[Federal Register Volume 60, Number 99 (Tuesday, May 23, 1995)]
[Notices]
[Pages 27366-27371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12521]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21068; File No. 812-9438]
Smith Barney/Travelers Series Fund, et al.
May 15, 1995.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the
``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: Smith Barney/Travelers Series Fund(``SB/T Fund''), Smith
Barney Series Fund (``Series Fund''), and certain life insurance
companies and their separate accounts investing now or in the future in
the SB/T Fund or the Series Fund.
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of 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.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit shares of the SB/T Fund, the Series Fund and all
future open-end investment companies for which Smith Barney Mutual Fund
Management, Inc., or any affiliate thereof, serves as investment
adviser, manager, principal underwriter, or sponsor and whose shares
are sold to separate accounts of insurance companies and qualified
person and retirement plans the ``Future Funds'') (the SB/T Fund, the
Series Fund and the Future Funds collectively are referred to as 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 (``Participating Insurance Companies''); and
(b) qualified pension and retirement plans outside of the separate
account context (``Qualified Plans'').
FILING DATES: The application was filed on January 18, 1995, and
amended on May 5, 1995.
HEARING AND NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving Applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on June 9,
1995, and should be accompanied by proof of service on Applicants in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the requester's interest,
the reason for the request and the issues contested. Persons may
request notification of a hearing by writing to the Secretary of the
SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Christina T. Sydor, Esquire, Smith Barney, Inc., 388
Greenwich Street, Twenty-Second Floor, New York, New York 10013.
FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Wendy Finck Friedlander, Deputy Chief, 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 SEC's Public
Reference Branch.
Applicants' Representations
1. The SB/T Fund, a Maryland corporation incorporated on February
22, 1994, is registered under the 1940 Act as an open-end, diversified
management investment company. The SB/T Fund consists of eleven
portfolios: The Smith Barney Income and Growth Portfolio, the Alliance
Growth Portfolio, the American Capital Enterprise Portfolio, the Smith
Barney International Equity Portfolio, the Smith Barney Pacific Basin
Portfolio, the TBC Managed Income Portfolio, the Putnam Diversified
Income Portfolio, the G.T. Global Strategic Income Portfolio, the Smith
Barney High Income Portfolio, the MFS Total Return Portfolio, and the
Smith Barney Money Market Portfolio. Additional portfolios may be added
in the future.
2. The Series Fund, a Massachusetts business trust organized on May
13, 1991, is registered under the 1940 Act as an open-end, diversified
management investment company. The Series Fund consists of ten separate
portfolios (together with the portfolios of the
SB/T Fund and Future Funds, the ``Portfolios''): the Money Market
Portfolio, the Intermediate High Grade Portfolio, the Diversified
Strategic Income Portfolio, the Equity Income Portfolio, the Equity
Index Portfolio, the Growth & Global Income Portfolio, the Appreciation
Portfolio, the Total Return Portfolio, the Emerging Growth Portfolio,
and the International Equity Portfolio. Additional portfolios may be
added in the future.
3. Smith Barney Mutual Funds Management, Inc. (``SBMFM'') is the
investment adviser for the SB/T Fund, and is a wholly-owned subsidiary
of Smith Barney Holdings, Incorporated. Smith Barney Holdings, Inc. is
a wholly-owned subsidiary of Travelers Group, which is a financial
services holding company engaged, through its subsidiaries, principally
in four business segments: investment services, consumer finance
services, life insurance services, and property and casualty insurance
services.
4. SBMFM also is the investment adviser for all the Series Fund
Portfolios except the Equity Index Portfolio and the Emerging Growth
Fund Portfolio. PanAgora Asset Management, Inc. is the investment
adviser for the Equity Index [[Page 27367]] Portfolio, and is 50% owned
by Nippon Life Insurance Company and 50% owned by Lehman Brothers,
Inc., which is a wholly-owned subsidiary of Lehman Brothers Holdings,
Inc. American Capital Asset Management, Inc., is the investment adviser
for the Emerging Growth Fund Portfolio and is a wholly-owned subsidiary
of American Capital Management & Research, Inc., which is an indirect
wholly-owned subsidiary of VKM Holdings. SBMFM, PanAgora Asset
Management, Inc. and American Capital Asset Management, Inc.
(collectively, the ``Advisers'') are registered as investment advisers
under the Investment Advisers Act of 1940.
