[Federal Register Volume 62, Number 70 (Friday, April 11, 1997)]
[Notices]
[Pages 17888-17894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9344]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22602; File No. 812-10476]
EQ Advisors Trust, et al.
April 4, 1997.
AGENCY: The Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an exemption pursuant to the
Investment Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: EQ Advisors Trust (``Trust''), The Equitable Life Assurance
Society of the United States (``Equitable''), Equitable Distributors,
Inc. (``EDI''), EQ Financial Consultants, Inc. (``Manager'') and
certain life insurance companies and their separate accounts investing
now or in the future in the Trust.
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of
the 1940 Act for exemptions from Sections 9(a), 13(a), 15(a), and 15(b)
thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
SUMMARY OF APPLICATION: Appliants seek exemptive relief to the extent
necessary to permit shares of the Trust and any other investment
company that is designed to fund variable insurance products and for
which Equitable, EDI, the Manager of any of their affiliates may serve
as investment adviser, manager, administrator, principal underwriter,
or depositor (collectively ``Insurance Products Funds'') to be sold to
and held by separate accounts funding variable annuity and variable
life insurance contracts issued by affiliated or unaffiliated life
insurance companies (``Participating Insurance Companies'') or
qualified pension and retirement plans outside of the separate account
context (``Plans'').
FILING DATE: The application was filed on December 31, 1996, and
amended on April 1, 1997.
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 Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on April 29, 1997, and must 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 may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Jane A. Kanter,
Esq., Katten Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East
Lobby, Suite 700, Washington, D.C. 20007-5201.
FOR FURTHER INFORMATION CONTACT: Michael B. Koffler, Staff Attorney, or
Kevin M. Kirchoff, Branch Chief, Office of Insurance Products, Division
of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. The Trust is a Delaware business trust which is registered
pursuant to the 1940 Act as an open-end, management investment company.
The Trust consists of multiple separately managed investment portfolios
(``Portfolios'') and may in the future issue shares of additional
portfolios.
2. The Trust has adopted a plan pursuant to Rule 18f-3 of the 1940
Act in order to offer multiple classes of shares of each of its
Portfolios. Two such classes are currently contemplated and have been
preliminarily designated
[[Page 17889]]
Class IA and Class IB. In addition, the Trust has adopted a plan
pursuant to Rule 12b-1 of the 1940 Act to permit one or more of its
classes of shares to pay for the distribution of its shares.
3. The Manager, the investment manager for the Trust, is a
corporation organized pursuant to the laws of Delaware and is
registered as an investment adviser pursuant to the Investment Advisers
Act of 1940. The Manager is responsible for providing investment
management and administrative services to the Trust. In the exercise of
its responsibility, the Manager selects other registered investment
advisers (``Advisers'') for the Trust's portfolios and monitors the
Advisers' investment programs and results, reviews brokerage matters,
oversees compliance matters and supervises the provision of services by
third parties such as the Trust's custodian. The Manager has entered
into or will enter into investment advisory agreements with the
Advisers that will be primarily responsible for the day-to-day
investment program of each Portfolio. The Manager also serves as the
principal underwriter for the Trust's Class IA shares. The Manager is
an indirect, wholly-owned subsidiary of Equitable.
4. Shares of each Portfolio may be offered to insurance company
separate accounts, which are both registered and unregistered under the
federal securities laws, that fund variable annuity contracts or
variable life insurance policies (``Contracts''). The Trust initially
intends to offer its shares to variable annuity and variable life
insurance separate accounts established by Equitable.
5. Following the grant by the Commission of the exemptive order
requested by the application to which this notice relates, shares of
each Portfolio may be offered to variable annuity and variable life
insurance separate accounts established by other affiliated and
unaffiliated insurance companies.
6. The Participating Insurance Companies will establish their own
separate accounts and design their own Contracts. Each Participating
Insurance Company will have the legal obligation of satisfying all
applicable requirements under the federal securities laws. The role of
the Insurance Products Funds, so far as the federal securities laws are
concerned, will be limited to that of offering their shares to separate
accounts of the Participating Insurance Companies and the Plans and of
fulfilling the conditions imposed by the Commission provided in the
application to which this notice relates.
