[Federal Register Volume 63, Number 113 (Friday, June 12, 1998)]
[Notices]
[Pages 32260-32265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15707]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23244; File No. 812-10866]
Allmerica Investment Trust, et al.; Notice of Application
June 5, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order pursuant to Section 6(c) of
the Investment Company Act of 1940 (the ``1940 Act'').
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SUMMARY OF APPLICATION: Applicants seek an order pursuant to 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) thereunder, to the extent necessary to permit shares of
any current or future series of the Trust and shares of any other
investment company that is offered as a funding medium for insurance
products and for which the Adviser, or any of its affiliates, or their
successors or assigns, may now or in the future serve as manager,
investment adviser, administrator, principal underwriter or sponsor
(the Trust and such other investment companies referred to collectively
as the ``Insurance Products Funds'') to be sold and held by variable
annuity and variable life insurance separate accounts (``Separate
Accounts'') of both affiliated and unaffiliated life insurance
companies (``Participating Insurance Companies'') and qualified pension
and retirement plans outside of the separate account context
(``Qualified Plans'' or ``Plans'').
APPLICANTS: Allmerica Investment Trust (the ``Trust'') and Allmerica
Investment Management Company, Inc. (the ``Adviser'').
FILING DATE: The application was originally filed on November 13, 1997,
and an amended and restated application was filed on March 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 by writing to the Secretary of the SEC
and serving Applicants with a copy of the request, in person or by
mail. Hearing requests should be received by the SEC by 5:30 p.m. on
June 30, 1998, 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 writer's
interest, the reason for the request, and the issues contested. Persons
who wish to be notified of a hearing 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, c/o George M. Boyd, Esq., 440 Lincoln Street, Worcester, MA
01653.
FOR FURTHER INFORMATION CONTACT:
Michael B. Koffler, Attorney, or Mark Amorosi, Branch Chief, Office of
Insurance products, Division of Investment Management, at (202) 942-
0670.
SUPPLEMENTARY INFORMATION: The 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 St., NW, Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust, a Massachusetts business trust established on October
11, 1984, is registered with the Commission as an open-end diversified
management investment company. The Trust currently consists of fourteen
separate series, or portfolios.
2. The Adviser is registered with the Commission as an investment
adviser under the Investment Adviser Act of 1940 and serves as the
investment manager for each of the Trust's portfolios. The Adviser is
an indirect wholly-owned subsidiary of Allmerica Financial Corporation,
a publicly traded Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica Financial Life
Insurance Company.
3. Currently, shares of the Trust may be purchased only by the
separate accounts established by First Allmerica Financial Life
Insurance Company (``First Allmerica'') or Allmerica Financial Life
Insurance and Annuity Company, an indirect wholly-owned subsidiary of
First Allmerica, for the purpose of funding variable annuity and
variable life insurance policies.
4. The Insurance Products Funds will offer shares to Separate
Accounts of Participating Insurance Companies in support of variable
annuity contracts and variable life insurance policies (including
single premium, scheduled premium, modified single premium and flexible
premium contracts) (collectively, ``Variable Contracts''). Persons who
hold Variable Contracts are referred to herein as ``Contract Owners.''
5. The Insurance Products Funds also will offer shares directly to
Qualified Plans outside of the separate account context. Fund shares
sold to Plans which are subject to the Employee Retirement Income
Security Act of 1974, as amended (``ERISA''), would be held by the
truste(s) of the Plan, as mandated by Section 403(a) ERISA. ``Plan
Participants'' or ``Participants'' include participants in qualified
pension or retirement plans.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act provides in part that the
Commission, by order upon application, may conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from any
provision or provisions of the 1940 Act or of any rule or regulation
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.
