[Federal Register Volume 62, Number 178 (Monday, September 15, 1997)]
[Notices]
[Pages 48324-48329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24378]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22814; File No. 812-10614]
LEVCO Series Trust, et al.; Notice of Application
September 9, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for an order under Section 6(c) of the
Investment Company Act of 1940 (the ``1940 Act'') for exemptions from
the provisions of Section 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.
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SUMMARY OF APPLICATION: Applicants seek an order to permit shares of
the LEVCO Series Trust and shares of any other open-end investment
company that is designed to fund insurance products and for which John
A. Levin & Co. or any of its affiliates may serve as investment
adviser, administrator, manager, principal underwriter, or sponsor
(collectively, the ``Trust'') to be sold to and held by: (1) Separate
accounts funding variable annuity and variable life insurance contracts
(``Separate Accounts``) issued by both affiliated and unaffiliated life
insurance companies (``Participating Insurance Companies''); and (2)
certain qualified pension and retirement plans outside the separate
account context.
APPLICANTS: LEVCO Series Trust (the ``LEVCO Trust'') and John A. Levin
& Co. (the ``Investment Adviser'').
FILING DATES: The application was filed on April 18, 1997, and amended
and restated on August 15, 1997.
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,
in person or by mail. Hearing requests must be received by the
Commission by
[[Page 48325]]
5:30 p.m. on October 6, 1997, 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, D.C.
20549. Applicants, c/o Schulte Roth & Zabel LLP, Attention: Kenneth S.
Gerstein, Esq., 900 Third Avenue, New York, New York, 10022.
FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Attorney, or Mark C.
Amorosi, Branch Chief, Division of Investment Management, Office of
Insurance Products, at (202) 942-0670.
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, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. (202) 942-8090).
Applicants' Representation
1. The LEVCO Trust is a Delaware business trust and is registered
under the 1940 Act as an open-end diversified management investment
company. It currently consists of one series known as LEVCO Equity
Value Fund (``Equity Value Fund''). Additional series may in the future
be authorized (each, including Equity Value Fund, a ``Series''). Each
Series may issue one or more classes of shares representing interests
therein, subject to compliance with the provisions of Rule 18f-3 under
the 1940 Act. Certain classes of shares may incur fees or bear certain
costs relating to the distribution of shares of such class pursuant to
plans adopted in accordance with Rule 12b-1 under the 1940 Act.
2. The Investment Adviser serves as the investment adviser to the
LEVCO Trust. The Investment Adviser is an indirect, wholly-owned
subsidiary of Baker, Fentress & Company, a registered closed-end
investment company listed on the New York Stock Exchange.
3. Shares of the Trust will be offered to Participating Insurance
Companies and their Separate Accounts to enable the Series to serve as
the investment vehicles for various types of insurance products, which
may include all variations of variable annuity and variable life
insurance contract (the ``Variable Contracts'').
4. Shares of the Trust also may be offered and sold directly to
certain qualified pension and retirement plans (``Qualified Plans'').
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act exempting variable life insurance Separate
Accounts (and, to the extent necessary, any principal underwriter or
depositor of such an account) and Applicants from Sections 9(a), 13(a),
15(a) and 15(b) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Trust to be offered and
sold to both variable annuity separate accounts and variable life
insurance separate accounts of the same life insurance company or
affiliated life insurance companies (i.e., mixed funding) and to permit
shares of the Trust to be offered and sold to Separate Accounts of
unaffiliated life insurance companies (i.e., share funding) and to
Qualified Plans.
2. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the
rules or regulations 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.
3. In connection with the funding of scheduled premium variable
life insurance contracts issued through separate accounts registered
under the 1940 Act as unit investment trust, Rule 6e-2(b)(15) under the
1940 Act provides partial exemptions from Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act. The exemptions granted by Rule 6e-2(b)(15)
are available, however, 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 of any
affiliated life insurance company'' (emphasis supplied).\1\ Therefore,
the relief granted by Rule 6e-2(b)(15) is not available with respect to
a separate account that owns shares of an underlying fund that also
offers its shares to both variable annuity and variable life insurance
separate accounts of the same company or of any affiliated life
insurance company. In addition, the relief granted by Rule 6e-2(b)(15)
is not available if shares of the underlying management investment
company are offered to separate accounts of unaffiliated life insurance
companies or to Qualified Plans.
