[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18964]
[[Page Unknown]]
[Federal Register: August 4, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20434; 812-8814]
Notice of Application for Exemption
July 28, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: MFS Variable Insurance Trust (the ``Trust'') and
Massachusetts Financial Services Company (``MFS'').
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) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit shares of the Trust and shares of any other
investment company that is designed to fund insurance products and for
which MFS, or any of its affiliates, may serve as investment advisor,
administrator, manager, principal underwriter or sponsor (collectively,
with the Trust, the ``Funds'') to be sold to and held by: (a) Variable
annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (the
``Participating Insurance Companies''); and (b) qualified pension and
retirement plans outside of the separate account context (the
``Plans'').
FILING DATES: The application was filed on February 5, 1994. Amendment
number one to the application was filed on June 14, 1994, and amendment
number two to the application was filed on June 22, 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 on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on August 22, 1994 and accompanied by proof of
service on the Applicants in the form of an affidavit or, for lawyers,
a certificate of service. Hearing requests should state the nature of
the interest, the reason for the request and the issues contested.
Persons may request notification of the date of a hearing by writing to
the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC
20549. Applicants: Robert J. Zutz, Kirkpatrick & Lockhart, 1800 M
Street, NW., Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Michael V. Wible, Special
Counsel, both at (202) 942-0670, 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 Public
Reference Branch of the SEC.
Applicants' Representations
1. The Trust, a Massachusetts business trust, is registered under
the 1940 Act as an open-end, diversified management investment company
of the series type. The Trust commenced operations on or about June 2,
1994.
2. The Trust will offer the following twelve separately managed
portfolios: the MFS OTC Series; MFS Growth Series; MFS Research Series;
MFS Growth With Income Series; MFS Total Return Series; MFS Utilities
Series; MFS High Income Series; MFS World Governments Series; MFS
Strategic Fixed Income Series; MFS Bond Series; MFS Limited Maturity
Series; and MFS Money Market Series. The application states that,
except for the MFS OTC Series, the MFS Utilities Series, the MFS World
Governments Series and the MFS Strategic Fixed Income Series, each of
the portfolios of the Trust will be diversified. Applicants incorporate
by reference into the application the registration statement (File No.
33-74668) on Form N-1A of the Trust.
3. MFS serves as the investment advisor to the portfolios of the
Trust. MFS is a subsidiary of Sun Life Assurance Company of Canada
(U.S.), which is a subsidiary of Sun Life Assurance Company of Canada.
4. Applicants state that once the order requested in the
application is granted, the Trust intends to offer shares of each of
its existing and future portfolios to separate accounts of insurance
companies in addition to the separate accounts established by Century
Life of America (``Century Life'') or its affiliates (the ``Accounts'')
to serve as investment vehicles for variable annuity and/or variable
life insurance contracts (the ``Contracts''). The Trust may also offer
shares of its portfolios directly to the Plans outside of the separate
account context.
5. The application states that each Participating Insurance Company
will have the legal obligation of satisfying all applicable
requirements under both state and federal law. Applicants state that it
is anticipated that Participating Insurance Companies will rely on Rule
6e-2 or Rule 6e-3(T) under the 1940 Act, although some may rely on
individual exemptive orders as well, in connection with variable life
insurance contracts. Applicants further state that the role of the
Funds, in so far as the federal securities laws are applicable, will be
limited to that of offering shares to the Accounts and meeting any
conditions that the Commission may impose upon granting the order
requested in the application.
6. The application states that, due to changes in the tax law, the
Funds have the opportunity to increase their asset base through sale of
shares of the Funds to the Plans. The Plans may choose any of the Funds
as the sole investment option, or, as one of several investment
options. Shares of any of the Funds sold to a Plan would be held by the
trustee of that Plan as required by Section 403(a) of the Employee
Retirement Income Security Act of 1974 (``ERISA''). MFS will not serve
as investment advisor to any of the Plans that purchase shares of the
Funds. There will be no pass-through voting to participants in the
Plans.
