[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8283]
[[Page Unknown]]
[Federal Register: April 7, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20179; No. 812-8800]
Norwest Select Funds, et al.
March 31, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``1940 Act'').
-----------------------------------------------------------------------
APPLICANTS: Norwest Select Funds (``Trust'') and Forum Financial
Services, Inc. or any successor thereto (``Forum'') (collectively
``Applicants'').
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of 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).
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit shares of the Trust to be sold to and held by
separate accounts funding variable annuity and variable life insurance
contracts issued by both affiliated and unaffiliated life insurance
companies.
FILING DATE: The application was filed on January 27, 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
25, 1994, and should be accompanied by proof of service on Applicants
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the requester's interest,
the reason for the request and the issues contested. Persons may
request notification of a hearing by writing to the Secretary of the
SEC.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants: Norwest Select Funds, 61 Broadway, New York, New York
10006.
FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Senior Attorney, at (202) 272-2676, or Wendell Faria,
Deputy Chief, at (202) 272-2060, 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 SEC's Public
Reference Branch.
Applicants' Representations
1. The Trust is an open-end management investment company that
currently consists of three separate series (together with any future
series, the ``Funds''): (a) ValuGrowth Stock Fund, (b) Intermediate
Bond Fund, and (c) Adjustable U.S. Government Reserve Fund, each with
its own investment objective and policy. The Trust filed its
Notification of Registration on Form N-8A under the 1940 Act on
December 8, 1993, and its Pre-Effective Registration Statement on Form
N-1A under the 1940 Act and the Securities Act on January 21, 1994.
2. Forum supervises the overall management of the Trust and
provides certain administrative facilities and services for the Trust
under a Management Agreement with the Trust. Forum also acts as the
agent of the Trust in connection with the offering of shares of the
Funds under a Distribution Agreement with the Trust. Forum receives no
payments for its services as distributor.
3. Shares of the Funds will be offered initially only to the
Minnesota Mutual Life Insurance Company (``Minnesota Mutual'') and
Fortis Benefits Insurance Company (``Fortis'') to be used as investment
vehicles for certain variable annuity contracts, variable life
insurance contracts and variable group life insurance contracts. Shares
of existing and future Funds also may be offered to separate accounts
of insurance companies that are unaffiliated with Minnesota Mutual or
Fortis (together, ``Participating Insurance Companies'') to be used to
fund various variable annuity contracts, scheduled premium variable
life insurance contracts, and flexible premium variable life insurance
contracts issued by the unaffiliated insurance companies (collectively
with the Fortis and Minnesota Mutual contracts, ``Variable
Contracts'').
4. Norwest Investment Management (``Adviser'') serves as Investment
Adviser to the Funds. The Adviser is a part of Norwest Bank Minnesota,
N.A., a subsidiary of Norwest Corporation, a multi-bank holding
company. The Adviser has not registered under the Investment Advisers
Act of 1940 (``Advisers Act'') in reliance on the exclusions provided
under section 202(a)(11) of the Advisers Act and in reliance on the
provisions of rules 6e-2(a)(7) and 6e-3(T)(a)(6) of the 1940 Act.
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 (``Trust Account''), rule
6e-2(b)(15) provides partial exemptions from sections 9(a), 13(a),
15(a), and 15(b) of the 1940 Act. The relief provided by Rule 6e-2 is
also available to a separate account's investment adviser, principal
underwriter, and sponsor or depositor.
The exemptions granted by the rule 6e-2(b)(15) are available only
where the management investment company underlying the Trust Account
(``underlying fund'') offers its shares ``exclusively to variable life
insurance separate accounts of the life insurer, or of any affiliated
life insurance company.'' 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 premium
variable life insurance separate account of the same company or of any
affiliated life insurance company. The use of a common management
investment company as the underlying investment medium for both
variable annuity and variable life insurance separate accounts of the
same life insurance company or of any affiliated life insurance company
is referred to herein as ``mixed funding.''
2. Additionally, 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 separate accounts that fund variable contracts of
one or more unaffiliated life insurance companies. The use of a common
management investment company as the underlying investment medium for
variable life insurance separate accounts of one insurance company and
separate accounts funding variable contracts of one or more
unaffiliated life insurance companies is referred to herein as ``shared
funding.''
3. In connection with the funding of flexible premium variable life
insurance contracts issued through a Trust Account, 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 relief provided by Rule 6e-3(T) also is available
to a separate account's investment adviser, principal underwriter, and
sponsor or depositor. The exemptions granted by rule 6e-3(T) are
available only where the Trust Account's underlying fund offers its
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 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 with respect to a flexible premium variable life
insurance separate account, subject to certain conditions. However,
rule 6e-3(T) does not permit shared funding because the relief granted
by rule 6e-3(T)(b)(15) is not available with respect to a flexible
premium variable life insurance separate account that owns shares of a
management company that also offers its shares to separate accounts
(including variable annuity and flexible premium and scheduled premium
variable life insurance separate accounts) of unaffiliated life
insurance companies.
