[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35979-35984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16997]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21183; Filed No. 812-9384]
American Skandia Trust, et al.
July 3, 1995.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: American Skandia Trust (the ``Trust'') and American Skandia
Investment Services, Incorporated (``ASISI'').
relevant act sections: Order requested under Section 6(c) for
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
summary of application: Applicants seek an order rescinding and
replacing an order that granted exemptions from the Act (the ``Original
Order'').\1\ The
[[Page 35980]]
proposed order would grant exemptions to the extent necessary to permit
shares of any current or future series of the Trust and shares of any
other investment company that is designed to fund insurance products
and for which ASISI, or any of its affiliates may in the future serve
as investment adviser, administrator, manager, principal underwriter or
sponsor (the Trust and such other investment company are hereinafter
referred to collectively as the ``Funds'') to be sold to and held by
(i) variable annuity and variable life insurance company separate
accounts of both affiliated and unaffiliated life insurance companies
(``Participating Insurance Companies'') and (ii) qualified pension and
retirement plans outside the separate account context (``Plans'').
\1\ Investment Company Act Release Nos. 17607 (July 19, 1990)
(Order) and 17548 (June 22, 1990) (Notice).
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filing date: The Application was filed on December 23, 1994 and amended
on March 29, 1995 and June 28, 1995.
hearing or notification of hearing: An order granting the Application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on July 28, 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 writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: SEC, Secretary, 450 Fifth Street NW., Washington, D.C.
20549. Applicants, American Skandia Trust, c/o Mary Ellen O'Leary,
Corporate Secretary, One Corporate Drive, Shelton, CT 06484.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy Friedlander, Deputy
Chief, at (202) 942-0670, Office of Insurance Products, Division of
Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust was organized in October 1988 as a Massachusetts
business trust. The Trust is an open-end management investment company
and is registered with the SEC under the Act. Prior to 1992, the Trust
was known as Henderson International Growth Fund and consisted of only
one series. The Trust currently consists of nineteen separately managed
series to which additional series may be added in the future.
2. ASISI serves as investment manager for each of the Trust's
series. ASISI is wholly-owned by American Skandia Investment Holding
Corporation which is an indirect wholly-owned subsidiary of Skandia
Insurance Company Ltd., a Swedish corporation. ASISI is registered
under the Investment Advisers Act of 1940. Prior to 1992, the Trust's
investment adviser was Henderson International, Inc.
3. Currently the Trust only offers its shares to variable annuity
separate accounts established by American Skandia Life Assurance
Company (``ASLAC''). The Funds propose to offer shares of one or more
of their series to insurance company separate accounts that fund
variable annuity and variable life insurance contracts, established by
insurance companies that are not affiliated with ASLAC, as well as
separate accounts established by ASLAC itself or its affiliated
insurance companies.
4. The Funds also intend to offer shares of each series directly to
Plans outside of the separate account context. The Plans may choose
from one of several series of any of the Funds as the sole investment
under the Plan or as one of several investments. Plan participants may
or may not be given the right to select among Funds, depending on the
Plans. Plan participants include not only those participants of
qualified pension or retirement plans as set forth in Treasury
Regulation 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also
include the holders of annuity contracts described in Sections 403(b)
of the Code, including Section 403(b)(7); holders of individual
retirement accounts described in Section 408(b) of the Code; and
holders of any other trust, account, contract or annuity that is
determined to be within the scope of Regulation 1.817-5(f)(3)(iii).
5. Applicants seek to rescind and replace the Original Order
because ASISI has replaced Henderson International, Inc. as the
investment adviser to the Trust and ASISI was not a party to the
application for the Original Order. Applicants also seek to permit
shares of the Funds to be offered to Plans.
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 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 Act. The relief provided by Rule 6e-2 is 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 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 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 funding as well as
shared funding.
2. Applicants state that because the relief under Rule 6e-2(b)(15)
is available only where shares are offered exclusively to separate
accounts of insurance companies, 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 Act as
a UIT, Rule 6e-3(T)(b)(15) provide partial exemptions from Sections
9(a), 13(a), 15(a), and 15(b) of the 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
[[Page 35981]]
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.'' Thus, Rule 6e-3(T) permits mixed funding, but does
not permit shared funding.
