[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27583-27587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12696]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21082; File No. 812-9280]
T. Rowe Price Equity Series, Inc. et al.
May 17, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or
``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'' or ``Act'').
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APPLICANTS: T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc.
(the ``Fund(s)'') and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (the ``Adviser(s)'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
Act for exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the
Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order of exemption to the
extent necessary to permit shares of the Funds to be issued to and held
by registered and unregistered variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life
insurance companies.
FILING DATE: The application was filed on October 11, 1994 and amended
on May 4, 1995.
HEARING OR NOTIFICATION HEARING: An order granting the application will
be [[Page 27584]] issued unless the SEC 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 must be received by the SEC by 5:30 p.m. on June 12,
1995 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 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, D.C.
20549. Applicants, 100 East Pratt Street, Baltimore, Maryland 21202.
FOR FURTHER INFORMATION CONTACT:
Joyce Merrick Pickholz, Senior Counsel, or Wendy Finck Friedlander,
Deputy Chief, on (202) 942-0670, Office of Insurance Products, Division
of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each Fund is a Maryland corporation registered under the Act as
an open-end diversified management investment company. The authorized
capital stock of each Fund may be issued as one or more classes (each a
``Series'') of stock, each Series representing an interest in a
different investment portfolio. T. Rowe Price Equity Series, Inc.
currently consists of three Series. T. Rowe Price Associates, Inc. is
the investment adviser for the three Series. T. Rowe Price
International Series, Inc. currently consists of one Series of stock
for which Rowe Price-Fleming International, Inc. serves as investment
adviser. T. Rowe Price Fixed Income Series, Inc. currently consists of
one Series for which T. Rowe Price Associates, Inc. Serves as the
investment adviser. The registration statements for the funds on Form
N-1A are incorporated by reference into the application (File Nos. 33-
52161, 33-52171 and 33-52749 for T. Rowe Price Equity Series, Inc., T.
Rowe Price International Series, Inc. and T. Rowe Price Fixed Income
Series, Inc. respectively).
2. Shares of the Funds will be offered to insurance companies as
investment vehicles for their separate accounts that support variable
annuity contracts and/or variable life insurance contracts
(collectively, ``variable contracts''). Insurance companies whose
separate accounts do or will own shares of the Funds are referred to
herein as ``participating insurance companies,'' respectively.
3. Each participating insurance company will design its own
variable annuity or variable life insurance contracts for issuance
through its participating separate account. Each participating
insurance company will have the legal obligation of satisfying all
requirements applicable to it under the federal securities laws. It is
anticipated that participating insurance companies and their registered
separate accounts will rely on Rule 6e-2 or 6e-3(T) under the Act,
although some may rely on individual exemptive orders as well, in
connection with variable life insurance contracts. The Funds' role vis-
a-vis the variable contracts, so far as the federal securities laws are
applicable, will be limited to that of offering their shares to
participating separate accounts of participating insurance companies,
and fulfilling any conditions the Commission may impose upon granting
the Order requested in the application.
4. Applicants anticipate that certain participating insurance
companies may have a separate account investing in the Funds that will
not be registered as an investment company under the Act in reliance on
relevant exemptions (an ``unregistered separate account''). Applicants
represent that these participating insurance companies would be parties
to participation agreements with the Funds, as contemplated by the
conditions set forth in the application, and the same conditions would
be imposed by such agreements on unregistered separate accounts as on
registered separate accounts. Further, with respect to voting
privileges, shares attributable to variable contracts supported by
unregistered separate accounts will be deemed to be shares owned by the
insurance company for purposes of the conditions set forth in the
application relating to voting of Fund shares, unless voting privileges
have been extended to the variable contracts supported by such
unregistered separate accounts. Where voting privileges have been
extended, Fund shares attributable to the variable contracts will be
voted in accordance with instructions received from the owners thereof.
Applicants' Legal Analysis
1. In connection with scheduled premium variable life insurance
contracts issued through a separate account registered under the 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 Act. The exemptions
granted to a separate account (and any investment adviser, principal
underwriter and depositor thereof) by Rule 6e-2(b)(15), however, are
not available with respect to a scheduled premium variable life
insurance separate account that owns shares of an investment company
that also offers its shares to a variable annuity separate account of
the same or of any affiliated or unaffiliated insurance company
(``mixed funding''). In addition, the relief granted by Rule 6e-
2(b)(15) is not available if shares of the underlying investment
company are offered to variable annuity or variable life insurance
separate accounts of unaffiliated insurance companies (``shared
funding''). ``Mixed and shared funding'' denotes the use of a common
management investment company to fund a variable annuity separate
account of one insurance company and the variable annuity or variable
life separate accounts of other affiliated and unaffiliated insurance
companies. Accordingly, Applicants seek an order exempting scheduled
premium variable life insurance separate accounts (and, to the extent
necessary, any investment adviser, principal underwriter and depositor
of such an account) from Sections 9(a), 13(a), 15(a) and 15(b) of the
Act, and Rule 6e-2(b)(15) thereunder, to the extent necessary to permit
shares of the Funds to be offered and sold in connection with both
mixed funding and shared funding.
2. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the Act as
a unit investment trust, Rule 6e-3(T)(b)(15) provides partial
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the Act. The
exemptions granted to a separate account (and to any investment
adviser, principal underwriter and depositor thereof) by Rule 6e-
3(T)(b)(15) permit mixed funding of flexible premium variable life
insurance but preclude shared funding. Accordingly, Applicants seek an
order exempting flexible premium variable life insurance separate
accounts (and, to the extent necessary, any investment adviser,
principal underwriter and depositor of such an account) from Sections
9(a), 13(a), and 15(b) of the Act, and Rule 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Funds to be offered and
sold to separate accounts in connection with shared funding.
3. Section 9(a) 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 [[Page 27585]] 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 or administration of the underlying management investment
company.
4. The application states that the partial relief granted in Rules
6e-2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 of
the Act limits the amount of monitoring necessary to ensure compliance
with Section 9 to that which is appropriate in light of the policy and
purposes of Section 9. The Applicants state that those Rules recognize
that it is not necessary for the protection of investors or the
proposes fairly intended by the policy and provisions of the 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 (or invested in by) that
organization. Applicants state that it is also unnecessary to apply
Section 9(a) to individuals in various unaffiliated insurance companies
(or affiliated companies of participating insurance companies) that may
utilize the Funds as the funding medium for variable contracts.
Applicants argue that applying the requirements of Section 9(a) because
of investment by other insurers' separate accounts would be unjustified
and would not serve any regulatory purpose. The application states that
the participating insurers are not expected to play any role in the
management or administration of the Funds and that those individuals
who participate in the management or administration of the Funds will
remain the same regardless of which separate accounts or insurance
companies use the Funds. Furthermore, the increased monitoring costs
would reduce the net rates of return realized by contract owners.
5. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume the
existence of a pass-through voting requirement with respect to
management investment company shares held by a separate account.
Applicants state that pass-through voting privileges will be provided
with respect to all owners of variable contracts registered with the
Commission so long as the Commission interprets the Act to require
pass-through voting privileges for variable contract owners. Applicants
anticipate that contracts supported by separate accounts that are not
registered under the Act, will not provide for pass-through voting
privileges. Applicants represent that shares of the Funds that are
attributable to those contracts will be voted in the same proportion as
those shares for which voting instructions have been received.
6. 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. Both Rules 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. Voting instructions may also be
disregarded by the insurance company if the contract owners initiate
any change in the investment company's investment policies, principal
underwriter or any investment adviser provided that disregarding such
voting instructions is reasonable and based on a specific good faith
determination as required under the Rules. Applicants assert that the
rights of an insurance company or of a state insurance regulator to
disregard contract owner's voting instructions are not inconsistent
with mixed or shared funding. According to the Applicants, there is no
reason why the investment policies of any portfolio of the Funds would
or should be materially different from what it would or should be if it
funded only annuity contracts or only scheduled or flexible premium
life contracts and that there is no reason to believe that different
features of various types of contracts will lead to different
investment policies for different types of variable contracts.
Applicants represent that the Funds will not be managed to favor or
disfavor any particular insurer or type of insurance product.
7. The Application states that mixed and shared funding should
provide several benefits to variable contract holders. It would permit
a greater amount of assets available for investment, thereby promoting
economies of scale, permitting a greater diversification, and making
the addition of new portfolios more feasible. The Applicants believe
that making the Funds 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.
8. The Applicants see no significant legal impediment to permitting
mixed and shared funding. 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. The Applicants do not believe that
mixed and shared funding will have any adverse federal income tax
consequences.
Applicants' Conditions
Applicants consent to the following conditions if an order is
granted:
1. A majority of the Board of Directors of each Fund (the
``Board'') shall consist of persons who are not ``interested persons''
of the Fund, as defined by Section 2(a)(19) of the Act and the Rules
thereunder and as modified by any applicable orders of the Commission,
except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any director or directors,
then the operation of this condition shall be suspended: (a) For a
period of 45 days if the vacancy or vacancies may be filled by the
Board of Directors; (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 Fund for the existence of any
material irreconcilable conflict between the interests of the life
insurance contract owners and annuity contract owners and any future
contract owners in the Fund. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) An action by any state
insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or
any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Series are
being managed; or (e) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract
owners.