7. Shares of each Portfolio may also be offered to Plans. The Plans
may choose any of the Insurance Products Funds as the sole investment
under the Plan or as one of several investment options. Participants in
Plans may or may not be given an investment choice depending upon the
Plan itself.
8. The Manager and Advisers will not act as an investment manager
or investment adviser to any of the Plans that purchase shares of any
of the Insurance Products Funds, unless permitted by applicable law.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act exempting them from Sections 9(a), 13(a),
15(a), and 15(b) thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit ``mixed'' and ``shared''
funding, as defined below.
2. Section 6(c) authorizes the Commission to grant exemptions from
the provisions of the 1940 Act, and rules thereunder, if and to the
extent that an 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 a separate account registered
under the 1940 Act as a 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 relief provided by the rule also
extends to the investment adviser, principal underwriter, and sponsor
or depositor of a separate account.
4. The exemptions granted by Rule 6e-2(b)(15) are available only
where all of the assets of the separate account consist of 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.
Therefore, the relief granted by Rule 6e-2(b)(15) is not available if
the scheduled premium variable life insurance separate account owns
shares of a management investment company that also offers its shares
to a variable annuity separate account of the same insurance company or
an affiliated or unaffiliated life insurance company. The use of a
common investment company as the underlying investment vehicle for both
variable annuity contracts and scheduled or flexible premium variable
life insurance contracts is referred to herein as ``mixed funding.''
Also, the relief granted by Rule 6e-2(b)(15) is not available if the
scheduled premium variable life insurance separate account owns shares
of an underlying management company that also offers its shares to
Plans.
5. In addition, the relief granted by Rule 6e-2(b)(15) is not
available if the scheduled premium variable life insurance separate
account owns shares of an underlying management investment company that
also offers its shares to separate accounts funding variable contracts
of one or more unaffiliated life insurance companies. The use of a
common investment company as the underlying investment vehicle for
separate accounts of unaffiliated insurance companies is referred to
herein as ``shared funding.'' Moreover, because the relief granted by
Rule 6e-2(b)(15) is available only where shares are offered exclusively
to separate accounts of insurance companies, additional relief is
necessary if the shares of the Insurance Products Funds are also to be
sold to Plans.
6. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the 1940
Act as a unit investment trust, Rule 6e-3(T)(b)(15) 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-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 premium variable life insurance contracts or flexible premium
variable life insurance contracts, or both; or which also offer their
shares to variable annuity separate accounts of the life insurer or of
an affiliated life insurance company. Thus, Rule 6e-3(T)(b)(15) grants
an exemption if the underlying management investment company engages in
mixed funding, but not if it engages in shared funding. Moreover,
because the relief granted by 6e-3(T)(b)(15) is available only where
shares are offered exclusively to separate accounts of insurance
companies, additional relief is necessary if shares of the Insurance
Products Funds are also to be sold to Plans.
7. The current tax law permits the Insurance Products Funds to
increase their asset base through the sale of their shares to Plans.
Section 817(h) of the Internal Revenue Code (``Code'') imposes certain
diversification
[[Page 17890]]
requirements on the underlying assets of the Contracts invested in the
Insurance Products Funds. The Code provides that such Contracts shall
not be treated as an annuity contract or life insurance policy for any
period in which the underlying assets are not adequately diversified,
as prescribed by Treasury regulations. 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. Treas. Reg. Sec. 1.817-5. 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
Contracts. Treas. Reg. Sec. 1-817-5(f)(3)(iii).
8. The promulgation of Rules 6e-2 and 6e-3(T) preceded the issuance
of these treasury regulations. 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).