4. Applicants state that because the relief under Rule 6e-3(T) is
available only where shares are offered exclusively to separate
accounts, additional relief is necessary if shares of the Funds also
are to be sold to Plans.
5. 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 requirements 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 underlying assets 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 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 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 Act provides that it is 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 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. 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.
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 that
Section. 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 Act to apply the
provisions of Section 9(a) to the many individuals employed by the
Participating Insurance Companies, most of whom will have no
involvement in matters pertaining to investment companies within that
organization. Applicants note that the Participant 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. Applicants state that the
relief requested should not be affected by the proposed sale of shares
of the Funds to the Plans because the Plans are not investment
companies and are not, therefore, subject to Section 9(a).
10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 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 mass-through voting privileges to all Contract owners so long
as the Commission interprets the Act to require such privileges.
11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the Act
provide exemptions from the pass-through voting requirement with
respect to several significant matters, assuming observance of the
limitations on mixed and shares funding imposed by the 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 the voting instructions of its
Contract owners with respect to the investments of an underling fund,
or any contract between a fund and its investment adviser, when
required to do so by an insurance regulatory authority.
Rules 6e3-2(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 investment
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)(15)(ii) and (b)(7)(ii)(B) and (C) of each rule.
12. Applicants further state that shares of the Funds sold to Plans
will be held by the trustees of such Plans as required by Section
403(a) of ERISA. Section 403(a) also provides that the trustees must
have exclusive authority and discretion to manage and control the Plan
with two exceptions: (a) when the Plan expressly provides that the
trustees are subject to the direction of a named fiduciary who is not a
trustee, in which case the trustees are subject to proper directions
made in accordance with the terms of the Plan and not contrary to
ERISA; and (b) when the authority to manage, acquire or dispose of
assets of the Plan is delegated to one or more investment managers
pursuant to Section 402(c)(3) of ERISA. Unless one of the two
exceptions stated in Section 403(a) applies, 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 such
Plans. Accordingly, Applicants note that, unlike the case with
insurance company separate accounts, the issue of the resolution of
material irreconcilable conflicts with
[[Page 35982]]
respect to voting is not present with Plans.
13. 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 different Participating
Insurance Companies are domiciled in different states, it is possible
that the state insurance regulatory body in a state in which one
Participating Insurance Company is domiciled could require action that
is inconsistent with the requirements of insurance regulators in one or
more other states in which other Participating Insurance Companies are
domiciled. Applicants submit that this possibility is no different or
greater than exists where a single insurer and its affiliates offer
their insurance products in several states.
14. Applicants further submit that affiliation does not reduce the
potential 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 these differences 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 Funds.
15. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard Contract owner voting
instructions. 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 separate account's investment in that
fund. No charge or penalty will be imposed as a result of such a
withdrawal.
16. Applicants submit 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
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
Contract.
17. Section 817(h) of the Code imposes certain diversification
requirements on the underlying assets of variable annuity and variable
life insurance 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 ``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 the revenue rulings thereunder present
any inherent conflicts of interest if Plans, variable annuity and
variable life insurance separate accounts all invest in the same
management investment company.
18. Applicants note that 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
these 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, the separate
account or the Plan will redeem shares of the Funds at their respective
net asset value. The Plan will then make distributions in accordance
with the terms of the Plan. The life insurance company will make
distributions in accordance with the terms of the variable contract.
19. Applicants argue that the ability of the 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 Act,
with respect to any Contract owner as opposed to 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 separate accounts have rights only with respect to their shares of
the Funds. 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 distributions of assets or payment of
dividends.
20. Finally, applicants state that there are no conflicts of
interest between Contract owners and participants under the Plans with
respect to the state insurance commissioners' veto powers over
investment objectives. The state insurance commissioners have been
given the veto power to prevent insurance companies indiscriminately
redeeming their separate accounts out of one fund and investing those
monies in another fund. Generally, to accomplish such redemptions and
transfers, complex and time consuming transactions must be undertaken.
Conversely, trustees of Plans or the participants in participant-
directed 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, even hold cash pending a 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 and
Plan participants conflict, the issues can be almost immediately
resolved in that trustees of the Plans can, independently, redeem
shares out of the Funds.