4. Applicants therefore request that the Commission, under its
authority in section 6(c) of the 1940 Act, grant 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 for themselves and for variable life
insurance separate accounts of the Participating Insurance Companies,
and the principal underwriters and depositors of such separate
accounts, to the extent necessary to permit mixed funding and shared
funding.
5. Section 9(a) of the 1940 Act makes it unlawful for any company
to serve as an investment adviser to, or principal underwriter for, any
registered open-end investment company if an affiliated person of that
company is subject to any disqualification specified in sections
9(a)(1) or 9(a)(2). Rule 6e-2(b)(15) (i) and (ii) and rule 6e-
3(T)(b)(15) (i) and (ii) provide exemptions from section 9(a) under
certain circumstances, subject to 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 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) are participating in the
management or administration of the fund.
6. 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(a), in
effect, limits 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 state that rules 6e-2 and 6e-3(T) recognize that it is not
necessary for the protection of investors or for the purposes of the
1940 Act to apply the provisions of section 9(a) to the many
individuals in an insurance company complex, most of whom typically
will have no involvement in matters pertaining to an investment company
in that organization. Applicants submit that there is no regulatory
reason to apply the provisions of section 9(a) to the many individuals
in various unaffiliated insurance companies (or affiliated companies of
Participating Insurance Companies) that may utilize a Fund as the
funding medium for variable contracts.
7. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial
exemptions from sections 13(a), 15(a), and 15(b) of the 1940 Act to the
extent that those sections have been deemed by the Commission to
require ``pass-through'' voting with respect to management investment
company shares held by a separate account, to permit the insurance
company to disregard the voting instructions of its contractowners in
certain limited circumstances.
Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that
the insurance company may disregard voting instructions of its
contractowners in connection with the voting of shares of an underlying
fund if such instructions would require such shares to be voted to
cause such companies to make, or refrain from making, certain
investments which would result in changes in the subclassification or
investment objectives of such companies, or to approve or disapprove
any contract between a fund and its investment advisers, when required
to do so by an insurance regulatory authority, subject to the
provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of each rule.
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that
the insurance company may disregard contractowners' voting instructions
if the contractowners initiate any change in such company's investment
policies or any principal underwriter or investment 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 each rule.
Applicants believe that the limits on pass-through voting
privileges contained in rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
should continue to apply under mixed and shared funding.
8. Applicants submit that shared funding by unaffiliated insurance
companies should not present any issues that do not already exist where
a single insurance company is licensed to do business in several or all
states. In this regard, Applicants state that 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. Accordingly, Applicants submit that the fact that
different insurers may be domiciled in different states does not create
a significantly different or enlarged problem.
9. Applicants state further that, under rules 6e-2(b)(15)(iii) and
6e-3(T)(b)(15)(iii), the rights of the insurance company to disregard
the voting instructions of its contractowners do not raise any issues
different from those raised by the authority of state insurance
administrators over separate accounts, and that affiliation does not
eliminate the potential, if any, for divergent judgments as to the
advisability or legality of a change in investment policies, principal
underwriter, or investment adviser initiated by contractowners.
Applicants state that the potential for disagreement is limited by the
requirements in rules 6e-2 and 6e-3(T) that the insurance company's
disregard of voting instructions be reasonable and based on specific
good faith determinations.
10. Applicants submit that mixed funding and shared funding should
benefit variable contractowners by: (a) Eliminating a significant
portion of the costs of establishing and administering separate funds;
(b) allowing for a greater amount of assets available for investment by
the Funds, thereby promoting economies of scale, permitting greater
safety through greater diversification, and/or making the addition of
new portfolios more feasible; and (c) encouraging more insurance
companies to offer variable contracts, resulting 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. Each Fund will be managed to attempt to achieve its investment
objectives and not to favor or disfavor any particular Participating
Insurance Company or type of insurance product.
11. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Applicants state
that separate accounts organized as unit investment trusts have
historically been employed to accumulate shares of mutual funds which
have not been affiliated with the depositor or sponsor of the separate
account. Applicants also believe that mixed and shared funding will
have no adverse federal income tax consequences.
Applicants' Conditions
The Applicants have consented to the following conditions:
1. A majority of the Board of Trustees of the Trust (``Board'')
shall consist of persons who are not ``interested persons,'' as defined
by section 2(a)(19) of the 1940 Act and Rules thereunder and as
modified by any applicable orders of the Commission, except that, if
this condition is not met by reason of death, disqualification, or bona
fide resignation of any trustee or trustees, then the operation of this
condition shall be suspended: (i) For a period of 45 days, if the
vacancy or vacancies may be filled by the Board; (ii) for a period of
60 days, if a vote of shareholders is required to fill the vacancy or
vacancies; or (iii) for such longer period as the Commission may
prescribe by order upon application.
2. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the
contractowners of all separate accounts investing in the Trust. A
material irreconcilable conflict may arise for a variety of reasons,
including: (a) State insurance regulatory authority action; (b) a
change in applicable federal or state insurance, tax, or securities
laws or regulations, or a public ruling, private letter ruling, no-
action or interpretive letter, or any similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of the Trust are being managed; (e) a difference in voting
instructions given by variable annuity and variable life insurance
contractowners; or (f) a decision by an insurer to disregard
contractowner voting instructions.