9. Applicants assert that if the Insurance Products Funds were to
sell their shares only to Plans, no exemptive relief would be
necessary. Applicants state that none of the relief provided for Rules
6e-2(b)(15) and 6e-3(T)(b)(15) relates to Plans or to a registered
investment company's ability to sell its shares to Plans. It is only
because the separate accounts investing in the Insurance Products Funds
are themselves investment companies seeking relief under Rules 6e-2 and
6e-3(T), and do not wish to be denied such relief if the Insurance
Products Funds sell to Plans, that Applicants are applying for the
requested relief.
Disqualification
10. Section 9(a)(3) of the 1940 Act provides that it is unlawful
for any company to serve as investment adviser 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) (i) and (ii) and 6e-3(T)(b)(15) (i)
and (ii) provide partial exemptions from Section 9(a) under certain
circumstances, subject to the limitations discussed above on mixed and
shared funding. These rules provide: (a) that the eligibility
restrictions of Section 9(a) shall not apply to persons who are
officers, director or employees of the life insurer or its affiliates
who do not participate directly in the management or administration of
the underlying fund; and (b) that an insurer shall be ineligible to
serve as an investment adviser or principal underwriter of the
underlying fund only if an affiliated person of the life insurer who is
disqualified by Section 9(a) participates in the management or
administration of the underlying fund.
11. Applicants assert that applying the restrictions of Section
9(a) to many individuals in a typical insurance company complex, most
of whom will have no involvement in matters pertaining to underlying
investment companies funding the separate accounts of the Participating
Insurance Companies, would serve no regulatory purpose.
12. Applicants submit that there is no regulatory purpose in
denying the partial exemptions because of mixed and shared funding and
sales to Plans. Applicants submit that sales to those entities do not
change the fact that the purposes of the 1940 act are not advanced by
applying the prohibitions of Section 9(a) to persons in a life
insurance complex who have no involvement in the underlying fund.
Pass-Through Voting
13. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume the
existence of a pass-through voting requirement with respect to
management investment company shares held by a separate account.
Applicants state that pass-through voting privileges will be provided
by the Participating Insurance Companies so long as the Commission
interprets the 1940 Act to require pass-through voting privileges for
Contract owners.
14. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial
exemptions form Sections 13(a), 15(a), and 15(b) of the 1940 Act to the
extent these 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
circumstances. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(15)(b)(iii)(A)
provide that an insurance company may disregard the voting instructions
of its Contract owners with respect to the investments of an underlying
investment company or any contract between an investment company and
its investment adviser, when required to do so by an insurance
regulatory authority. Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(B) provide that the insurance company may disregard
the voting instructions of its Contract owners if the Contract owners
initiate any change in the underlying investment company's investment
objectives, principal underwriter, or investment adviser, provided that
disregarding such voting instructions is reasonable and complies with
the other provisions of Rules 6e-2 and 6e-3(T).
15. Rule 6e-2 recognizes that a variable life insurance contract
has important elements unique to insurance contracts, and is subject to
extensive state regulation. Applicants assert that in adopting Rule 6e-
2(b)(15)(iii), the Commission expressly recognizes that exemptions from
pass-through voting requirements were necessary to assure the solvency
of the life insurer and performance of its contractual obligations by
enabling an insurance regulatory authority or the life insurer to act
when certain proposals reasonably could be expected to increase the
risks undertaken by the life insurer. Applicants state that, in this
respect, flexible premium variable life insurance contracts are subject
to substantially the same state insurance regulatory authority;
therefore, the corresponding provisions of Rule 6e-3(T) were adopted in
recognition of the same factors.
16. Applicants further represent that the offer and sale of the
Insurance Products Funds' shares to Plans will not have any impact on
the relief requested in this regard. Shares of the Insurance Products
Funds sold to Plans will be held by the trustee(s) (or custodian(s)) of
the Plans as required by Section 403(a) of the Employee Retirement
Income Security Act of 1974, as amended (``ERISA''). Section 403(a)
also provides that the trustee(s) must have exclusive authority and
discretion to manage and control Plan investments with two exceptions:
(a) when the Plan expressly provides that the Fund Trustee(s) is (are)
subject to the direction of a named fiduciary who is not a trustee, in
which case the Trustee(s) is (are) subject to proper directions made in
accordance with the terms of the Plan and not contrary to ERISA; and
(b) when the authority to manage, acquire or dispose of assets of the
Plan is delegated to one or more investment 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
[[Page 17891]]
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 the Plans. Accordingly,
Applicants note that unlike the case with separate accounts of
Participating Insurance Companies, the issue of the resolution of
material irreconcilable conflicts with respect to voting is not present
with respect to the Plans.