[[Page 32261]]
2. Applicants request that the Commission issue an order pursuant
to Section 6(c) of the 1940 Act exempting the Applicants and the
Participating Insurance Companies and their Separate Accounts (and, to
the extent necessary, any investment adviser, principle underwriter or
depositor for such accounts) from the provisions of Sections 9(a),
13(a), 15(a) and 15(b) thereof, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Insurance Products Funds to be offered and sold to, and held by (1)
variable annuity and variable life insurance separate accounts of the
same life insurance company or of any affiliated life insurance company
(``mixed funding''); (2) separate accounts of unaffiliated life
insurance companies (including both variable annuity and variable life
separate accounts) (``shared funding''); and (3) qualified pension and
retirement plans outside the separate account context.
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. These exemptions are available 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 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 a management investment company that also offers its shares
to a variable annuity separate account or a flexible premium variable
life insurance separate account of the same insurance company or an
affiliated insurance company. The relief granted by Rule 6e-2(b)(15)
also is not available if the variable life insurance separate account
owns shares of an underlying management investment company that also
offers its shares to variable annuity or variable life insurance
separate accounts of unaffiliated life insurance companies or to Plans.
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
partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the
1940 Act. These exemptions are available 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
separate accounts of the life insurer, or of any affiliated life
insurance company, offering either scheduled premium variable life
insurance contracts or flexible premium variable life insurance
contracts, or both ; or which also offer their shares to variable
annuity separate accounts of the life insurer or of an affiliated life
insurance company. Therefore, the exemptions provided by Rule 6e-
3(T)(b)(15) are available if the underlying management investment
company is engaged in mixed funding, but are not available if the
investment company is engaged in shared funding or sells its shares to
Plans.
5. Applicants state that the current tax law permits Insurance
Products Funds to increase their asset base through the sale of shares
of Plans. Section 817(h) of the Internal Revenue Code of 1986, as
amended (the ``Code''), imposes certain diversification standards on
the underlying assets of Variable Contracts. The Code provides that
such contracts shall not be treated as an annuity contract or life
insurance contract for any period (and any subsequent period) during
which the investments are not adequately diversified in accordance with
regulations prescribed by the Treasury Department. Treasury regulations
provide that, in order to meet the diversification requirements, all of
the beneficial interests in an investment company must be held by the
segregated asset accounts of one or more insurance companies. The
regulations contain certain exceptions to this requirement, however,
one of which permits shares of an investment company to be held by the
trustee of a qualified pension or retirement plan without adversely
affecting the ability of shares in the same investment company also to
be held by the separate accounts of insurance companies in connection
with their variable annuity and variable life insurance contracts
(Treas. Reg. Sec. 1.817.-5(f)(3)(iii)).
6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
preceded the issuance of these Treasury regulations. Applicants assert
that, given the then current tax law, the sale of shares of the same
underlying fund to separate accounts and to Plans could not have been
envisioned at the time of the adoption of Rules 6e-2(b)(15) and 6e-
3(T)(b)(15).
Disqualification
7. Section 9(a)(3) of the 1940 Act provides that it is unlawful for
any company to act as investment adviser to or principal underwriter of
any registered open-end investment company if an affiliated person of
that company is subject to a disqualification enumerated in Section
9(a)(1) or (2). Rule 6e-2(b)(15)(i) and (ii), and 6e-3(T)(b)(15)(i) and
(ii) provide partial 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 investment company.
8. Applicants state that the partial relief from Section 9(a)
provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the
amount of monitoring necessary to ensure compliance with Section 9 to
that which is appropriate in light of the policy and purposes of
Section 9. Applicants assert 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 many individuals in a large insurance company complex, most of whom
will have no involvement in matters pertaining to investment companies
managed, administered, or invested in by that organization. Applicants
state that it also is unnecessary to apply Section 9(a) to individuals
in various unaffiliated insurance companies (or affiliated companies of
Participating Insurance Companies) that may utilize an Insurance
Products Fund as the funding medium for Variable Contracts. Applicants
assert that there is no regulatory purpose in extending the monitoring
requirements because of mixed or shared funding or investment by Plans.
Those individuals who participate in the management or administration
of an Insurance Products Fund will remain the same regardless of which
separate accounts or insurance companies use the Insurance Products
Fund. Furthermore, the increased monitoring costs would reduce the net
rates of return realized by Contract Owners and Plan Participants.