3. Participating Insurance Companies and Forum will report any
potential or existing conflicts, of which they become aware, to the
Board. Participating Insurance Companies and Forum will be obligated to
assist the Board in carrying out its responsibilities by providing the
Board with all information reasonably necessary for it to consider any
issues raised. This responsibility includes, but is not limited to, an
obligation by each Participating Insurance Company to inform the Board
whenever contractowner voting instructions are disregarded. These
responsibilities will be contractual obligations of all Participating
Insurance Companies investing in the Trust under their agreements
governing participation therein, and such agreements shall provide that
such responsibilities will be carried out with a view only to the
interests of the contractowners.
4. If a majority of the Board, or a majority of the disinterested
members of the Board, determine that a material irreconcilable conflict
exists, the relevant Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determinated by a
majority of disinterested members of the Board), take whatever steps
are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (a) Withdrawing the assets allocable to
some or all of the separate accounts from the Trust or any Fund therein
and reinvesting such assets in a different investment medium (including
another Fund, if any, of the Trust), or submitting the question whether
such segregation should be implemented to a vote of all affected
contractowners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contractowners, life insurance
contractowners, or variable contractowners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a
change; and (b) establishing a new registered management investment
company or managed separate account. If a material irreconcilable
conflict arises because of a Participating Insurance company's decision
to disregard contractowner voting instructions, and that decision
represents a minority position or would preclude a majority vote, the
Participating Insurance Company may be required, at the election of the
Trust, to withdraw its separate account's investment therein, 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
Participating Insurance Companies under their agreements governing
participation in the Trust and these responsibilities will be carried
out with a view only to the interests of the contractowners.
For the purposes of condition (4), a majority of disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no
event will the Trust or Forum be required to establish a new funding
medium for any variable contract. No Participating Insurance Company
shall 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 a vote of a majority of contractowners materially affected by the
irreconcilable material conflict.
5. The determination by the Board of the existence of an
irreconcilable material conflict and its implications shall be made
known promptly in writing to all Participating Insurance Companies.
6. Participating Insurance Companies will provide pass-through
voting privileges to all variable contractowners so long as the
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for variable contractowners. Accordingly,
each Participating Insurance Company will vote shares of each Fund held
in its separate accounts in a manner consistent with timely voting
instructions received from contractowners. Each Participating Insurance
Company also will vote shares of each Fund held in its separate
accounts for which no timely voting instructions from contractowners
are received, as well as shares it owns, in the same proportion as
those shares for which voting instructions are received. Each
Participating Insurance Company shall be responsible for assuring that
each of their separate accounts participating in the Trust calculates
voting privileges in a manner consistent with all other Participating
Insurance Companies. The obligation to calculate voting privileges in a
manner consistent with all other separate accounts investing in the
Trust shall be a contractual obligation of all Participating Insurance
Companies under their agreements governing participation in the Trust.
7. The Trust will notify all Participating Insurance Companies that
prospectus disclosure regarding potential risks of mixed and shared
funding may be appropriate. The Trust shall disclose in its Prospectus
that: (a) Its shares are offered to insurance company separate accounts
which fund both annuity and life insurance contracts; (b) because of
differences of tax treatment or other considerations, the interests of
various contractowners participating in the Trust might at some time be
in conflict; and (c) the Board will monitor the Trust for any material
conflicts and determine what action, if any, should be taken.
8. All reports received by the Board regarding potential or
existing conflicts, and all Board action with respect to determining
the existence of a conflict, notifying Participating Insurance
Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the
minutes of the Board or other appropriate records, and such minutes or
other records shall be made available to the Commission upon request.
9. If and to the extent rule 6e-2 and rule 6e-3(T) are amended, or
rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules thereunder with respect to mixed and shared
funding on terms and conditions materially different from any
exemptions granted in the order requested, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with rule 6e-2 and rule 6e-3(T), as
amended, and rule 6e-3, as adopted, to the extent such rules are
applicable.
10. The Trust 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 Trust), and
in particular the Trust either will provide for annual meetings (except
insofar as the Commission may interpret section 16 of the 1940 Act not
to require such meetings) or comply with section 16(c) (although the
Trust is not one of the trusts described in this section) as well as
with sections 16(a) and, if and when applicable, section 16(b).
Further, the Trust 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.
11. The Participating Insurance Companies and/or Forum, at least
annually, shall submit to the Board such reports, materials or data as
the Board may reasonably request so that it may fully carry out the
obligations imposed upon it by these stated conditions, and said
reports, materials, and data shall be submitted more frequently if
deemed appropriate by the Board. The obligations of the Participating
Insurance Companies to provide these reports, materials, and data to
the Board when it so reasonably requests, shall be a contractual
obligation of all Participating Insurance Companies under their
agreements governing participation in each Fund.
Conclusion
For the reasons stated above, Applicants believe that the requested
exemptions, in accordance with the standards of section 6(c), 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. 94-8283 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M