21. 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 managers (principally with
respect to stock and money market investments); and the lack of public
name recognition as investment experts. Specifically, Applicants state
that smaller life insurance companies may not find it economically
feasible, or within their investment or administrative expertise, to
enter the Contract business on their own. Applicants argue the use of
the Funds as common investment media for the Contracts would ease these
concerns. Participating Insurance Companies would benefit not only from
the investment and administrative expertise of ASISI, but also 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 may encourage more insurance companies to offer
variable contracts such as the Contracts which may then increase
competition with respect to both the design and the pricing of variable
contracts. Applicants submit that this can be expected to result in
greater product variation and lower charges. Thus, Applicants argue
that
[[Page 35983]]
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 Funds to Plans should increase the amount of assets
available for investment by such Funds. This should, in turn, promote
economies of scale, permit increased safety of investments through
greater diversification, and make the addition of new portfolios more
feasible.
22. Applicants believe that there is no significant legal
impediment to permitting mixed and shared funding. Additionally,
Applicants note the previous issuance of orders permitting mixed and
shared funding where shares of a fund were sold directly to qualified
plans such as the Plans.
Applicants' Conditions
Applicants have consented to the following conditions if the order
requested in the application is granted:
1. A majority of the Trustees or Board of Directors (each a
``Board'') of each Fund will consist of persons who are not
``interested persons'' thereof, as defined by Section 2(a)(19) of the
Act and the Rules thereunder and as modified by any applicable orders
of the Commission, except that if this condition is not met by reason
of 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. The Boards will monitor their respective Funds for the existence
of any material irreconcilable conflict between the interests of
Contract owners of all of separate accounts investing in the Funds. An
irreconcilable material conflict may arise for a variety of reasons,
which may include: (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 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
Funds are being managed; (e) a difference in voting instructions given
by variable annuity and variable life insurance Contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Contract owners; and (g) if applicable, a decision by a
Plan to disregard the voting instructions of Plans participants.
3. The Investment Manager (or any other investment adviser of a
Fund), any Participating Insurance Company, and any Plan that executes
a fund participation agreement upon becoming an owner of 10% or more of
the assets of a Fund (such Plans referred hereafter as ``Participating
Plans'') will report any potential or existing conflicts to the Board
of any relevant Fund. The Investment Manager, Participating Insurance
Companies and Participating Plans 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. This includes,
but is not limited to, an obligation by the Investment Manager and a
Participating Insurance Company to inform the Board whenever it has
determined to disregard Contract owner voting instructions and, if
pass-through voting is applicable, an obligation by the Investment
Manager and a Participating Plan to inform the Board whenever it has
determined to disregard Plans participant voting instructions. The
responsibility to report such information and conflicts and to assist
the Boards will be contractual obligations of the Investment Manager
and all Participating Insurance Companies and Participating Plans
investing in Funds under their agreements governing participation in
the Funds, and such agreements shall provide that these
responsibilities will be carried out with a view only to the interests
of Contract owners and if applicable, Plans participants.
4. If a majority of the Board of a Fund, or a majority of its
disinterested trustees or directors, determine that a material
irreconcilable conflict exists, the Investment Manager and relevant
Participating Insurance Companies and Participating Plans, at their
expense and to the extent reasonably practical (as determined by a
majority of the disinterested trustees or directors), will take
whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict. Such steps could include: (a) Withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
series and reinvesting such assets in a different investment medium,
which may include another series of a Fund or another Fund; (b)
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 or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of
making such a change; and (c) establishing a new registered management
investment company or managed separate account. If a material
irreconcilable 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
in such Fund, and no charge or penalty will be imposed as a result of
such withdrawal. If a material irreconcilable conflict arises because
of a Participating Plan's decision to disregard Plan participant voting
instructions, if applicable, and that decision represents a minority
position or would preclude a majority vote, the Participating Plan may
be required, at the election of the Fund, to withdraw its investment in
such Fund, and no charge or penalty will be imposed as a result of such
withdrawal. To the extent permitted by applicable law, the
responsibility of taking remedial action in the event of a Board
determination of an irreconcilable material conflict and bearing the
cost of such remedial action will be a contractual obligation of the
Investment Manager and all Participating Insurance Companies and
Participating Plans under their agreements governing participating in
the Funds and these responsibilities will be carried out with a view
only to the interests of Contract owners and Plans participants, as
applicable.