Applicants' Legal Analysis
1. In connection with the funding a scheduled premium variable life
insurance contracts issued through a separate account registered under
the 1940 Act as a unit investment trust (``UIT''), 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 available to a
separate account's investment advisor, principal underwriter, and
sponsor or depositor. The exemptions granted by rule 6e-2(b)(15) are
available only where the management investment company underlying the
UIT offers its shares ``exclusively to variable life insurance separate
accounts of the life insurer, 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 a single insurance company (or of
two or more affiliated insurance companies) is referred to as ``mixed
funding.'' The use of a common management investment company as the
underlying investment medium for variable annuity and variable life
insurance separate accounts of unaffiliated insurance companies is
referred to as ``shared funding.'' ``Mixed and shared funding'' denotes
the use of a common management investment company to fund the variable
annuity and variable life insurance separate accounts of other
affiliated and unaffiliated insurance companies. 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 offers its shares to a variable annuity separate
account of the same company or of any other affiliated or unaffiliated
life insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed and
shared funding.
2. Applicants state that the relief granted by Rule 6e-2(b)(15) is
not affected by the purchase of shares of the Funds by the Plans.
Applicants note, however, that because the relief under Rule 6e-
2(b)(15) is available only where shares are offered exclusively to
separate accounts, additional exemptive relief is necessary if shares
of the Funds also are to be sold to Plans.
3. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the 1940
Act as a UIT, 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 exemptions
granted to a separate account by Rule 6e-3(T)(b)(15) 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 or
flexible contracts, or both; or which also offer their shares to
variable annuity separate accounts of the life insurer or of an
affiliated life insurance company.'' Rule 6e-3(T) permits mixed
funding. Rule 6e-3(T), however, does not permit shared funding.
4. Applicants state that the relief granted by Rule 6e-3(T) is not
affected by the purchase of shares of the Funds by the Plans.
Applicants note, however, that because the relief under Rule 6e-3(T) is
available only where shares are offered exclusively to separate
accounts, additional exemptive relief is necessary if shares of the
Funds are also to be sold to Plans.
5. As noted, Applicants state that changes in the tax law have
created the opportunity for the Funds to increase their asset base
through the sale of Fund shares to the Plans. Applicants state that
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
``Code''), imposes certain diversification standards on the underlying
assets of the Contracts held in the Funds. The Code provides that such
Contracts shall not be treated as an annuity contract or life insurance
contract for any period in which the investments are not, in accordance
with regulations prescribed by the Treasury Department, adequately
diversified. On March 2, 1989, the Treasury Department issued
regulations which established diversification requirements for the
investment portfolios underlying variable contracts. Treas. Reg.
Sec. 1.817-5 (1989). The regulations provide that, to meet the
diversification requirements, all of the beneficial interests in the
investment company must be held by the segregated asset accounts of one
or more insurance companies. The regulations do, however, contain
certain exceptions to this requirement, one of which allows shares in
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 to also be held by the separate accounts of
insurance companies in connection with their variable contracts. Treas.
Reg. Sec. 1.817-5(f)(3)(iii).
6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
under the 1940 Act preceded the issuance of these Treasury regulations.
Applicants assert that, given the then current tax law, the sale of
shares of the same investment company to both separate accounts and
Plans could not have been envisioned at the time of the adoption of
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
7. Applicants therefore request 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 to the extent necessary to permit shares of the
Funds to be offered and sold in connection with both mixed and shared
funding.
8. Section 9(a) of the 1940 Act provides that it is unlawful for
any company to serve as investment advisor or principal underwriter of
any registered open-end investment company if an affiliated person of
that company is subject to a disqualification enumerated in Sections
9(a) (1) or (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 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 or the
life insurer, or of 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 advisor 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.
9. Applicants state that the partial relief from Section 9(a) found
in 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 the
Section. Applicant state that those 1940 Act rules recognize that it is
not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the
provisions of Section 9(a) to the many individuals in a large insurance
company complex, most of whom will have no involvement in matters
pertaining to investment companies within that organization. Applicants
note that the Participating Insurance Companies are not expected to
play any role in the management or administration of the Funds.
Therefore, Applicants assert, applying the restrictions of Section 9(a)
serves no regulatory purpose. The application states that the relief
requested will not be affected by the proposed sale of shares of the
Funds to the Plans. The insulation of the Trust from individuals
disqualified under the 1940 Act remains in place. Applicants assert
that, since the Plans are not investment companies and will not be
deemed affiliated by virtue of their share holdings, no additional
relief is necessary.
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act assume the existence of a pass-through voting requirement with
respect to management investment company shares held by a separate
account. The application states that the Participating Insurance
Companies will provide pass-through voting privileges to all Contract
owners so long as the Commission interprets the 1940 Act to require
such privileges.
