(15) thereunder, to the extent necessary to permit
the Variable Life Account to purchase and hold shares of the Series
Fund after the proposed combination of the Variable Annuity Funds into
the Series Fund.
2. Sections 9(a)(1) and 9(a)(2) of the 1940 Act generally
disqualify any person convicted of certain offenses, and any affiliate
of such person, from functioning in various capacities with respect to
a registered investment company. Section 9(a)(3), among other things,
makes it unlawful for any company to serve as depositor for a
registered investment company if an affiliated person of that company
is subject to a disqualification set forth in section 9(a)(1) or
section 9(a)(2). Rule 6e-2(b)(15) provides exemptions from section 9(a)
under certain circumstances and limitations to, in effect, permit a
life insurance company to serve as depositor for a variable life
insurance separate account even if one or more of its employees or
other affiliates may be ineligible under section 9(a). These exemptions
limit the application of the disability restrictions to employees and
other affiliates who directly participate in the management of the
underlying management company. The partial relief in Rule 6e-2(b)(15)
from the requirements of section 9 limits, in effect, the monitoring of
an insurer's personnel that would otherwise be necessary to ensure
compliance with section 9 to that which is appropriate in light of the
policy and purposes of section 9. Applicants contend that those rules
recognize that it is not necessary for the protection of investors or
the purposes fairly intended by the policies and provisions of the 1940
Act to apply the provisions of section 9(a) to all of the individuals
involved in the insurance organization where most of them have no
involvement with investment companies.
3. Rule 6e-2 permits an insurance company to disregard the voting
instructions of its contractowners in certain limited circumstances.
Rule 6e-2(b)(15)(iii) provides partial exemptions from section 13(a),
15(a), and 15(b) of the 1940 Act to the extent that those securities
have been deemed by the Commission to require ``pass through'' voting
with respect to underlying fund shares held by a separate account.
Applicants contend that the limits on ``pass through'' voting
privileges contained in Rule 6e-2(b)(15)(iii) also should apply under
mixed funding.
4. The Applicants maintain that Rule 6e-2 recognizes that a
variable life insurance contract is subject to extensive state
regulation of insurance. In adopting rule 6e-2(b)(15)(iii), the
Commission expressly recognized that state insurance regulators have
authority: (1) Pursuant to state insurance laws or regulations, to
disapprove or require changes in investment policies, investment
advisers, or principal underwriters; and (2) to require an insurer to
draw from its general account to cover costs imposed upon the insurer
by a change approved by contractowners over the insurer's objection.
5. Applicants maintain that the right, under Rule 6e-2(b)(15), of
the company to disregard policyowners' voting instructions does not
raise any issues different from those raised by the authority of state
insurance administrators over separate accounts. Under Rule 6e-
2(b)(15), an insurer can disregard contractowner voting instructions
only with respect to certain specified items and under certain
specified conditions. The potential for disagreement is limited by the
requirement in Rule 6e-2 that the insurance company override of voting
instructions be reasonable and based on specified good faith
determinations.
6. Applicants submit that these rights of the state insurance
authorities and the insurance company to override contractowners'
voting instructions in certain limited circumstances are not
inconsistent with mixed funding. Applicants note that the NAIC Model
Regulation permits the use of a single underlying fund for different
separate accounts, and suggests that it is not likely that insurance
regulators would find an investment policy, principal underwriter, or
investment adviser in-appropriate for one insurance product but not for
another. Applicants observe that the provisions of the separate account
statutes and regulation of Wisconsin, Northwestern's domiciliary state,
are consistent with the NAIC Model Regulation on these points. They
observe that Northwestern has already been operating separate funds
with identical investment objectives, policies, and limitations for
variable annuities and for variable life insurance for almost ten
years, and that no basis for distinguishing the investment program for
variable annuities from the parallel program for variable life
insurance has been identified.
7. The Applicants submit that mixed funding would be of benefit to
shareholders of both the Series fund and the Variable Annuity Funds, as
well as variable life insurance policyowners and variable annuity
contractowners. Mixed funding should benefit owners of all of
Northwestern's variable contracts by eliminating some portion of the
costs of operating and administering separate funds for variable
annuities and variable life insurance. Furthermore, granting the
requested relief should result in an increased amount of assets
available for investment by the Series Fund. This may benefit all
variable contractowners by promoting economies of scale, by permitting
increased safety through greater diversification, or by making the
addition of new Series Fund Portfolios more feasible.
Applicants' Conditions for Section 6(c) Relief
If the requested order is granted, the Applicants consent to the
following conditions:
1. The directors of the Series Fund, a majority of whom shall be
disinterested directors, will monitor the Series Fund for the existence
of any material irreconcilable conflict between interests of the
variable life insurance policyowners and the variable annuity contract
owners and any future owners in the Series Fund. An irreconcilable
material conflict may arise from a variety of reasons, including:
(i) An action by any state insurance regulatory authority;
(ii) 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;
(iii) An administrative or judicial decision in any relevant
proceeding;
(iv) The manner in which the investments of any Portfolio are being
managed;
(v) A difference in voting instructions given by variable life
insurance policyowners, variable annuity contract owners or any future
owners; or
(vi) A decision by Northwestern to disregard the voting
instructions of variable life insurance policyowners.
