[Federal Register Volume 62, Number 116 (Tuesday, June 17, 1997)]
[Notices]
[Pages 32839-32844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15770]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22698; File No. 812-10494]
Pioneer Variable Contracts Trust, et al.
June 10, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Pioneer Variable Contracts Trust (the ``Trust'') and
Pioneering Management Corporation (``Pioneer'' or the ``Manager'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemptions from the provisions of Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit shares of the Trust and all similar investment
companies that Pioneer or any of its affiliates may in the future serve
as manager, investment adviser, administrator, principal underwriter or
sponsor to be sold to and held by: (1) separate accounts funding
variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated life insurance companies; and (2) qualified
pension and retirement plans outside of the separate account context
(``Qualified Plans'' or ``Plans'').
FILING DATE: The application was filed on January 14, 1997, and amended
on April 28, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing
[[Page 32840]]
to the Secretary of the SEC and serving Applicants with a copy of the
request, in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on July 7, 1997, and accompanied by proof of
service on the Applicants in the form of an affidavit or, for lawyers,
a certificate of service. Hearing requests should state the nature of
the interest, the reason for the request and the issues contested.
Persons may request notification of the date of a hearing by writing to
the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, c/o Robert P. Nault, Esq., Pioneering Management
Corporation, 60 State Street, 19th Floor, Boston, MA 02109. Copies to
Jeffrey S. Puretz, Esq., Dechert Price & Rhoads, 1500 K Street, NW.,
Suite 500, Washington, DC 20005.
FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Attorney, or Mark C.
Amorosi, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. The Trust is organized as a Delaware business trust and is
registered under the 1940 Act as an open-end management investment
company. It currently consists of eight separate investment portfolios
(``Series''), each with its own investment objective or objectives and
policies.
2. Pioneer, a corporation organized under the laws of the State of
Delaware and registered as an investment adviser under the Investment
Advisers Act of 1940, serves as investment adviser to each Series.
3. The Trust currently offers shares of its Series to separate
accounts of Allmerica Financial Life Insurance and Annuity Company
(``Allmerica'') and First Allmerica Financial Life Insurance Company
(``First Allmerica'') to serve as the investment medium for variable
annuity contracts issued by Allmerica and First Allmerica.
4. The Trust and any other similar investment companies that
Pioneer or any of its affiliates may manage or serve as investment
adviser, administrator, principal underwriter or sponsor for in the
future (the Trust and such similar investment companies are
collectively referred to herein as the ``Funds'') would offer shares to
separate accounts that are registered under the 1940 Act as unit
investment trust (``Separate Accounts'') and that serve as investment
vehicles for variable insurance contracts issued by affiliated and
unaffiliated life insurance companies. Variable insurance contracts may
include variable annuity contracts, variable life insurance contracts
and variable group life insurance contracts. Separate accounts to which
the shares of the Funds would in the future be offered also include
separate accounts that are not registered as investment companies under
the 1940 Act pursuant to the exceptions from registration in Sections
3(c)(1) and 3(c)(11) of the 1940 Act. In addition, the Funds may offer
shares to separate accounts serving as investment vehicles for other
types of insurance products, which may include variable annuity
contracts, scheduled premium variable life insurance contracts, single
premium variable life insurance contracts, modified single premium
variable life insurance contracts, and flexible premium variable life
insurance contracts. (All insurance contracts referenced in this
paragraph are collectively referred in herein as ``Variable
Contracts.'' Insurance companies whose separate account or accounts
would own shares of the Funds are referred to herein as ``participating
insurance companies.'')
5. The Funds also intend to offer shares directly to Qualified
Plans described in Treasury Regulation Sec. 1.817-6(f)(3)(iii).
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order under
Section 6(c) of the 1940 Act granting 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, to the extent necessary to: (a) permit
``mixed'' and ``shared'' funding as defined below; and (b) allow shares
of the Funds to be sold to and held by Qualified Plans.
2. Section 6(c) authorizes the Commission, by order upon
application, to conditionally or unconditionally exempt any person,
security, or transaction, or class or classes of persons, securities,
or transaction, from any provision of the 1940 Act, or the rules or
regulations thereunder, if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
3. In connection with the funding of scheduled premium variable
life insurance contracts issued through Separate Accounts, Rule 6e-
2(b)(15) under the 1940 Act provides partial exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act. The exemptions granted by
Rule 6e-2(b)(15) are available only where the management investment
company underlying the Separate Account (``underlying fund'') offers
its shares ``exclusively to variable life insurance separate accounts
of the life insurer, or of any affiliated life insurance company''
(emphasis supplied).\1\ Therefore, the relief granted by Rule 6e-
2(b)(15) is not available with respect to a 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 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 the
same life insurance company or of any affiliated life insurance company
is referred to herein as ``mixed funding.'' 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 it 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.''