11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940
Act provide exemptions from the pass-through voting requirement with
respect to several significant matters, assuming observance of the
limitations on mixed and shared funding imposed by the 1940 Act and the
rules thereunder.
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 contract
owners with respect to the investments of an underlying fund, or any
contract between a fund and its investment advisor, when required to do
so by an insurance regulatory authority.
Rules 6e-2(b)(15)(iii)(b) and 6e-3(T)(b)(15)(iii)(B) provide that
the insurance company may disregard voting instructions of its contract
owners if the contract owners initiate any change in the company's
investment policies, principal underwriter, or any investment advisor,
provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(15)(ii) and
(b)(7)(ii) (B) and (C) of each rule.
12. Applicants represent that the right of the Participating
Insurance Companies to disregard voting instructions of Contract owners
provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not raise any
issues different from those raised by the authority of state insurance
administrators over separate accounts. Under the rules, an insurer can
disregard voting instructions only with respect to certain specified
items. Affiliation does not eliminate the potential, if any exists, for
divergent judgments as to the advisability or legality of a change in
investment policies, principal underwriter, or investment advisor
initiated by contract owners. 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 both reasonable and based
on specific good faith determinations.
13. Applicants further represent that the Funds' sale of shares to
the Plans does not impact the relief requested in this regard. As noted
previously by Applicants, shares of the Funds sold to Plans would be
held by the trustees of such Plans as required by Section 403(a) of
ERISA. Section 403(a) also provides that the trustee(s) must have
exclusive authority and discretion to manage and control the Plan with
two exceptions: (a) when the Plan expressly provides that the
trustee(s) is (are) subject to the direction of a named fiduciary who
is not a trustee, in which case the trustee(s) is (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
mangers pursuant to Section 402(c)(3) of ERISA. Unless one of the two
exceptions stated in Section 403(a) applies, Plan trustees have the
exclusive authority and responsibility for voting proxies. Where a
named fiduciary appoints an investment manger, the investment manager
has the responsibility to vote the shares held unless the right to vote
such shares is reserved to the trustees or to the named fiduciary. In
any event, there is no pass-through voting to the participants in such
Plans. According, 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
Plans because such Plans are not entitled to pass-through voting
privileges.
14. Applicants state that no increased conflicts of interest would
be present by the granting of the requested relief. Applicants assert
that shared funding does not present any issues that do not already
exist where a single insurance company is licensed to do business in
several states. Applicants note that where 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 insurance regulators in one or
more other states in which other Participating Insurance Companies are
domiciled. Applicants state that the possibility, however, is no
different and no greater than exists where, as is currently permitted,
a single insurer and its affiliates offer their insurance products in
several states.
15. Applicants argue that affiliation does not reduce the
potential, if any exists, for differences in state regulatory
requirements. In any event, the conditions (adapted from the conditions
included in Rule 6e-3(T)(b)(15)) discussed below are designed to
safeguard against any adverse effects that different state insurance
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 Fund.
16. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company properly may disregard voting
instructions of Contract owners. Potential disagreement is limited by
the requirement that a disregard of voting instructions be both
reasonable and based on specified good faith determinations. However,
if a Participating Insurance Company's decision to disregard Contract
owner 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
Fund, to withdraw its investment in that Fund. No charge or penalty
will be imposed as a result of such withdrawal.
17. Applicants state that there is no reason why the investment
policies of a Fund with mixed funding would or should be materially
different from what those policies would or should be if such
investment company or series thereof funded only variable annuity or
only variable life insurance contracts. Applicants therefore argue that
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, Applicants represent that the Funds will
not be managed to favor or disfavor any particular insurer or type of
Contact.
18. Applicants note that no single investment strategy can be
identified as appropriate to a particular insurance product. Each pool
of variable annuity and variable life insurance contract owners is
composed of individuals of diverse financial status, age, insurance and
investment goals. Those diversities are of greater significance than
any difference in insurance products. An investment company supporting
even one type of insurance product must accommodate those diverse
factors.
19. Applicants further note that Section 817(h) of the Code is the
only section in the Code where separate accounts are discussed. Section
817(h) imposes certain diversification standards on the underlying
assets of variable annuity contracts and variable life contracts held
in the portfolios of management investment companies. Treasury
Regulation 1.817-5(f)(3)(iii), which established diversification
requirements for such portfolios, specifically permits, among other
things, ``qualified pension or retirement plans'' and separate accounts
to share the same underlying management investment company. Therefore,
neither the Code, the Treasury regulations nor the revenue rulings
thereunder present 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.