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\1\ The exemptions provided by Rule 6e-2 also are available to
the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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4. Applicants submit that the relief granted by Rule 6e-2(b)(15) is
in no way affected by the purchase of shares of the Trust by Qualified
Plans. However, 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 Trust are
also to be sold to Qualified Plans.
5. In connection with flexible premium variable life insurance
contracts issued through a separate account, Rule 6e-3(T)(b)(15)
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. The exemptions granted by Rule 6e-3(T) are available
only to separate accounts that own shares of underlying funds that
offer shares ``exclusively to separate accounts of the life insurer, or
of any affiliated life insurance company, offering either scheduled
contracts or flexible contracts, or both; or which also offer their
shares to variable annuity separate accounts of the life insurer or of
an affiliated life insurance company'' (emphasis supplied).\2\
Therefore, Rule 6e-3(T) permits mixed funding, but does not permit
shared funding.
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\2\ The exemptions provided by Rule 6e-3(T) also are available
to the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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6. Because the relief under Rule 6e-3(T) is available only where
shares are offered exclusively to separate accounts of insurance
companies, additional exemptive relief is necessary if shares of the
Trust also are to be sold to Qualified Plans.
7. Current tax law permits the Trust to increase its asset base
through the sale of its shares to Qualified Plans. Section 817(h) of
the Internal Revenue Code of 1986, as amended (the ``Code''), imposed
certain diversification standards on fund investments underlying
Variable Contracts. Treasury Regulations provide that, to meet the
diversification requirements, all of the beneficial interests in the
underlying investment company must be held by the segregated asset
accounts of one or more insurance companies. The Treasury Regulations,
however, also contain certain exceptions to this requirement, one of
which allows shares in the investment company to be held by the trustee
of a Qualified Plan
[[Page 48326]]
without adversely affecting the ability of life insurance companies to
hold shares in the same investment company in their separate accounts
(Treas. Reg. 1.817-5(f)(3)(iii)).
8. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of the 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 Qualified Plans was not envisioned at the time of the
adoption of of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
9. Section 9(a) of the 1940 Act provides that it is unlawful for
any person to serve 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). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 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 of the
underlying fund.
10. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9, 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 state that those 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 an insurance
company complex, most of whom typically will have no involvement in
matters pertaining to investment companies within that organization.
Applicants assert, therefore, that applying the restrictions of Section
9(a) to all individuals in Participating Insurance Companies that
participate in mixed and shared funding arrangements serves no
regulatory purpose.
11. Applicants state that the relief requested should not be
affected by the proposed sale of shares of the Trust to Qualified Plans
because the Qualified Plans are not investment companies, and will not
be deemed to be affiliated solely by virtue of their shareholdings.
12. Applicants state that 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. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide partial exemptions from the pass-through voting requirement,
under certain circumstances. More specifically, of Rules 6e-
2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) 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 and subject to certain requirements. In
addition, Rules of Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) 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 adviser (provided that disregarding such
voting instructions is reasonable and subject to the other provisions
of paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and (C) of each rule).
13. Applicants state that Rule 6e-2 recognizes that a variable life
insurance contract is an insurance contract and is subject to extensive
state insurance regulation. Applicants maintain, therefore, that in
adopting of Rules 6e-2(b)(15)(iii), the Commission expressly recognized
that state insurance laws or regulators have authority, pursuant to
state insurance laws or regulations, to disapprove or require changes
in investment policies, investment advisers or principal underwriters.
The Commission also expressly recognized that state insurance
regulators have authority to require a life insurance company to draw
from its general account to cover costs imposed upon the insurer by a
change approved by contract owners over the insurer's objection. The
Commission therefore deemed such exemptions necessary ``to assure the
solvency of the life insurer and performance of its contractual
obligations by enabling an insurance regulatory authority or life
insurer to act when certain proposals reasonably could be expected to
increase the risks undertaken by the life insurer. In this respect,
flexible premium variable life insurance contracts are identical to
scheduled premium variable life insurance contracts. Therefore, Rule
6e-3(T)'s corresponding provisions for flexible premium variable life
insurance contracts undoubtedly were adopted in recognition of the same
considerations as the Commission applied in adopting Rule 6e-2.