Conflicts of Interest
17. Applicants state that no increased conflicts of interest would
be presented by the granting of the requested relief. Applicants assert
that shared funding by unaffiliated insurance companies does not
present any issues that do not already exist where a single insurance
company is licensed to do business in several states. For example, when
different Participating Insurance Companies are domiciled in different
states, it is possible that the state insurance regulatory body in a
state in which one Participating Insurance Company is domiciled could
require action that is inconsistent with the requirements of insurance
regulators in one or more other states in which other Participating
Insurance Companies are domiciled. Applicants assert that this
possibility is no different and no greater than exists when a single
issuer and its affiliates offer their insurance products in several
states, as currently is permitted.
18. Applicants submit that affiliations do not reduce the potential
for differences in state regulatory requirements. Affiliated insurers
may be domiciled in different states and be subject to differing state
law requirements. In any event, the conditions proposed below (which
are adapted from the conditions included in Rule 6e-3(T)(b)(15)) are
designed to safeguard against any adverse effects that differences
among state regulatory requirements may produce. If a particular state
insurance regulatory decision conflicts with the majority of other
state regulators, then the affected insurer will be required to
withdraw its separate account's investment in the relevant Insurance
Products Fund.
19. Similarly, affiliation does not eliminate the potential for
divergent judgments as to when a Participating Insurance Company could
disregard Contract owner voting instructions. The potential for
disagreement is limited by the requirement 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. However, if
a Participating Insurance Company's decision to disregard Contract
owner voting instructions represents a minority position or would
preclude a majority vote approving a particular change, then such
Participating Insurance Company may be required, at the election of the
relevant Insurance Products Fund, to withdraw its separate account's
investment in that Insurance Product Fund, and no charge or penalty
will be imposed as a result of such withdrawal.
20. Applicants submit that there is no reason why the investment
policies of an Insurance Product Fund with mixed funding would or
should be materially different from what they would or should be if
such investment company or portfolio thereof funded only variable
annuity contracts or only variable life insurance policies. Hence,
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, the Insurance Product Fund will not be
managed to favor or disfavor any particular insurer, type of Contract
or Plan.
21. Applicants note 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. An investment company supporting even one type of
insurance product must accommodate these diverse factors.
22. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity
contracts and variable life insurance contracts held in the portfolios
of management investment companies, such as those held in each separate
portfolio of the Insurance Product Funds. Treasury Regulation 1.817-
5(f)(3)(iii), which established diversification requirements for such
portfolios, specifically permits ``qualified pension or retirement
plans'' and insurance company separate accounts to share the same
underlying investment company. Applicants assert that, therefore,
neither the Code, nor the Treasury Regulations, nor the revenue rulings
thereunder recognize any inherent conflicts of interests if Plans,
variable annuity separate accounts, and variable life insurance
separate accounts all invest in the same underlying management
investment company.
23. Applicants state that while there are differences in the manner
in which distributions are taxed for variable annuity contracts,
variable life insurance contracts and Plans, the tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and the separate accounts or the Plans cannot net purchase payments to
make the distributions, the separate accounts or the Plans will redeem
shares of the Insurance Products Funds at their net asset value. The
Plans will then make distributions in accordance with the terms of the
Plans and each Participating Insurance Company will make distributions
in accordance with the terms of its Contract.
24. Applicants state that it is possible to provide an equitable
means of giving voting rights to Contract owners. Applicants represent
that the Insurance Products Funds will inform each Participating
Insurance Company of its respective share of ownership in each separate
account and will also inform the trustees of the Plans of their
respective share in the Insurance Products Funds. The Participating
Insurance Companies will then solicit voting instructions in accordance
with Rules 6e-2 and 6e-3(T).