20. While there are differences in the manner in which
distributions are taxed for variable annuity contracts, variable life
insurance contracts and Plans, Applicants state that the tax
consequences do not raise any conflicts of interest. When distributions
are to be made, and the separate account or the Plan is unable to net
purchase payments to make the distributions, that separate account or
the Plan will redeem shares of the Trust at net asset value. The plan
will then make distributions in accordance with the terms of the Plan.
The life insurance company will surrender values from the separate
account into the general account to make distributions in accordance
with the terms of the variable contract.
21. With respect to voting rights, applicants state that it is
possible to provide an equitable means of giving such voting rights to
Contract owners and to Plans. Applicants represent that the transfer
agent for the Trust will inform each Participating Insurance Company of
each Account's share of ownership in the Trust, as well as inform the
trustees of the Plans of their holdings. Each Participating Insurance
Company will then solicit voting instructions in accordance with Rules
6e-2 and 6e-3(T).
22. Applicants argue that the ability of Funds to sell their
respective 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 vis-a-vis a participant under a
Plan. Regardless of the rights and benefits of participants and
Contract owners under the respective Plans and Contracts, the Plans and
the Accounts have rights only with respect to their shares of the
Trust. Such shares may be redeemed only at net asset value. No
shareholder of any of the Funds has any preference over any other
shareholder with respect to distribution of assets or payment of
dividends.
23. Finally, applicants state that there are no conflicts between
Contract owners and participants under the Plans with respect to the
state insurance commissioners' veto powers (direct with respect to
variable life insurance and indirect with respect to variable
annuities) over investment objectives. The basic premise of shareholder
voting is that not all shareholders may agree that there are any
inherent conflicts of interest between shareholders. The state
insurance commissioners have been given the veto power in recognition
of the fact that insurance companies cannot simply redeem their
separate accounts out of one fund and invest those monies in another
fund. To accomplish such redemption and transfers, complex time
consuming transactions must be undertaken. Conversely, trustees of
Plans can make the decision quickly and implement redemption of shares
from a Fund and reinvest the monies in another funding vehicle without
the same regulatory impediments or, as is the case with most Plans,
hold cash pending suitable investment. Based on the foregoing,
Applicants represent that even should there arise issues where the
interests of Contract owners and the interests of Plans conflict, the
issues can be almost immediately resolved because trustees of the Plans
can, independently, redeem shares out of the Trust.
24. Applicants state that various factors have kept certain
insurance companies from offering variable annuity and variable life
insurance contracts. According to Applicants, these factors include:
The cost of organizing and operating an investment funding medium; the
lack of expertise with respect to investment management (particularly
with respect to stock and money market investments); and the lack of
public name recognition of certain insurers as investment
professionals. Applicants argue that use of the Funds as common
investment media for the Contracts would ameliorate these concerns.
Participating Insurance Companies would benefit from the investment and
administrative expertise of MFS as well as from the cost efficiencies
and investment flexibility afforded by a large pool of funds.
Applicants state that making the Funds available for mixed and shared
funding will encourage more insurance companies to offer variable
contracts such as the Contracts which will then increase competition
with respect to both the design and the pricing of variable contracts.
This can be expected to result in greater product variation and lower
charges. Thus, Applicants argue that Contract owners would benefit
because mixed and shared funding will eliminate a significant amount of
the costs of establishing and administering separate funds. Moreover,
Applicants assert that sales of shares of the Funds to Plans should
increase the amount of assets available for investment by the Funds.
This should, in turn, promote economies of scale, permit increased
safety of investments through greater diversification, and make the
addition of new portfolios to the Trust more feasible.
25. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Additionally,
Applicants note the previous issuance of an order permitting mixed and
shared funding where shares of a trust were sold directly to qualified
plans.
Applicants' Conditions
Applicants have consented to the following conditions if the
requested order is granted:
1. A majority of the Board of Trustees or Board of Directors of
each Fund (each, a ``Board'') shall consist of persons who are not
``interested persons'' of the Fund, 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 any
trustee or director, 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 Board will monitor its Fund for the existence of any
material irreconcilable conflict between the interests of the Contract
owners of all of the Accounts investing 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 the Fund are managed; (e) a difference in voting
instructions given by owners of variable annuity contracts and owners
of variable life insurance contracts; or (f) a decision by an insurer
to disregard the voting instructions of Contract owners.