2. Northwestern will report any potential or existing conflicts to
the directors of the Series Fund. Northwestern will be responsible for
assisting the directors in carrying out their responsibilities under
these conditions, by providing the directors with all information
reasonably necessary for the directors to consider any issues raised.
This includes, but is not limited to, an obligation of Northwestern to
inform the directors whenever voting instructions are disregarded.
3. If it is determined by a majority of the directors of the Series
Fund, or a majority of its disinterested directors, that a material
irreconcilable conflict exists, then Northwestern shall, at
Northwestern's expense and to the extent reasonably practicable (as
determined by a majority of the disinterested directors), take whatever
steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including:
(i) Withdrawing the assets allocable to some or all of the separate
accounts from the Series Fund or any Portfolio therein and reinvesting
such assets in a different investment medium (including another
Portfolio, if any, of the Series Fund) or submitting the question
whether such segregation should be implemented to a vote of all
affected variable life insurance policyowners, variable annuity
contract owners or future owners and, as appropriate, segregating the
assets of any appropriate group or class (i.e., variable annuity
contract owners, variable life insurance policyowners, or future
owners) that votes in favor of such segregation, or offering to the
members of the affected group the option of making such a change; and
(ii) Establishing a new registered management investment company or
managed separate account.
If a material irreconcilable conflict arises because of
Northwestern's decision to disregard voting instructions and that
decision represents a minority position or would preclude a majority
vote, Northwestern may be required by the Series Fund to withdraw the
investment of any of its separate accounts from the Series Fund, and no
charge or penalty will be imposed as a result of such withdrawal. For
the purposes of the conditions set forth in this paragraph, a majority
of the disinterested directors shall determine whether or not any
proposed action adequately remedies any irreconcilable material
conflict, but in no event shall the Series Fund be required to
establish a new funding medium for any variable contract. Northwestern
shall not be required by this condition to establish a new funding
medium for any variable contract if an offer to do so has been declined
by vote of a majority of the group materially adversely affected by the
irreconcilable material conflict.
4. The determination by the directors of the existence of any
irreconcilable material conflict and its implications shall be made
known promptly in writing to Northwestern.
5. Northwestern will provide pass-through voting privileges to all
variable life insurance policyowners, variable annuity contract owners
or future owners so long as the Commission continues to interpret the
1940 Act as requiring pass-through voting privileges for variable
contract owners. Northwestern shall be responsible for assuring that
each of its separate accounts participating in the Series Fund
calculates voting privileges in a manner consistent with the other
separate accounts and in accordance with the provisions of the
respective variable contracts.
6. The Series Fund shall disclose in its prospectus that (1) shares
of the Series Fund are offered to separate accounts of Northwestern
which fund both variable life insurance policies and variable annuity
contracts, (2) due to differences of tax treatment or other
considerations, the interests of variable life insurance policyowners,
variable annuity contract owners or future owners participating in the
Series Fund might at some time be in conflict, and (3) the directors of
the Series Fund will monitor for any material conflicts and determine
what action, if any, should be taken. The Series Fund shall also notify
Northwestern that disclosure regarding potential risks of mixed funding
may be appropriate in prospectuses for the variable life insurance
policies and the variable annuity contracts.
7. All reports received by the directors of potential or existing
conflicts, and all actions of the directors with regard to determining
the existence of a conflict, and determining whether any proposed
action adequately remedies a conflict, will be properly recorded in the
minutes of the meeting of the directors or other appropriate records,
and such minutes or other records shall be made available to the
Commission upon request.
8. If and to the extent that Rule 6e-2 is amended to provide
exemptive relief from any provision of the 1940 Act or the rules
thereunder with respect to mixed funding on terms and conditions
materially different from any exemptions granted in the order requested
in this Application, then the Series Fund and/or Northwestern, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2, as amended, to the extent such rules are applicable.
Conclusion
1. Applicants request an order of the Commission pursuant to
section 17(b) of the 1940 Act exempting the proposed combination of the
Funds from the provisions of section 17(a)(1) and 17(a)(2) of the 1940
Act. Applicants submit that, for reasons stated above, the terms of the
proposed transaction, including the consideration to be paid and
received, are reasonable and fair to each Variable Annuity Fund and the
Series Fund, to each portfolio of the Series Fund and to shareholders
and owners of variable annuity contracts and variable life insurance
policies invested in each and do not involve overreaching on the part
of any person concerned. Furthermore, the proposed transaction will be
consistent with the policies of each Fund and each Portfolio of the
Series Fund and with the general purposes of the 1940 Act.
2. In addition, Northwestern, the Series Fund and the Variable Life
Account request an order of the Commission pursuant to section 6(c) of
the 1940 Act for exemptions from sections 9(a), 13(a), 15(a), 15(b) of
the 1940 Act and Rule 6e-2(b)(15) thereunder to the extent necessary to
permit the Variable Life Account, and any flexible premium variable
life insurance separate account that Northwestern may establish in the
future, to purchase and hold shares of the Series Fund after the
proposed combination of the Variable Annuity Funds into the Series
Fund.
3. Northwestern, the Series Fund and the Variable Life Account
submit that, for the reasons stated above, the exemptions are 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8513 Filed 4-8-94; 8:45 am]
BILLING CODE 8010-01-M