5. Shares of the SB/T Fund currently are sold to a separate account
(the ``Travelers Separate Account'') of The Travelers Insurance Company
(``The Travelers'') which funds benefits under variable contracts
issued through that separate account. Shares of the Series Fund
currently are sold to the Travelers Separate Account and to separate
accounts of the IDS Life Insurance Company and the IDS Life Insurance
Company of New York which fund benefits under variable contracts issued
by those companies.
6. Applicants state that, upon the granting of the order requested
in this application, the Funds intend to offer shares of their existing
Portfolios and future investment portfolios to separate accounts of
Participating Insurance Companies (the ``Separate Accounts'') to serve
as the investment vehicle for various types of insurance products,
which may include variable annuity contracts, single premium variable
life insurance contracts, scheduled premium variable life insurance
contracts and flexible premium variable life insurance contracts.
Applicant's Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15)
provides partial exemptions from Section 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. The relief provides by Rule 6e-2 is also available to
a separate account's investment adviser, 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
unit investment trust (``underlying fund'') offers its shares
``exclusively to variable life insurance separate accounts of the life
insurer, or of any affiliated life insurance company.'' Therefore, the
relief granted by Rule 6e-2(b)(15) is not available with respect to a
scheduled premium variable life insurance separate account that owns
shares of an underlying fund that also offers its shares to a variable
annuity or a flexible premium variable life insurance separate account
of the same company or of any other life insurance company. The use of
a common management investment company as the underlying investment
medium for both variable annuity and variable life insurance separate
accounts of the same life insurance company or of any affiliate life
insurance company is referred to herein as ``mixed funding.''
2. In addition, the relief granted by Rule 6e-2(b)(15) is not
available with respect to a scheduled premium variable life insurance
separate account that owns shares of an underlying fund that also
offers its shares to separate accounts funding variable contracts of
one or more unaffiliated life insurance companies. The use of a common
management investment company as the underlying investment medium for
variable life insurance separate accounts of one insurance company and
separate accounts funding variable contracts of one or more
unaffiliated life insurance companies is referred to herein as ``shared
funding.''
3. Applicants state that the relief granted by Rule 6e-2(b)(15) is
not affected by the purchase of shares of a Fund by the Qualified
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 Qualified Plans.
4. In connection with the funding of flexible premium variable life
insurance contracts issued through a unit investment trust, Rule 6e-
3(T)(b)(15) provides partial exemptions from Sections 9(a), 15(a), and
15(b) of the 1940 Act. The relief provided by Rule 6e-3(T) also is
available to a separate account's investment adviser, principal
underwriter, and sponsor or depositor. The exemptions granted by Rule
6e-3(T) are available only where the unit investment trust's underlying
fund offers its shares ``exclusively to separate accounts of the life
insurer or of any affiliated life insurance company, offering either
scheduled contracts or flexible contracts, or both; or which also offer
their shares to variable annuity separate accounts of the life insurer
or of an affiliated life insurance company * * * '' Therefore, Rule 6e-
3(T) permits mixed funding with respect to a flexible premium variable
life insurance separate account subject to certain conditions. However,
Rule 6e-3(T) does not permit shared funding because the relief granted
by Rule 6e-3(T)(b)(15) is not available with respect to a flexible
premium variable life insurance separate account that owns shares of a
management company that also offers its shares to separate accounts
(including variable annuity and flexible premium and scheduled premium
variable life insurance separate accounts) of unaffiliated life
insurance companies.
5. Applicants state that the relief granted by Rule 6e-3(T) is not
affected by the purchase of shares of the Funds by the Qualified 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 Qualified Plans.
6. Applicants state that changes in the tax law have created the
opportunity for each Fund to increase its asset base through the sale
of shares of the Fund to Qualified Plans. Applicants state the 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 annuity contracts or life insurance contracts
for any period in which the investments are not, in accordance with
regulations prescribed by the Department of the Treasury, adequately
diversified. On March 2, 1989, the Department of the Treasury 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 also to be held by the separate accounts of
insurance companies in connection with their variable contracts. Treas.
Reg. Sec. 1.817-5(f)(3)(iii).
7. Applicants state that the promulgation of Rules 6e-2 and Rule
6e-3(T) under the 1940 Act preceded the insurance of these Treasury
regulations. Applicants assert that, given the then current tax law,
the sale of shares of the same investment [[Page 27368]] company to
both separate accounts and qualified pension and retirement plans could
not have been envisioned at the time of the adoption of Rules 6e-
2(b)(15) and 6e-3(T)(b)(15).
8. Applicants therefore request that the Commission, under its
authority in Section 6(c) of the 1940 Act, grant relief from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder for themselves and for variable life
insurance separate accounts of the Participating Insurance Companies,
and the principal underwriters and depositors of such separate
accounts, to the extent necessary to permit mixed funding and shared
funding.