25. Applicants submit that the ability of the Funds to sell their
respective shares directly to Plans does not create a ``senior
security'' as defined under Section 18(g) of the 1940 Act, with respect
to any Contract owner as opposed to a participant under a Plan.
Regardless of the rights and benefits of participants under the Plans,
or Contract owners under Contracts, the Plans and the separate accounts
have rights only with respect to their respective shares of the
Insurance Products Funds. They can redeem such shares only at their net
asset value. No shareholder of any of the Insurance Products Funds has
any preference over any other shareholder with respect to distribution
of assets or payment of dividends.
26. Applicants assert that there are no conflicts between the
Contract owners of the separate accounts and the participants under the
Plans with respect to the state insurance commissioners' veto powers
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 in another. Time-
consuming, complex transactions must be undertaken to accomplish such
redemptions and transfers. On the other hand, trustees of Plans or
participants in participant-directed Plans can make such a decision
quickly and implement the redemption of their shares from an Insurance
Products Fund and reinvest in another funding vehicle without the same
regulatory impediments or, as is
[[Page 17892]]
the case with most Plans, even hold cash pending suitable investment.
Based on the foregoing, Applicants maintain that even if there should
arise issues where the interests of Contract owners and the interests
of Plans or participants in Plans are in conflict, the issues can be
almost immediately resolved because the trustees of the Plans can, on
their own, redeem shares out of an Insurance Products Fund.
27. Applicants assert that various factors have kept more insurance
companies from offering Contracts than currently do so. These factors
include the costs of organizing and operating a fund medium, the lack
of expertise with respect to investment management and the lack of
public name recognition as investment experts. Smaller life insurance
companies may not find it economically feasible, or within their
investment or administrative expertise, to enter the variable contract
business on their own.
28. Applicants assert that use of the Insurance Products Funds as
common investment media for the Contracts would ameliorate these
concerns. Participating Insurance Companies would benefit not only from
the investment management and advisory expertise of the Manager and
Advisers, but also from the cost efficiencies and investment
flexibility afforded by a large pool of assets. Therefore, making the
Insurance Products Funds available for mixed and shared funding will
encourage more insurance companies to offer Contracts. This should
result in increased competition with respect to both Contract design
and pricing, which can be expected to result in more product variation
and lower changes. Contract owners would benefit because mixed and
shared funding should eliminate a significant portion of the costs of
establishing and administering separate funds. Moreover, Applicants
assert that the sale of shares of Insurance Products Funds to Plans
should result in an increased amount of assets available for investment
by such Insurance Products Funds. This, in turn, should inure to the
benefit of Contract owners by promoting economies of scale, by
permitting increased safety through greater diversification, and by
making the addition of new Portfolios to the Trust or to each of the
Insurance Products Funds more feasible.
29. Applicants assert that there is no significant legal impediment
to permitting mixed and shared funding.
Applicant's Conditions
To the extent required by the Commission, Applicants consent to the
following conditions:
1. A majority of the Board of Trustees or Board of Directors (the
``Board'') of each Insurance Products Fund will consist of persons who
are not ``interested persons'' thereof, as defined by Section 2(a)(19)
of the 1940 Act and the rules thereunder and as modified by any
applicable orders of the Commission, except that if this condition is
not met by reason of the death, disqualification, or bona fide
resignation of any trustee(s) or director(s), then the operation of
this condition shall be suspended: (a) for a period of 45 days if the
vacancy or vacancies may be filled by the Board; (b) for a period of 60
days if a vote of shareholders is required to fill the vacancy or
vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.