14. Applicants maintain that these considerations are no less
important or necessary when an insurance company funds its separate
accounts in connection with mixed and shared funding. Such mixed and
shared funding does not compromise the goals of the insurance
regulatory authorities or of the Commission. Applicants argue that by
permitting such arrangements, the Commission eliminates needless
duplication of start-up and administrative expenses and potentially
increases an investment company's assets, thereby making portfolio
management strategies easier to implement and promoting other economies
of scale.
15. Applicants further represent that the sale of the Trust's
shares to Qualified Plans will not impact the relief requested in this
regard. Shares of the Trust sold to Qualified Plans would be held by
the trustees of such Qualified Plans as required by Section 403(a) of
the Employment Retirement Income Security Act (``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: (1)
When the Qualified Plan expressly provides that the trustee(s) 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 Qualified Plan and not contrary to
ERISA, and (2) when the authority to manage, acquire or dispose of
assets of the Qualified 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, Qualified Plan trustees
have the 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.
In any event, there is no pass-through voting to the participants in
such Qualified Plans. 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 Qualified Plans.
16. 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
[[Page 48327]]
company is licensed to do business in several or all states. In this
regard, Applicants note that a particular state insurance regulatory
body could require action that is inconsistent with the requirements of
insurance regulators in one or more other states in which the insurance
company offers its policies. Applicants submit that the fact that
different insurers may be domiciled in different states does not create
a significantly different or enlarged problem.
17. Applicants assert that shared funding is no different than the
use of the same investment company as the funding vehicle for
affiliated insurers, which Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit.
Affiliated insurers may be domiciled in different states and be subject
to differing state law requirements. Affiliation does not reduce the
potential, if any exists, for differences in state regulatory
requirements. In any event, Applicants submit that the conditions
discussed below (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.
18. Applicants note the Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give
an insurance company the right to disregard the voting instructions of
contract owners. Applicants submit that this does not raise any issues
different from those raised by the authority of state insurance
administrators over separate accounts. 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 adviser 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 reasonable and based on specific good-faith
determinations.
19. Applicants state that there is no reason why the investment
policies of the Trust 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 variable life insurance
contracts. In this regard Applicants note that each type of variable
insurance product is designed as a long-term investment program.
Moreover, Applicants represent that each Series will be managed to
attempt to achieve the investment objective of such Series and not to
favor or disfavor any particular insurance company or type of insurance
product.
20. Furthermore, Applicants submit that no one 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. A fund supporting even one type of
insurance product must accommodate those factors in order to attract
and retain purchasers.
21. In connection with the proposed sale of shares of the Trust to
Qualified Plans, Applicants submit that either there are no conflict of
interest or there exists the ability by the affected parties to resolve
any such conflicts without harm to the contract owners in the Separate
Accounts or to the participants in the Qualified Plans. Applicants note
that Section 817(h) of the Code imposes certain diversification
standards on fund assets underlying Variable Contracts. Treasury
Regulation 1.817-5(f)(3)(iii), which established diversification
requirements for such portfolios, specifically permits ``qualified
pension or retirement plans'' and separate accounts to share the same
underlying management investment company. Therefore, Applicants have
concluded that neither the Code, the Treasury Regulations, nor Revenue
Rulings thereunder, present any inherent conflicts of interest if
Qualified 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 are taxed for variable annuity contracts,
variable life contracts and Qualified Plans, these tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and a Separate Account or Qualified Plan is unable to net purchase
payments to make the distributions, the Separate Account or the
Qualified Plan will redeem shares of the Trust at their respective net
asset value. The Qualified Plan will then make distributions in
accordance with the terms of the Qualified Plan, and the Participating
Insurance Company will make distributions in accordance with the terms
of the Variable Contract.
23. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving voting rights to
Separate Account contract owners and to the trustees of Qualified
Plans. Applicants represent that the transfer agent for the Trust will
inform each Participating Insurance Company of its share ownership in
each Separate Account, and will inform the trustees of Qualified Plans
of their holdings. Each Participating Insurance Company will then
solicit voting instructions in accordance with Rules 6e-2 and 6e-3(T).