Pass-Through Voting
9. 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 Contract Owners so long as the Commission
interprets the 1940 Act to require pass-
[[Page 32262]]
through voting privileges for Contract Owners.
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide
exemptions from the pass-through voting requirement in certain
situations, assuming the limitations on mixed and shared funding
imposed by the 1940 Act and the rules thereunder are observed. Rules
6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)(1) provide that an
insurance company may disregard the voting instructions of its Contract
Owners with respect to the investments of an underlying fund or any
contract between an investment company and its investment adviser, when
required to do so by an insurance regulatory authority, subject to
certain conditions. In addition, Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(A)(2) provide that an insurance company may disregard
voting instructions of Contract Owners in favor of any change in the
investment company's investment policies, principal underwriter or
investment adviser, subject to certain conditions.
11. Applicants assert that Rules 6e-2 and 6e-3(T) recognize that a
variable life insurance contract is an insurance policy, and is subject
to extensive state regulation.
Applicants also assert that in adopting Rule 6e-2(b)(15)(iii), the
Commission expressly recognized that state insurance regulators have
authority, pursuant to state insurance laws or regulations, to
disapprove or require changes in investment policies, investment
advisers or principal underwriters of scheduled premium variable life
insurance contracts. The Commission deemed such exemptions necessary
``to assume the solvency of the life insurer and performance of its
contractual obligations by enabling an insurance regulatory authority
or the life insurer to act when certain proposals reasonably could be
expected to increase the risks undertaken by the life insurer.''
Applicants state that, in this respect, the corresponding provisions of
Rule 6e-3(T) for flexible premium variable life insurance contracts
were adopted in recognition of the same factors.
12. Applicants represent that the offer and sale of the Insurance
Products Funds to Qualified Plans will not have any impact on the
relief requested in this regard. Where applicable, shares of the
Insurance Products Funds sold to Qualified Plans will be held by the
trustees of such Plans as required by Section 403(a) of the Employee
Retirement Income Security Act of 1974 (``ERISA''). Section 403(a) also
provides that the trustees of a Plan 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 two exceptions stated in Section 403(a) applies, the
Plan trustees have exclusive authority and responsibility for voting
proxies. Where a named fiduciary appoints an investment manager, the
investment manager has the responsibility to vote the shares held
unless the right to vote such shares is reserved to the trustees or 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. Where a
Plan does not provide Plan Participants with the right to give voting
instructions, Applicants state that they do not see any potential for
irreconcilable material conflicts of interest between or among Contract
Owners and Plan Participants with respect to voting of the respective
Insurance Products Fund's shares. Accordingly, Applicants note that,
unlike the case with insurance company separate accounts, the issue of
the resolution of material irreconcilable conflicts with respect to
voting is not present with respect to such Plans since the Plans are
not entitled to pass-through voting privileges.
13. Applicants state that some Plans may provide for the
trustee(s), an investment adviser or another named fiduciary to
exercise voting rights in accordance with instructions from Plan
Participants. Applicants note, however, that there is no reason to
believe that participants in Plants generally, or those in a particular
Plan, either as a single group or in combination with other Plans,
would vote in a manner that would disadvantage Contract Owners.
Applicants submit, therefore, that the purchase of shares by Plans that
provide voting rights to Participants does not present any
complications not otherwise occasioned by mixed and shared funding.
Conflicts of Interest
14. Applicants state that no increased conflicts of interest would
be presented by the granting of the requested relief. Applicants submit
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 states. In this regard, Applicants note that when different
Participating Insurance Companies are domiciled in different states, it
is possible that the state insurance regulatory body in a state in
which one Participating Insurance Company is domiciled could require
action that is inconsistent with the requirements of other insurance
regulators in one or more other states in which other participating
Insurance Companies are domiciled. This possibility, however, is no
different or greater than exists when a single insurer and its
affiliates offer their insurance products in several states, as is
currently permitted. Applicants submit that shared funding by
unaffiliated insurers, in this respect, is not different than the use
of the same investment ocmpany as the funding vechile for affiliated
insurers, which Rules 6e-2(b)(15) and 6e-(T)(b)(15) permit.