5. For purposes of this Condition Five, a majority of the
disinterested members of the applicable Board will determine whether or
not any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund or ASISI (or any other
investment adviser of the Funds) be required to establish a new funding
medium for any Contract. No Participating Insurance Company shall be
required by this Condition Five to establish a new funding medium for
any Contract if a majority of Contract owners materially and adversely
affected by the irreconcilable material conflict, vote to decline such
offer. No Participating Plan shall be required by this Condition Five
to establish a new funding medium for such plan if (a) a majority of
Plan
[[Page 35984]]
participants materially and adversely affected by the material
irreconcilable material conflict vote to decline such offer, or (b)
pursuant to governing plan documents and applicable law, the
Participating Plan makes such decision without Plans participant vote.
6. The Investment Manager, all Participating Insurance Companies,
and Participating Plan will be promptly informed of any Board's
determination that an irreconcilable material conflict exists, and its
implications.
7. Participating Insurance Companies will provide pass-through
voting privileges to all Contract owners so long as the SEC interprets
the Act to require pass-through voting privileges for Contract owners.
Accordingly, the Participating Insurance Companies will vote shares of
a Fund held in their separate accounts in a manner consistent with
voting instructions received from Contract owners. Participating
Insurance Companies will be responsible for assuring that each of their
separate accounts calculates voting privileges in a manner consistent
with all other Participating Insurance Companies. The obligation to
calculate voting privileges in a manner consistent with all other
separate accounts investing in the Fund will be a contractual
obligation of all Participating Insurance Companies under the
agreements governing participation in the Fund. 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 Gas it votes shares for which it has received instructions.
Each Participating Plan will vote as required by applicable law and
governing plan documents.
8. All reports of potential or existing conflicts of interest
received by a Board, and all Board action with regard to determining
the existence of a conflict, notifying the Investment Manager,
Participating Insurance Companies and Participating Plans of a
conflict, and determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of the
appropriate Board or other appropriate records, and such minutes or
other records shall be made available to the Commission upon request.
9. 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 will disclose in
its prospectus that: (a) shares of the Fund may be offered to insurance
company separate accounts of both annuity and life insurance variable
contracts, and to Plans; (b) due to differences of tax treatment and
other considerations, the interests of various contract owners
participating in the funds and the interests of Plans investing in the
Funds may conflict; and (c) the Board will monitor the Funds for any
material conflicts of interest and determine what action, if any,
should be taken.
10. Each Fund will comply with all the provisions of the Act
requiring voting by shareholders (which, for these purposes, shall be
the persons having a voting interest in the shares of the Funds) and in
particular, each such Fund will either provide for annual meetings
(except to the extent that the Commission may interpret Section 16 of
the Act not to require such meetings) or comply with Section 16(c) of
the Act (although the Funds are not within the trusts described in
Section 16(c) of the Act) as well as Section 16(a) and if applicable
Section 16(b) of the 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 directors and with whatever
rules the Commission may promulgate with respect thereto.
11. If and to the extent that Rules 6e-2 and 6e-3(T) are amended
(or if Rule 6e-3 under the Act is adopted) to provide exemptive relief
from any provisions of the 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.
12. No less than annually, the Investment Manager, the
Participating Insurance Companies and Participating Plans, shall submit
to the Boards such reports, materials, or data as such Boards may
reasonably request so that the Boards may carry out fully the
obligations imposed upon them by the conditions contained in the
Application. Such reports, materials and data shall be submitted more
frequently if deemed appropriate by the applicable Boards. The
obligations of the Investment Manager, Participating Insurance
Companies and Participating Plans to provide these reports, materials
and data to the Boards shall be a contractual obligation of the
Investment Manager, all Participating Insurance Companies and
Participating Plans under the agreements governing their participation
in the Funds.
13. If a Plan or Plan participant shareholder should become an
owner of 10% or more of the assets of a Fund, such Plan or Plan
participant shareholder will execute a participation agreement with
such Fund including the conditions set forth herein to the extent
applicable. A Plan or Plan participant shareholder will execute an
application containing an acknowledgement of this condition at the time
of its initial purchase of shares of the Fund.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the policy and provisions of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16997 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M