9. Section 9(a) of the 1940 Act makes it unlawful for any company
to serve as an investment adviser to, or principal underwriter for, any
registered open-end investment company if an affiliated person of that
company is subject to any disqualification specified in Sections
9(a)(1) or 9(a)(2), Rule 6e-2(b)(15)(i) and (ii) and Rule 6e-
3(T)(b)(15)(i) and (ii) provide exemptions from Section 9(a) under
certain circumstances, subject to limitations on mixed and shared
funding. The relief provided by Rules 6e-2(b)(15)(i) and 6e-
3(T)(b)(15)(i) permits a person disqualified under Section 9(a) to
serve as an officer, director, or employee of the life insurer, or any
of its affiliates, so long as that person does not participate directly
in the management or administration of the underlying fund. The relief
provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the
life insurer to serve as the underlying fund's investment adviser or
principal underwriter provided that none of the insurer's personnel who
are ineligible pursuant to Section 9(a) participate in the management
or administration of the 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(a), in
effect, limits the monitoring of an insurer's personnel that would
otherwise be necessary to ensure compliance with Section 9 to that
which is appropriate in light of the policy and purposes of Section 9.
Applicants state that Rules 6e-2 and 6e-3(T) recognize that it is not
necessary for the protection of investors or for the purposes of the
1940 Act to apply the provisions of Section 9(a) to the many
individuals in an insurance company complex, most of whom typically
will have no involvement in matters pertaining to an investment company
in that organization. Applicants submit that there is no regulatory
reason to apply the provisions of Section 9(a) to the many individuals
in various unaffiliated insurance companies (or affiliated companies of
Participating Insurance Companies) that may utilize the Funds as the
funding medium for variable contracts. The application states that the
relief requested will not be affected by the proposed sale of shares of
the Funds to Qualified Plans. The insulation of the Funds from
individuals disqualified under the 1940 Act remains in place.
Applicants assert that, since the Qualified Plans are not investment
companies and will not be deemed affiliated by virtue of their
shareholdings, no additional relief is necessary.
11. 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.
12. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial
exemptions from Sections 13(a), 15(a), and 15(b) of the 1940 Act to the
extent that those sections have been deemed by the Commission to
require ``pass-through'' voting with respect to management investment
company shares held by a separate account, to permit the insurance
company to disregard the voting instructions of its contract owners in
certain limited circumstances.
Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii) (A) provide that
the insurance company may disregard voting instructions of its contract
owners in connection with the voting of shares of an underlying fund if
such instructions would require such shares to be voted to cause such
companies to make, or refrain from making, certain investments which
would result in changes in the subclassification or investment
objectives of such companies, or to approve or disapprove any contract
between a Fund and its investment adviser, when required to do so by an
insurance regulatory authority, subject to the provisions of paragraphs
(b)(5)(i) and (b)(7)(ii)(A) of each Rule.
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that
the insurance company may disregard contract owners' voting
instructions if the contract owners initiate any change in such
company's investment policies or any principal underwriter or
investment adviser, provided that disregarding such voting instructions
is reasonable and subject to the other provisions of paragraphs
(b)(5)(ii) and (b)(7)(ii) (B) and (C) of each Rule.
13. Applicants further represent that the sale of shares by a Fund
to the Qualified Plans does not impact relief requested in this regard.
Shares of the Funds sold to Qualified Plans would be held by the
trustees of the Qualified 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 Qualified Plan with
two exceptions: (a) When the Qualified 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 Qualified
Plan and not contrary to ERISA; and (b) 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 to the named fiduciary. In any event, there is no pass-
through voting to the participants in 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 respect to
Qualified Plans because they are not entitled to pass-through voting
privileges.
14. Applicants state that no increase conflicts of interest would
be presented 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 or all 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 a single
[[Page 27369]] 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 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 the Participating Insurance Company's 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 of 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 Portfolios
will be managed to attempt to achieve the investment objective(s) of
such Portfolio and not to favor or disfavor any particular insurer or
type of variable contract.
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. An investment company supporting even one type of
insurance product must accommodate those diverse factors in order to
attract and retain purchasers.