15. Applicants state that affiliation does not reduce the
potential, if any exists, for differences in state regulatory
requirements. In any event, the conditions set forth in the application
and later in this notice (which are adapted from the conditions
included in Rule 6e-3(T)(b)(15)) are designed to safeguard against, and
provide procedures for resolving, any adverse effects that differences
among state regulatory requirements may produce. If a particular state
insurance regulator's decision conflicts with the majority of other
state regulators, the affected insurer may be required to withdraw its
separate account's investment in the relevant Insurance Products Funds.
This requirement will be provided for in agreements that will be
entered into by Participating Insurance Companies with respect to their
participation in the Insurance Products Funds.
16. Rules 6e-2(b)(15) and 6e-(T)(b)(15) give the insurance company
the right to disregard the voting instructions of the Contract Owners.
This right does not raise any issues different from those raised by the
authority of state insurance administrators over separate accounts.
Applicant's also assert that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard Contract Owner voting
instructions. 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 specified
good faith determinations.
[[Page 32263]]
17. If the Participating Insurance Company's decision to disregard
Contract Owner voting instructions represents a minority position or
would preclude a majority vote approving a particular change, such
Participating Insurance Company may be required, at the election of the
relevant Insurance Products Fund, to withdraw its separate account's
investment in that Insurance Products Fund and no charge or penalty
will be imposed upon the contract Owners as a result of such
withdrawal. In addition, if a material irreconcilable conflict
involving Plans arises, the Plans may simply redeem their shares and
make alternative investments.
18. Applicants submit that there is no reason why the investment
policies of an Insurance Products Fund would or should be materially
different from what annuity or variable life insurance contracts. In
this regard, Applicants assert that the Insurance Products Funds will
not be managed to favor or disfavor any particular Participating
Insurance Company or type of insurance product or Plan. Each type of
insurance product is designed as a long-term investment program.
Similarly,the investment objective of Plans, long-term investment,
coincides with that of the Variable Contracts and should not increase
the potential for conflicts.
19. Applicants submit that no one investment strategy can be
identified as appropriate to a particular insurance product or Plan.
Each pool of Contract Owners is composed of individuals of diverse
financial status, age, and insurance and investment goals. A fund
supporting even one type of insurance product must accommodate these
diverse factors in order to attract and retain purchasers.
20. Applicants submit that permitting mixed and share funding will
provide economic support for the establishment of the Insurance
Products Funds. In addition, permitting mixed and shared funding will
facilitate the establishment of additional series of Insurance Products
Funds serving diverse goals, since a broader base of Contract Owners
can be expected to provide economic justification for the creation of
additional portfolios with greater variety of investment objectives and
policies.
21. Applicants state that Section 817(h) of the Code imposes
certain diversification standards on the underlying assets of variable
annuity contracts and variable life insurance contracts held in the
portfolios of management investment companies. Treasury Regulation
Sec. 1.817-5(f)(iii) specifically permits ``qualified pension or
retirement plans'' and insurance company separate accounts to share the
same underlying investment company. Therefore, Applicants assert that
neither the Code, nor the Treasury regulations, nor the revenue rulings
thereunder recognize any inherent conflicts of interest if Plans,
variable annuity separate accounts, and variable life insurance
separate accounts all invest in the same management investment company.
22. Applicants note that while there are differences in the manner
in which distributions for variable annuity contracts, variable life
insurance contracts and Plans are taxed, these differences will have no
impact on the Insurance Products Funds and therefore do not raise any
conflicts of interest. When distributions are to be made, and a
Separate Account or Plan cannot net purchase payments to make the
distributions, the Separate Account or Plan will redeem shares of the
Insurance Products Funds at their respective net asset value to provide
proceeds to meet distribution needs. The Plan will then make
distributions in accordance with the terms of the Plan, and the
Participating Insurance Company will make distributions in accordance
with the terms of the Variable Contract. Accordingly, Applicants assert
that the tax consequences of distributions from Variable Contracts and
Plans do not raise any conflicts of interest with respect to the use of
the Insurance Products Funds.