24. Applicants contend that the ability of the Trust to sell its
shares directly to Qualified Plans does not create a ``senior
security,'' as such term is defined under Section 18(g) of the 1940
Act. Regardless of the rights and benefits of participants and contract
owners under the respective Qualified Plans and Variable Contracts, the
Qualified Plans and the Separate Accounts have rights only with respect
to their shares of the Trust. Such shares may be redeemed only at their
net asset value. No shareholder of the Trust will have any preference
over any other shareholder of the Trust with respect to distribution of
assets or payment of dividends.
25. Applicants submit that there are no conflicts between the
contract owners of the Separate Accounts and participants under the
Qualified 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
state insurance commissioners have been given the veto power in
recognition of the fact that insurance companies cannot simply request
redemption of shares held by their Separate Accounts and have shares
redeemed out of one fund and invested in another. Generally, to
accomplish such redemptions and transfers, complex and time-consuming
transactions must be undertaken. Conversely, trustees of Qualified
Plans can make the decision and implement redemption of shares from the
Trust and reinvest in another funding vehicle without the same
regulatory impediments, or even hold cash pending suitable investment.
Based on the foregoing, Applicants represent that even if there should
arise issues where the interests of Qualified Plans are in conflict,
the issues can be almost immediately resolved because the trustees of
the Qualified Plans can, independently, redeem the shares of the Trust
which they hold.
26. 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
costs of organizing and operating an investment funding medium, the
lack of expertise with respect to investment management
[[Page 48328]]
(principally with respect to stock and money market investments) and
the lack of name recognition by the public of certain insurers as
investment professionals. Applicants contend that use of the Trust as
common investment media for Variable Contracts as well as for Qualified
Plans would ease these concerns. Participating Insurance Companies and
Qualified Plans would benefit not only from the investment and
administrative expertise of the Investment Adviser and its affiliates,
but also from the cost efficiencies and investment flexibility afforded
by a large pool of funds. Applicants state that making the Trust
available for mixed and shared funding may encourage more insurance
companies to offer Variable Contracts which may then increase
competition with respect to both the design and the pricing of Variable
Contracts. Thus, Applicants represent that contract owners would
benefit because mixed and shared funding will eliminate a significant
portion of the costs of establishing and administering separate funds.
Moreover, Applicants assert that sales of shares of the Trust to
Qualified Plans should increase the amount of assets available for
investment by the Trust. This should, in turn, promote economies of
scale and permit increased safety of investments through greater
diversification.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of Trustees of each Trust (each, a
``Board'') shall consist of persons who are not ``interested persons''
of the Trust, 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, 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. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between and among the interests of the
variable annuity and variable life insurance contract owners investing
in the Separate Accounts and participants in all Qualified Plans
investing in Series of the Trust 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 any Series are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and owners of
variable life insurance contracts and trustees of the Plans; or (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contract owners.
3. If a Qualified Plan becomes an owner of 10% or more of the
assets of the Trust, such Plan will execute a participation agreement
with the Trust that provides appropriate protection consistent with the
representations in the application. In connection with its initial
purchase of shares of the Trust, the Qualified Plan will be required to
acknowledge this condition in its application to purchase the shares.
4. The Participating Insurance Companies, the Investment Adviser
and any Qualified Plan that executes a fund participation agreement
upon becoming an owner of 10% or more of the issued and outstanding
shares of the Trust (collectively, the ``Participating Entities'') will
report any potential or existing conflicts to the Board. Participating
Entities will be responsible for assisting the Board in carrying out
the responsibilities of the Board 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. The responsibility to report such conflicts and
information to the Board and to assist the Board will be a contractual
obligation of all Participating Insurance Companies and Qualified Plans
investing in the Trust; these responsibilities will be carried out with
a view only to the interest of the contract owners and participants in
Qualified Plans.