3. The Participating Insurance Companies and MFS (or any other
investment advisor of a Fund) will report any potential or existing
conflicts to the Board. Participating Insurance Companies and MFS (or
any other investment advisor of a Fund) will be responsible for
assisting 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,
including information as to a decision by a Participating Insurance
Company to disregard voting instructions of Contract owners. The
responsibility to report such information and conflicts and to assist
the Board will be a contractual obligation of the Participating
Insurance Companies under the agreements governing participation in the
Funds and these responsibilities will be carried out with a view only
to the interests of Contract owners.
4. If it is determined by a majority of the Board, or by a majority
of its disinterested trustees or directors, that an irreconcilable
material conflict exists, the relevant Participating Insurance
Companies shall, at their expense and to the extent reasonably
practicable, take steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the Accounts from the Fund and reinvesting
such assets in a different investment medium including another
portfolio of the Fund or another Fund, or 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 contract owners or
variable life insurance contract owners) that votes in favor of such
segregation, or offering to the affected variable contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
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 the agreements governing their
participation in the Funds. The responsibility to take such remedial
action shall be carried out with a view only to the interests of
Contract owners. For purposes of this Condition Four, a majority of the
disinterested members of the applicable Board shall determine whether
any proposed action adequately remedies any material irreconcilable
conflict, but, in no event will the Fund or MFS be required to
establish a new funding medium for any Contract. Further, no
Participating Insurance Company shall be required by this Condition
Four to establish a new funding medium for any Contract if any offer to
do so has been declined by a vote of a majority of the affected
Contract owners.
5. The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and
in writing to all Participating Insurance Companies.
6. Participating Insurance Companies will provide pass-through
voting privileges to all Contract owners so long as the Commission
interprets the 1940 Act to require pass-through voting privileges for
Contract owners. Accordingly, the Participating Insurance Companies
will vote shares of the Fund held in their Accounts in a manner
consistent with voting instructions timely received from Contract
owners. Participating Insurance Companies will be responsible for
assuring that each of their Accounts calculates voting privileges in a
manner consistent with other Participating Insurance Companies. The
obligation to calculate voting privileges in a manner consistent with
all other Accounts will be a contractual obligation of all
Participating Insurance Companies under the agreements governing their
participation in the Funds. Each Participating Insurance Company will
vote shares for which it has not received voting instructions as well
as shares attributable to it in the same proportion as it votes shares
for which it has received instructions.
7. All reports received by the Board of potential or existing
conflicts, and all Board action with regard to: (a) determining the
existence of a conflict; (b) notifying Participating Insurance
Companies of a conflict; and (c) determining whether any proposed
action adequately remedies a conflict, will be properly recorded in the
minutes of the Board or other appropriate records. Such minutes or
other records shall be made available to the Commission upon request.
8. Each Fund will notify all Participating Insurance Companies that
separate account prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate. Each Fund shall disclose
in its prospectus that: (a) shares of the Fund are offered in
connection with mixed and shared funding; (b) material conflicts may
arise from mixed and shared funding arrangements; and (c) the Board
will monitor for the existence of any material conflicts and determine
what action, if any, should be taken in response to such conflicts.
9. Each Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and, in particular, each Fund will
either provide for annual meetings (except to the extent that the
Commission may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act, (although the
Funds are not within the trusts described in Section 16(c) of the 1940
Act) as well as with Section 16(a), and, if applicable, Section 16(b)
of the 1940 Act. Further, each Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended
(or if Rule 6e-3 under the 1940 Act 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 by
Applicants, then the Funds and the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent applicable.
11. No less than annually, the Participating Insurance Companies
and/or MFS (or any other investment advisor of a Fund) shall submit to
the Boards such reports, materials, or data as the Board may reasonably
request so that the Boards may carry out fully the obligations imposed
by the conditions contained in the application. Such reports,
materials, and data shall be submitted more frequently if deemed
appropriate by the Boards. The obligations of the Participating
Insurance Companies to provide these reports, materials, and data to
the Boards shall be a contractual obligation of all Participating
Insurance Companies under the agreements governing participation in the
Funds.
12. If a Plan should become an owner of 10% or more of the assets
of a Fund, such Plan will execute a fund participation agreement with
the applicable Fund. A Plan will execute an application containing an
acknowledgment of this condition upon such Plan's initial purchase of
shares of any 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,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18964 Filed 8-3-94; 8:45 am]
BILLING CODE 8010-01-M