2. The Boards will monitor their respective Insurance Products
Funds for the existence of any material irreconcilable conflict among
the interests of the Contract owners of all the separate accounts
investing in the Insurance Products Funds and the participants in Plans
investing in the Insurance Products Funds. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action
by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or
a public ruling, private letter ruling, no action or interpretative
letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of the
Insurance Products Funds are being managed; (e) a difference in voting
instructions given by variable annuity Contract owners and variable
life insurance policy owners; (f) a decision by a Participating
Insurance Company to disregard the voting instructions of Contract
owners; or (g) if applicable, a decision by a Plan to disregard the
voting instructions of its participants.
3. Participating Insurance Companies, the Manager, the Advisers,
and any Plan that executes a fund participation agreement upon becoming
an owner of ten percent (10%) or more of the assets of an Insurance
Products Fund (a ``Participating Qualified Plan'') we report any such
potential or existing conflicts to the Board of any relevant Insurance
Products Fund. Participating Insurance Companies, the Manager, the
Advisers, and Participating Qualified 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 a Participating
Insurance Company to inform the appropriate Board whenever voting
instructions of Contract owners are disregarded, and, if pass-through
voting is applicable, an obligation by each Participating Qualified
Plan to inform the Board whenever it has determined to disregard the
voting instructions of its participants. The responsibility to report
such information and conflicts and to assist the Board will be
contractual obligations of all Participating Qualified Plans, and such
agreements shall provide that these responsibilities will be carried
out with a view only to the interests of participants in such Plans.
4. If it is determined by a majority of the Board of an Insurance
Products Fund, or by a majority of its disinterested trustees or
directors, that a material irreconcilable conflict exists, the relevant
Participating Insurance Companies and Plans will, at their expense and
to the extent reasonably practicable (as determined by a majority of
the disinterested trustees or directors), take whatever steps are
necessary to remedy or eliminate the material irreconcilable conflict.
Such steps could include: (a) withdrawing the assets allocable to some
or all of the separate accounts from the Insurance Products Fund or any
portfolio thereof and reinvesting such assets in a different investment
medium, which may include another portfolio of an Insurance Products
Fund or another Insurance Products Fund; (b) submitting the question of
whether such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawing the assets of any
appropriate group (i.e., variable annuity Contract owners or variable
life insurance Contract owners of one of more Participating Insurance
Companies) that votes in favor of such withdrawal, or offering to the
affected Contract owners the option of making such a change; (c)
withdrawing the assets allocable to some or all of the Plans from the
Insurance Products Fund or any portfolio thereof and reinvesting such
assets in a different investment medium, which may include another
portfolio of an Insurance Products Fund or another Insurance Products
Fund; and (d) 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
[[Page 17893]]
represents a minority position or would preclude a majority vote, the
Participating Insurance Company may be required, at the election of the
Insurance Products Fund to withdraw its separate account's investment
in such Insurance Products Fund, and no charge or penalty will be
imposed as a result of such withdrawal. If a material irreconcilable
conflict arises because of a Plan's decision to disregard its
participants' voting instructions, if applicable, and that decision
represent a minority position or would preclude a majority vote, the
Plan may be required, at the election of the relevant 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 a material irreconcilable conflict and bearing
the cost of such remedial action will be a contractual obligation of
all Participating Insurance Companies and Participating Qualified Plans
under their agreements governing their participation in the Insurance
Products Funds, and these responsibilities will be carried out with a
view only to the interests of Contract owners and participants in such
Plans, as applicable. For purposes of this condition 4, a majority of
the disinterested members of the applicable Board will determine
whether or not any proposed action adequately remedies any material
irreconcilable conflict, but in no event will the relevant Insurance
Products Fund, the Manager or the Advisers be required to establish a
new funding medium for any Contract. No Participating Insurance Company
shall be required by this condition 4 to establish a new funding medium
for any Contract if any offer to do so has been declined by vote or a
majority of Contract owners materially and adversely affected by the
material irreconcilable conflict. Further, no Plan shall be required by
this condition 4 to establish a new funding medium for any Qualified
Plan if: (a) a majority of its participants materially and adversely
affected by the irreconcilable material conflict vote to decline such
offer, or (b) pursuant to governing Plan documents and applicable law,
the Qualified Plan makes such decision without a vote of its
participants.