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\1\ The exemptions provided by Rule 6e-2 also are available to
the investment adviser, principal underwriter, and sponsor or
depositor of the separate account.
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4. The relief granted by Rule 6e-2(b)(15) is in no way affected by
the purchase of shares of the Funds by Qualified Plans. However,
because the relief under Rule 6e-2(b)(15) is available only where
shares are offered exclusively to separate accounts, additional
exemptive relief is necessary if the shares of the Funds are also to be
sold in Plans.
5. In connection with the funding of flexible premium variable life
insurance contracts issued through a Separate Account, 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) are available
[[Page 32841]]
only where the Separate Account's underlying fund offers its 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
affiliate life insurance company'' (emphasis supplied).\2\ Therefore,
Rule 6e-3(T)(b)(15) permits mixed funding but does not permit shared
funding.
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\2\ The exemptions provided by Rule 6e-3(T) also are available
to the investment adviser, principal, underwriter, and sponsor or
depositor of the separate account.
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6. The relief granted by Rule 6e-3(T) also is in no way affected by
the purchase of shares of the Funds by Qualified Plans. However,
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 the shares of the Funds are also to be sold to
Plans.
7. Section 9(a) of the 1940 Act provides that it is unlawful for
any persons to serve as an investment adviser to or principal
underwriter for any registered open-end investment company if an
affiliated person of that person is subject to a disqualification
enumerated in Section 9(a) (1) or (2). Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) provide exemptions from Section 9(a) under certain
circumstances, subject to the limitations on mixed and shared funding.
These exemptions limit the application of the eligibility restrictions
to affiliated individuals or companies that directly participate in the
management of the underlying fund.
8. Applicants state that the partial relief from Section 9(a)
provided the 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
Section 9. Applicants state that those Rules recognize that it is not
necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the
provisions of Section 9(a) to the many individuals in an insurance
company complex, most of whom typically will have no involvement in
matters pertaining to investment companies in that organization.
Applicants assert, therefore, that there is no regulatory purpose in
extending the monitoring requirements to embrace a full application of
Section 9(a)'s eligibility restrictions because of mixed funding or
shared funding.
9. Applicants state that the relief requested herein will not be
affected by the proposed sale of shares of the Funds to Qualified Plans
because the Qualified Plans are not investment companies and will not
be deemed to be affiliates by virtue of their shareholdings in the
Funds.
10. Sections 13(a), 15(a) and 15(b) of the1940 Act require ``pass-
through'' voting with respect to management investment company shares
held by a separate account. Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide partial exemptions from the pass-through
voting requirement. More specifically, the Rules provide that the
insurance company may disregard the voting instructions of its contract
owners with respect to the investments of an underlying fund, or any
contract between a fund and its investment adviser, when required to do
so by an insurance regulatory authority and subject to certain
requirements. In addition, Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contract owner's voting instructions if the contract owners initiate
any change in such company's investment policies, principal
underwriter, or any investment adviser (provided that disregarding such
voting instructions is reasonable and subject to other provisions of
Rules 6e-2 and 6e-3(T)).
11. Rule 6e-2 recognizes that a variable life insurance contract
has important elements unique to insurance contracts, and is subject to
extensive state regulation. In adopting Rule 6e-2(b)(15)(iii), the
Commission expressly recognized that state insurance regulators have
authority, pursuant to state insurance laws or regulations, to
disapprove or require changes in investment policies, investment
advisers, or principal underwriters. The Commission also expressly
recognized that state insurance regulators have authority to require an
insurer to draw from its general account to cover costs imposed upon
the insurer by a change approved by contract owners over the insurer's
objection. the Commission therefore deemed such exemptions necessary
``to assure the solvency of the life insurer and performance of its
contractual obligations by enabling an insurance regulatory authority
or the life insurer to act when certain proposal reasonably could be
expected to increase the risks undertaken by the life insurer.'' In
this respect, flexible premium variable life insurance contracts are
identical to scheduled premium variable life insurance contracts;
therefore, Rule 6e-3(T)'s corresponding provisions undoubtedly were
adopted in recognition of the same factors.