19. Applicants further note that Section 817 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 Qualified
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 conflicts and Qualified Plans. Applicants state that the tax
consequences do not raise any conflicts of interests with respect to
the use of the Funds. When distributions are to be made, and the
separate account or the Qualified Plan is unable to net purchase
payments to make the distributions, the separate account or the
Qualified Plan will redeem shares of the affected Fund at their net
asset value. The Qualified Plan will then make distributions in
accordance with the terms of the Qualified 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 Qualified Plans. Applicants represent that the
transfer agent for each Fund will inform each Participating Insurance
Company of its share ownership in each Separate Account, as well as
inform the trustees of the Qualified 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 shares
directly to Qualified Plans does not create a ``senior security'', as
such term is defined under Section 18(g) of the 1940 Act, with respect
to any variable annuity or variable life contract owner as opposed to a
participant under a Qualified Plan. Regardless of the rights and
benefits of participants and contract owners under the respective
Qualified Plans and contracts, the Qualified Plans and the separate
accounts have rights only with respect to their respective shares of
the Funds. Such shares may be redeemed only at net asset value. No
shareholder of any Fund has any preference over any other shareholder
of that Fund with respect to distribution of assets or payment of
dividends.
23. Finally, Applicants assert that there are no conflicts between
contract owners 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 basic premise of shareholder
voting is that not all shareholders may agree with a particular
proposal. 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 redemptions and transfers, complex,
time consuming transactions must be undertaken. Conversely, trustees of
Qualified 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 Qualified 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 Qualified
Plans conflict, the issues can be resolved almost immediately because
trustees of the Qualified Plans can, independently, redeem shares out
of the Funds.
24. Applicants state that various factors have kept certain
insurance companies from offering variable annuity and variable life
insurance contracts. These factors include the cost of organizing and
operating an investment funding medium, the lack of expertise with
respect to investment management 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. Applicants submit that mixed
funding and shared funding should benefit variable contract owners by:
(a) [[Page 27370]] Eliminating a significant portion of the costs of
establishing and administering separate funds; (b) allowing for a
greater amount of assets available for investment by the Funds, thereby
promoting economies of scale, permitting greater safety through greater
diversification, and/or making the addition of new portfolios more
feasible; and (c) encouraging more insurance companies to offer
variable contracts, resulting in increased competition with respect to
both variable contract design and pricing, which can be expected to
result in more product variation and lower charges. Each Fund will be
managed to attempt to achieve its investment objectives and not to
favor or disfavor any particular Participating Insurance Company or
type of insurance product.
25. Applicants assert that there is no significant legal impediment
to permitting mixed and shared funding. Applicants state that separate
accounts organized as unit investment trusts have historically been
employed to accumulate shares of mutual funds which have not been
affiliated with the depositor or sponsor of the separate account.
Applicants also assert that mixed and shared funding will have no
adverse federal income tax consequences.
Applicants' Conditions
The Applicants have consented to the following conditions:
1. A majority of the Board of Directors or Board of Trustees (as
appropriate) (the ``Board'') of each Fund shall consist of persons who
are not ``interested persons,'' as defined by Section 2(a)(19) of the
1940 Act and Rules thereunder and as modified by any applicable orders
of the Commission, except that, if this condition is not met by reason
of death, disqualification, or bona fide resignation of any director or
directors, then the operation of this condition shall be suspended: (i)
For a period of 45 days, if the vacancy or vacancies may be filled by
the Board; (ii) for a period of 60 days, if a vote of shareholders is
required to fill the vacancy or vacancies; or (iii) for such longer
period as the Commission may prescribe by order upon application.
2. The Board of each fund will monitor its Fund for the existence
of any material irreconcilable conflict between and among the interests
of the contract owners of all Separate Accounts investing in the Fund.
A material irreconcilable conflict may arise for a variety of reasons,
including: (a) State insurance regulatory authority action; (b) a
change in applicable federal or state insurance tax or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any series are being managed; (e) a difference in voting
instructions given by variable annuity and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company
to disregard contract owner voting instructions.
3. Participating Insurance Companies, the Advisers and any
Qualified Plan that executes a fund participation agreement upon
becoming an owner of 10% or more of the assets of a Fund (the
``Participants'') will report any potential or existing conflicts, of
which they become aware, to the Board. Participants 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. These responsibilities will
be contractual obligations of all Participating Insurance Companies and
Qualified Plans investing in a Fund under their agreements governing
participation therein, and such agreements shall provide that such
responsibilities will be carried out with a view only to the interests
of the contract owners.