23. Applicants represent that the Insurance Products Funs will
inform each shareholder, including each Separate Account and Plan, of
information necessary for any meeting of shareholders. Each
Participating Insurance Company will then solicit voting instructions
in accordance with the ``pass-through'' voting requirement. The voting
rights provided to Qualified Plans with respect to shares of the
Insurance Products Funds would be no different from the voting rights
that are provided to Qualified Plans with respect to shares of mutual
funds sold to the general public.
24. Applicants submit that the ability of the Insurance Products
Funds to sell their shares directly to Plans does not create a ``senior
security,'' as such term is defined under Section 18(g) of the 1940
Act, with respect to any Contract Owner as opposed to a Plan
Participant. As noted above, regardless of the rights and benefits of
Participants under the Plans, or Contract Owners under their Variable
Contracts, the Plans and Separate Accounts have rights only with
respect to their respective shares of the Insurance Products Funds.
They can redeem such shares only at their net asset value. No
shareholder of any of the Insurance Products Funds has any preference
over any other shareholder with respect to distribution of assets or
payments of dividends.
25. Applicants assert that there are no conflicts between Contract
Owners and Plan Participants with respect to state insurance
commissioners' veto powers over investment objectives. Applicants note
that the basic premise of corporate democracy and shareholder voting is
that not all shareholders may agree with a particular proposal.
Although the interests and opinions of shareholders may differ, this
does not mean that inherent conflicts of interest exist between or
among such shareholders. The 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. While time-consuming, complex
transactions must be undertaken to accomplish redemptions and transfers
by Separate Accounts, trustees of Plans can quickly redeem their shares
from Insurance Products Funds and reinvest in another funding vehicle
without the same regulatory impediments or, as is the case with most
Plans, even hold cash pending suitable alternative investment.
Applicants maintain that even if there should arise issues where the
interests of Contract Owners and the interests of Participants in
Qualified Plans are in conflict, the issues can be almost immediately
resolved because the trustees of the Plans can, on their own, redeem
shares out of the Insurance Products Funds.
26. Applicants submit that mixed and shared funding should provide
benefits to Contract Owners by eliminating a significant portion of the
costs of establishing and administering separate funds. The Separate
Accounts of Participating Insurance Companies will benefit not only
from the investment and administrative expertise available through the
Insurance Products Funds, but also from the cost efficiencies and
investment flexibility afforded by a larger pool of assets. Mixed and
shared funding also would permit a greater amount of assets available
for investment, thereby promoting economies of scale, permitting
greater diversification, and making the addition of new series more
feasible. Additionally, making the Insurance Products 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
[[Page 32264]]
in more product variation and lower charges.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of each Insurance Products Fund's Board of Trustees
or Directors (each, a ``Board'') will consist of persons who are not
``interested persons'' thereof, as defined by Section 2(a)(19) of the
1940 Act and the rules thereunder and as modified by any applicable
orders of the Commission, except that if this condition is not met by
reason of the death, disqualification, or bona fide resignation of the
trustee(s) or directors(s), then the operation of this condition shall
be suspended: (a) for a period of 45 days, if the vacancy or vacancies
may be filled by the Board; (b) for a period of 60 days, if a vote of
shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the Commission may prescribe by order upon
application.
2. Each Insurance Products Fund's Board will monitor its respective
fund for the existence of any material irreconcilable conflict between
and among the interests of Contract Owners of all Separate Accounts and
of Plan Participants investing in the respective Insurance Products
Fund, 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 the Insurance Products Funds are
being managed; (e) a difference in voting instructions given by
variable annuity contract owners, variable life insurance contract
owners and trustees of Qualified 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 Participating
Qualified Plan (as defined below) to disregard the voting instructions
of Plan Participants.