5. If it is determined by a majority of a Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict
exists, the relevant Participating Insurance Companies and Qualified
Plans shall, at their expense and to the extent reasonably practicable
(as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict, up to and including: (a) Withdrawing the assets
allocable to some or all of the Separate Accounts from the affected
Series of the Trust and reinvesting such assets in a different
investment medium, including another Series, or submitting the question
of 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 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; (b) withdrawing the assets allocable to some or all of the
Qualified Plans from the affected Series of the Trust and reinvesting
those assets in a different investment medium, including another
Series; and (c) establishing a new registered management investment
company or managed separate account. If a material irreconcilable
conflict arises because of a Participating Insurance Company's decision
to disregard voting instructions of the owners of the contracts, and
that decision represents a minority position or would preclude a
majority vote, the Participating Insurance Company may be required, at
the election of the Trust, within its sole discretion, to withdraw its
Separate Account's investment in the Trust, with no charge or penalty
being imposed. The responsibility to take remedial action in the event
of a Board determination of an irreconcilable material conflict and to
bear the cost of such remedial action will be a contractual obligation
of all Participating Insurance Companies and all Qualified Plans under
the agreements governing their participation in the Trust. The
responsibility to take such remedial action shall be carried out with a
view only to the interests of contract owners and participants in
Qualified Plans.
6. For the purposes of Condition 5, 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 Trust or the Investment Adviser be required to establish
a new funding medium for any Variable Contract. No Participating
[[Page 48329]]
Insurance Company shall be required by Condition 5 to establish a new
funding medium for any Variable Contract if any offer to do so has been
declined by the vote of a majority of contract owners who are
materially and adversely affected by the irreconcilable material
conflict.
7. A Board's determination of the existence of an irreconcilable
material conflict and its implications will be made known promptly and
in writing to all Participating Entities.
8. Participating Insurance Companies will provide pass-through
voting privileges to all Variable Contract owners so long as the
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for variable annuity and variable life
insurance contract owners. Accordingly, the Participating Insurance
Companies will vote shares of the Trust held in their Separate Accounts
in a manner consistent with voting instructions timely received from
contract owners. Each Participating Insurance Company will vote shares
of the Trust held in the Participating Insurance Company's Separate
Accounts for which no voting instructions from contract owners are
timely-received, as well as shares of the Trust which the Participating
Insurance Company itself owns, in the same proportion as those shares
of the Trust for which voting instructions from contract owners are
timely-received. Participating Insurance Companies will be responsible
for assuring that each of their Separate Accounts participating in the
Trust calculates voting privileges in a manner consistent with other
participation Insurance Companies. The obligation to calculate voting
privileges in a manner consistent with all other Separate Accounts
investing in the Trust shall be a contractual obligation of all
Participating Insurance Companies under their agreements governing
their participation in the trust. Each Qualified plan will vote as
required by applicable law and governing Plan documents.
9. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders (which, for these purposes, shall be
the persons having a voting interest in the shares of the Trust), and,
in particular, the Trust 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 Trust is 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, The Trust 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. The Trust will notify all Participating Insurance Companies
that Separate account prospectus disclosures regarding potential risks
of mixed and shared funding may be appropriate. The trust will disclose
in the prospectuses of the Series that: (a) The Trust is intended to be
a funding vehicle for all types of variable annuity and variable life
insurance contracts offered by various insurance companies and for
certain qualified pension and retirement plans; (b) material
irreconcilable conflicts possibly may arise; and (c) the Trust's Board
will monitor events in order to identify the existence of any material
irreconcilable conflicts and to determine what action, if any, should
be taken in response to any such conflict.
11. If, and to the extent that, Rules 6e-2 or 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 or shared funding on terms and conditions materially
different from any exemptions granted in the order requested by
Applicants, then the Trust and/or the Participating Entities, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 or 6e-3(T), as they may be amended, and Rule 6e-3, as it may
be adopted, to the extent such rules are applicable.
12. At least annually, the Participating Entities shall submit to
the Board such reports, materials or data as the Board reasonably may
request so that the Board may carry out fully the obligations imposed
by the conditions contained in these conditions. Such reports,
materials and data shall be submitted more frequently if deemed
appropriate by the Board. The obligations of the Participating Entities
to provide these reports, materials and data to the Board, when the
Board so reasonably requests, shall be a contractual obligation of all
Participating Entities under their agreements governing participation
in the Trust.
13. All reports received by a Board of potential or existing
conflicts, and all Board action with regard to (a) determining the
existence of a conflict; (b) notifying Participating Entities 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.
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. 97-24378 Filed 9-12-97; 8:45 am]
BILLING CODE 8010-01-M