3. Participating insurance companies and the Advisers will report
any potential or existing conflicts to the Board. Participating
insurance companies and the Advisers will be responsible for assisting
each Board in carrying out its responsibilities under
[[Page 27586]] 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 Board whenever contract
owner voting instructions are disregarded. The responsibility to report
such information and conflicts and to assist the board will be a
contractual obligation of all participating insurance companies under
the agreements governing participation in a Fund and these
responsibilities will be carried out with a view only to the interests
of the contract owners.
4. If it is determined by a majority of the Board, or a majority of
its disinterested directors, that a material irreconcilable conflict
exists, the relevant insurance companies shall, at their 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 material irreconcilable conflict, including: (1)
Withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Series and reinvesting such assets in a
different investment medium, including another Series of the Fund, or
submitting the question whether such segregation should be implemented
to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity
contract owners, variable life insurance contract owners or variable
contract owners or one or more participating insurance companies) that
votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed
separate account. If a material irreconcilable conflict arises because
of a participating insurer's decision to disregard contract owner
voting instructions and that decision represents a minority position or
would preclude a majority vote, the insurer may be required, at the
Fund's election, to withdraw its separate account's investment in the
Fund and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take remedial action in the event of
a Board determination of a material irreconcilable conflict and to bear
the cost of such remedial action shall be a contractual obligation of
all participating insurance companies under their agreements governing
participation in a Fund.
For purposes of condition 4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no
event will the Fund or the applicable Adviser be required to establish
a new funding vehicle for any variable contract. No participating
insurance company shall be required by this condition 4 to establish a
new funding vehicle for any variable contract if an offer to do so has
been declined by vote of a majority of contract owners materially
adversely affected by the irreconcilable material conflict, but in no
event will a Fund or the Advisers 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 to contract owners materially
adversely affected by the irreconcilable material conflict.
5. A Board's determination of the existence of a material
irreconcilable conflict and its implications shall be made known
promptly to all participating insurance companies.
6. Participating insurance companies will pass-through voting
privileges to owners of variable contracts registered with the
Commission so long as the Commission continues to interpret the Act as
requiring pass-through voting privileges for such variable contracts.
As to such owners and owners of any other variable contracts to which
voting privileges have been extended, participating insurance companies
will vote shares of the applicable Fund held in their separate accounts
in a manner consistent with timely voting instructions received from
such contract owners. Each participating insurance company will vote
shares of the Fund held in its separate accounts for which no timely
voting instructions from contract owners are received, as well as
shares it owns (including shares held by unregistered separate accounts
supporting variable contracts for which not voting privileges have been
granted to the owners thereof), in the same proportion as those shares
for which voting instructions have been received. Participating
insurance companies will be responsible for assuring that each of their
separate accounts participating in the Funds calculates voting
privileges in a manner consistent with other participating insurance
companies. The obligation to calculate voting privileges in a manner
consistent with other separate accounts investing in the Funds shall be
a contractual obligation of all participating insurance companies under
their agreements governing participation in the Funds.
7. All reports received by a Board of potential or existing
conflicts, and all Board action with regard 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.
8. Each Fund will comply with all provisions of the Act requiring
voting by shareholders, and, in particular, will either provide for
annual meetings (except insofar as the Commission may interpret Section
16 as not requiring such meetings), or comply with Section 16(c) of the
Act (although the Funds are not trusts described in Section 16(c) of
the Act) as well as with Section 16(a) and, if and when applicable,
16(b). Further, the Funds will act in accordance with the Commission's
interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission
may promulgate with respect thereto.
9. Each Fund will disclose in its prospectus that (1) the Fund is
intended to be a funding vehicle for all types of variable annuity and
variable life insurance contracts offered by various insurance
companies, (2) material irreconcilable conflicts may possibly arise,
and (3) the Fund's Board will monitor events in order to identify the
existence of any material irreconcilable conflict and determine what
action, if any, should be taken in response to such conflict. Each Fund
will notify all participating insurance companies that separate account
prospectus disclosure regarding potential risks of mixed and shared
funding may be appropriate.
10. If and to the extent that 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 Act or the rules promulgated thereunder with respect
to mixed or shared funding on terms and conditions materially different
from any exemptions granted in the order requested in this application,
then the Funds and/or participating insurance companies, as
appropriate, shall take such steps as may be necessary to comply with
Rules 6e-2 and 6e-3(T), or Rule 6e-3, to the extent such amended rules
are applicable.
11. The participating insurance companies shall at least annually
submit to the relevant Board such [[Page 27587]] reports, materials or
data as the Board may reasonably request so that the Board or the Fund
may fully carry out the obligations imposed upon them by the conditions
contained in this application, and such 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
the Funds.
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 are consistent with the
protection of investors and the purposes fairly intended by the policy
and the provisions of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12696 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M