5. Any Board's determination of the existence of a material
irreconcilable conflict and its implications will be made known
promptly and in writing to all Participating Insurance Companies and
all Plans.
6. Participating Insurance Companies will provide pass-through
voting privileges to all Contract owners so long as the Commission
interprets the 1940 Act to require pass-through voting privileges for
Contract owners. Accordingly, the Participating Insurance Companies
will vote shares of the Insurance Products Funds held in their separate
accounts in a manner consistent with voting instructions timely
received from Contract owners. Participating Insurance Companies will
be responsible for assuring that each of their separate accounts
participating in an Insurance Products Fund calculates voting
privileges in a manner consistent with other Participating Insurance
Companies. The obligation to calculate voting privileges in a manner
consistent with all other separate accounts investing in the Insurance
Products Fund will be a contractual obligation of all Participating
Insurance Companies under their agreements governing their
participation in the Insurance Products Fund. Each Participating
Insurance Company will also vote shares for which it has not received
timely voting instructions from Contract owners as well as shares
attributable to it in the same proportion as it votes shares for which
it has received voting instructions from Contract owners. Each Plan
will vote as required by applicable law and governing Plan documents.
7. All reports of potential or existing conflicts received by a
Board, and all Board actions with regard to determining the existence
of a conflict of interest, notifying Participating Insurance Companies
and 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.
8. Each Insurance Products Fund will notify all Participating
Insurance Companies that separate account prospectus disclosure
regarding potential risks of mixed and shared funding may be
appropriate. Each Insurance Products Fund will disclose in its
prospectus that: (a) shares of the Insurance Products Fund are offered
to insurance company separate accounts on a mixed and shared funding
basis and to Plans; (b) material irreconcilable may arise between the
interests of various Contract owners participating in the Insurance
Products Fund and the interests of Plans investing in the Insurance
Products Fund; and (c) the Board of such Insurance Products Fund will
monitor events in order to identify the existence of any material
irreconcilable conflict and to determine what action, if any, should be
taken in response to such material irreconcilable conflict.
9. Each Insurance Products Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders (which, for these
purposes, will be the persons having a voting interest in the shares of
the Insurance Products Fund), and, in particular, each Insurance
Products Fund will either provide for annual shareholder 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, as well as with Section 16(a), and, if applicable,
Section 16(b) of the 1940 Act. Further, each Insurance Products Fund
will act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of
trustees or directors and with whatever rules the Commission may
promulgate with respect thereto.
10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended
(or in Rule 6e-3 under the 1940 Act is adopted) to provide exemptive
relief from any provision of the 1940 Act or the rules thereunder with
respect to mixed and shared funding on terms and conditions materially
different from any exemptions granted in the Order requested by the
Applicants, then the Insurance Products Funds and/or 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 extend applicable.
11. No less frequently than annually, the Participating Insurance
Companies and Participating Qualified Plans, the Manager, and the
Advisers, shall submit to each Board such reports, materials, or data
as the Board may reasonably request so that the Board may carry out
fully the obligations imposed upon it by the conditions contained in
this Application. Such reports, materials, and data shall be submitted
more frequently if deemed appropriate by the Board. The obligations of
the Participating Insurance Companies and Participating Qualified Plans
to provide these reports, materials, and data shall be a contractual
obligation of all Participating Insurance Companies and Participating
Qualified Plans under the agreements governing their participation in
the Insurance Products Funds.
12. If a Plan should ever become an owner of ten percent (10%) or
more of the assets of an Insurance Products
[[Page 17894]]
Fund, such Plan will execute a fund participation agreement with such
Insurance Products Fund including the conditions set forth herein to
the extent applicable. A Plan will execute an investor application
containing an acknowledgment of this condition at the time of its
initial purchase of any Insurance Products Fund.
Conclusion
For the reasons summarized above, Applicants assert that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-9344 Filed 4-10-97; 8:45 am]
BILLING CODE 8010-01-M