3. The Adviser (or any other investment adviser of an Insurance
Products Fund), any Participating Insurance Company and any Plan that
executes a fund participation agreement upon becoming an owner of 10%
or more of the assets of an Insurance Products Fund (referred to herein
as a ``Participating Qualified Plan'') will report any potential or
existing conflicts to the Board. The Adviser, Participating Insurance
Companies, and Participating Qualified Plans will be obligated to
assist the appropriate Board in carrying out its responsibilities under
these conditions by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This
responsibility includes, but is not limited to, an obligation by each
Participating Insurance Company to inform the Board whenever Contract
Owner voting instructions are disregarded and, if pass-through voting
is applicable, an obligation by each Participating Qualified Plan to
inform the Board whenever it has determined to disregard Plan
Participant voting instructions. The responsibility to report such
information and conflicts and to assist the Boards will be contractual
obligations of all Participating Insurance Companies and Participating
Qualified Plans investing in the Insurance Products Funds under their
respective agreements governing participation in the Insurance Products
Funds, and such agreements will provide that these responsibilities
will be carried out with a view only to the interests of Contract
Owners and Plan Participants, as applicable.
4. If a majority of an Insurance Products Fund's Board members, or
a majority of its disinterested directors, determine that a material
irreconcilable conflicts exists, the relevant Participating Insurance
Companies, adviser and Participating Qualified Plans, at their expense
and to the extent reasonably practicable (as determined by a majority
of the disinterested directors of the fund), will take whatever steps
are necessary to remedy or eliminate the material irreconcilable
conflict. Such steps could include: (a) withdrawing the assets
allocable to some or all of the Separate Accounts from the Insurance
Products Fund or any of its series and reinvesting such assets in a
different investment medium, which may include another series of the
Insurance Products Fund or another Insurance Products Fund; (b) in the
case of Participating Insurance Companies, 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., variable annuity or variable life
insurance contract owners of 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 (c)
establishing a new registered management investment company or managed
separate account. If a material irreconcilable conflicts arises because
of a decision by a Participating Insurance Company to disregard
Contract Owner voting instructions, and this decision represents a
minority position or would preclude a majority vote, the Participating
Insurance Company may be required, at the election of the Insurance
Products Fund, to withdraw its Separate Account's investment in such
fund, or any series thereof, and no change or penalty will be imposed
as a result of such withdrawal. If a material irreconcilable conflicts
arises because of a Participating 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 Participating Qualified Plan may be required, at the election
of the Insurance Products Fund, to withdraw its investment in such
fund, or any series thereof, and no charge or penalty will be imposed
as a result of such withdrawal. To the extent permitted by applicable
law, 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
Participating Insurance Companies and Participating Qualified Plans
under their agreements governing participation in the Insurance
Products Funds and these responsibilities will be carried out with a
view only to the interests of the Contract Owners and Plan
Participants, as applicable.
5. For purposes of Condition 4, a majority of the disinterested
members of the applicable Board will determine whether or not any
proposed action adequately remedies any material irreconcilable
conflict, but in no event will an Insurance Products Fund or the
Adviser (or any other investment adviser of an Insurance Products Fund)
be required to establish a new funding medium for any Variable
Contract. No Participating Insurance Company will be required by
Condition 4 to establish a new funding medium for any Variable Contract
if a majority of Contract Owners materially and adversely affected by
the material irreconcilable conflict vote to decline such offer. No
Participating Qualified Plan will be required by Condition 4 to
establish a new funding medium for such plan if (a) a majority of Plan
Participants materially and adversely affected by the material
irreconcilable conflict vote to
[[Page 32265]]
decline such offer or (b) pursuant to governing Plan documents and
applicable law, the Participating Qualified Plan makes such decision
without Plan Participant vote.
6. A Board's determination of the existence of a material
irreconcilable conflict and its implications will be made known
promptly in writing to the Adviser and to all Participating Insurance
Companies and all Participating Qualified Plans.