4. If a majority of the Board, or a majority of the disinterested
members of the Board, determine that a material irreconcilable conflict
exists the relevant Participating Insurance Companies and Qualified
Plans shall, at their expense and to the extent reasonably practicable
(as determined by a majority of disinterested members of the Board),
take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (a) Withdrawing
the assets allocable to some or all of the Separate Accounts from the
Fund or any series therein and reinvesting such assets in a different
investment medium (including another series of the Fund), or submitting
the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract owners of one or more
Participating Insurance Company) 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 Fund or any Portfolio of
the Fund and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund; 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 contract owner voting
instructions, and that decision represents a minority position or would
preclude a majority vote, the Participating Insurance Company may be
required, at the election of the Fund, to withdraw its Separate
Account's investment therein, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take remedial
action in the event of a Board determination of an irreconcilable
material conflict and to bear the cost of such remedial action shall be
a contractual obligation of all Participating Insurance Companies and
Qualified Plans under their agreements governing participation in the
Fund and these responsibilities will be carried out with a view only to
the interests of the contract owners and participants in the Qualified
Plans.
For the purposes of condition (4), a majority of disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no
event will the Fund or the Advisers be required to establish a new
funding medium for any variable contract. No Participating Insurance
Company shall be required by this condition (4) to establish a new
funding medium for any variable contract if an offer to do so has been
declined by a vote of a majority of contract owners materially affected
by the irreconcilable material conflict.
5. The determination by the Board of the existence of an
irreconcilable material conflict and its implications shall be made
known promptly in writing to all Participating Insurance Companies and
Qualified Plans.
6. 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 to require pass-through
voting privileges for variable contract owners. Accordingly, each
Participating Insurance Company, where applicable, will vote shares of
the [[Page 27371]] Fund held in its Separate Accounts in a manner
consistent with timely voting instructions received from contract
owners. Each Participating Insurance Company also will vote shares of
each Fund held in its Separate Accounts for which no timely voting
instructions from contract owners are received, as well as shares it
owns, in the same proportion as those shares for which voting
instructions are received. Each Participating Insurance Company shall
be responsible for assuring that each of their Separate Accounts
participating in the Fund calculates voting privileges in a manner
consistent with all other Participants. The obligation to calculate
voting privileges in a manner consistent with all other Separate
Accounts investing in the Fund shall be a contractual obligation of all
Participating Insurance Companies under their agreements governing
participation in the Fund.
7. Each Fund will notify all Participants that prospectus
disclosure regarding potential risks of mixed and shared funding may be
appropriate. Each Fund shall disclose in its prospectus that: (a) Its
shares are offered to qualified pension and retirement plans and to
separate accounts which fund both annuity and life insurance contracts
of both affiliated and unaffiliated Participating Insurance Companies;
(b) material irreconcilable conflicts may arise from mixed and shared
funding; and (c) the Board will monitor the Fund for any material
conflicts and determine what action, if any, should be taken.
8. All reports received by the Board regarding potential or
existing conflicts, and all Board action with respect to determining
the existence of a conflict, notifying Participants of a conflict, and
determining whether any proposed action adequately remedies a conflict,
will be properly recorded in the minutes of the Board or other
appropriate records, and such minutes or other records shall be made
available to the Commission upon request.
9. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules thereunder with respect to mixed and shared
funding on terms and conditions materially different from any
exemptions granted in the order requested, then the Funds and/or the
Participants, as appropriate, shall take such steps as may be necessary
to comply with Rule 6e-2 and Rule 6e-3(T), as amended, the Rule 6e-3,
as adopted, to the extent such rules are applicable.
10. Each Fund 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 Fund), and in
particular each Fund will either provide for annual meetings (except
insofar as the Commission may interpret Section 16 of the 1940 Act not
to require such meetings) or comply with Section 16(c) (although the
Funds are not within the trusts described in this section) as well as
with Sections 16(a) and, if and when applicable, Section 16(b).
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 directors (or trustees) and with whatever rules
the Commission may promulgate with respect thereto.
11. The Participants, at least annually, shall submit to the Board
such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out the obligations imposed upon it by
these stated conditions, and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board. The
obligations of the Participating Insurance Companies and Qualified
Plans to provide these reports, materials, and data to the Board when
it so reasonably requests shall be a contractual obligation of all
Participating Insurance Companies and Qualified Plans under their
agreements governing participation in the Funds.
12. In the event that a Qualified Plan ever should become an owner
of 10 percent or more of the assets of a Fund, such Qualified Plan will
execute a fund participation agreement with the applicable Fund. A
Qualified Plan shareholder will execute an application with each of the
Funds, including Future Funds, that contains an acknowledgement of this
condition at the time of the Qualified Plan's initial purchase of
shares of the Fund.
Conclusion
For the reasons stated above, Applicants believe that the requested
exemptions, in accordance with the standards of Section 6(c), as
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. 95-12521 Filed 5-22-95; 8:45 am]
BILLING CODE 8010-01-M