7. Participating Insurance Companies will provide pass-through
voting privileges to all Contract Owners so long as the Commission
continues to interpret the 1940 Act as requiring pass-through voting
privileges for Contract Owners. Accordingly, Participating Insurance
Companies will vote shares of Insurance Products Funds held in their
Separate Accounts in a manner consistent with timely voting
instructions received from Contract Owners. In addition, each
Participating Insurance Company will vote shares of Insurance Products
Fund held in its Separate Accounts for which it has not received timely
voting instructions from Contract Owners, as well as shares which the
Participating Insurance Company itself owns, in the same proportion as
those shares for which it has received voting instructions.
Participating Insurance Companies will be responsible for assuring that
each of their Separate Accounts investing in an Insurance Products Fund
calculates voting privileges in a manner consistent with the Separate
Accounts of all other Participating Insurance Companies investing in
that fund. The obligation to calculate voting privileges in a manner
consistent with all other Separate Accounts investing in an Insurance
Products Fund will be a contractual obligation of all Participating
Insurance Companies under their agreements governing participation in
the Insurance Products Fund. Each Participating Qualified Plan will
vote as required by applicable law and governing Plan documents.
8. All reports of potential or existing conflicts received by a
Board, and all Board action with regard to (a) determining the
existence of a conflict, (b) notifying the Adviser and Participating
Insurance Companies and Participating Qualified Plans of a conflict,
and (c) determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the meetings of
the appropriate Board or other appropriate records. Such minutes or
other records will be made available to the Commission upon request.
9. Each Insurance Products Fund will notify all Participating
Insurance Companies that Separate Account prospectus disclosure
regarding potential risks of mixed and shared funding may be
appropriate. Due to differences in tax treatment and other
considerations, each Insurance Products Fund will disclose in its
prospectus that: (a) its shares are intended to be a funding vehicle
for both variable annuity and variable life insurance contracts offered
by various Participating Insurance Companies and for Qualified Plans;
(b) material irreconcilable conflicts may arise among various Contract
Owners and Plan Participants investing in the Insurance Products Fund;
and (c) the Board will monitor the Insurance Products Fund for any
material irreconcilable conflicts and determine what action, if any,
should be taken in response to any such conflict.
10. Each Insurance Products Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders (which, for these
purposes, will be the persons having a voting interest in shares of the
Insurance Products Funds). In particular, each Insurance Products Fund
either will provide for annual shareholder 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) of the 1940 Act (although
the Insurance Products Funds 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 Insurance Products Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of Board members and with whatever rules
the Commission may promulgate with respect thereto.
11. If and to the extent that Rule 6e-2 or Rule 6e-3(T) under the
1940 Act is amended, or 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,
on terms and conditions materially different from any exemptions
granted in the order requested in the application, then the Insurance
Products Funds and/or the Participating Insurance Companies, as
appropriate, will take such steps as may be necessary to comply with
Rule 6e-2 or Rule 6e-3(T), as amended, or proposed rule 6e-3 as
adopted, to the extent such rules are applicable.
12. The Adviser, the Participating Insurance Companies and
Participating Qualified Plans, at least annually, will submit to each
Board such reports, materials or data as each Board may reasonable
request so that the Board may fully carry out the obligations imposed
upon it by the conditions stated in the application. Such reports,
materials and data will be submitted more frequently if deemed
appropriate by the Board. The obligations of the Participating
Insurance Companies and Participating Qualified Plans to provide these
reports, materials and data upon reasonable request of a Board shall be
a contractural obligation of all Participating Insurance Companies and
Participating Qualified Plans under their agreements governing their
participation in the Insurance Products Funds.
13. If a Plan or Plan Participant should become an owner of 10% or
more of the assets of an Insurance Products Fund, such Plan or Plan
Participant will execute a participation agreement with such fund which
includes the conditions set forth herein to the extent applicable. A
Plan or Plan Participant will execute an application containing an
acknowledgment of this condition upon initial purchase of the shares of
any Insurance Products Fund.
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. 98-15707 Filed 6-11-98; 8:45 am]
BILLING CODE 8010-01-M