12. Applicants further represent that the Funds' sale of shares to
Qualified Plans will not have any impact on the relief requested in
this regard. Shares of the Funds sold to such Plans would be held by
the trustees of said Plans as mandated by Section 403(a) of the
Employee Retirement Income Security Act (``ERISA''). Section 403(a)
also provides that the trustee(s) must have exclusive authority and
discretion to manage and control the assets of the plan with two
exceptions: (a) when the plan expressly provides that the trustee(s) is
subject to the direction of a named fiduciary who is not a trustee, in
which case the trustee(s) is subject to proper directions made in
accordance with the term 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 the named fiduciary. In any event, there is no pass-
through voting to the participants in such plans. Accordingly, unlike
the case with insurance company separate accounts, the issue of the
resolution of material irreconcilable conflicts with respect to voting
is not present with Qualified Plans.
13. Applicants submit 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. In this regard,
Applicants state that a particular state insurance regulatory body
could require action that is inconsistent with the requirements of
other states in which the insurance company offers its policies.
Accordingly, Applicants submit that the fact that different insurers
may be domiciled in different states does not create a significantly
different or enlarged problem.
14. Applicants submit that the conditions discussed below (which
are adapted from the conditions included in Rule 6e-3(T)(b)(15)) are
designed to safeguard against and provide procedures for resolving any
adverse effects that differences among state regulatory requirements
may produce. If a particular state insurance regulator's
[[Page 32842]]
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 affected Fund. This requirement will be
provided for in agreements that will be entered into by participating
insurance companies with respect to their participation in the Funds.
15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit an insurance
company to disregard contract owners' voting instructions. Applicants
submit that this does not raise any issues different from those raised
by the authority to state insurance administrators over separate
accounts. Applicants note that Rules 6e-2 and6e-3(T) both require that
disregard of voting instructions by an insurance company be reasonable
and based on specific good faith determinations. If the insurer's
judgment represents a minority position or would preclude a majority
vote, the insurer may be required, at a Fund's election, to withdraw
its separate account's investment in such Fund. No charge or penalty
would be imposed as a result of such withdrawal.
16. Applicants submit that there is no reason why the investment
policies of the Funds providing mixed funding would or should be
materially different from what those policies would or should be if the
Funds funded only variable annuity contracts or variable life insurance
policies, whether flexible premium or scheduled premium policies. In
this regard, Applicants note that each type of variable insurance
product is designed as long-term investment program. In addition, each
Fund will be managed to attempt to achieve the Fund's investment
objective or objectives, and not to favor or disfavor any particular
participating insurer or type of variable insurance product.
17. Furthermore, Applicants submit that no one investment strategy
can be identified as appropriate to a particular insurance product.
Each pool of variable annuity and variable life insurance contract
owners is composed of individuals of diverse financial status, age,
insurance and investment goals. An underlying fund supporting even one
type of insurance product must accommodate these diverse factors in
order to attract and retain purchasers.
18. Applicants note that Section 817(h) of the Internal Revenue
Code of 1986, as amended (the ``Code''), 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 ``qualified pension or retirement
plans'' and separate accounts to share the same underlying management
investment company. Therefore, Applicants have concluded that neither
the Code, the Treasury Regulations, nor Revenue Rulings thereunder
present any inherent conflicts of interest if Qualified Plans, variable
annuity separate accounts and variable life separate accounts all
invest in the same management investment company.
19. Applicants note that while there are differences in the manner
in which distributions are taxes for variable annuity contracts,
variable life insurance contracts and Qualified Plans, the tax
consequences do not raise any conflicts of interest. 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 Plan will redeem shares of the Funds at their respective
net asset value. The Qualified Plan will then make distributions in
accordance with the terms of the Plan, and the life insurance company
will make distributions in accordance with the terms of the Variable
Contract.
20. With respect to voting rights, Applicants submit that it is
possible to provide an equitable means or giving such voting rights to
Separate Account contract owners and to the trustees of Qualified
Plans. Applicants represent that the transfer agent for the Funds will
inform each participating insurance company of its share ownership in
each Separate Account, as well as inform the trustees of Qualified
Plans of their holdings. Each participating insurance company will then
solicit voting instructions in accordance with the ``pass-through''
voting requirements of Rules 6e-2 and 6e-3(T).
21. Applicants argue that the ability of the Funds to sell their
respective 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 contract owner as opposed to a
participant under a Qualified Plan. Regardless of the rights and
benefits of participants under the Qualified Plans, or contract owners
under Variable 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 their net asset value. No
shareholder of any of the Funds will have any preference over any other
shareholder with respect to distribution of assets or payment of
dividends.
22. Applicants submit that there are no conflicts between the
contract owners of the Separate Accounts and the participants under the
Qualified Plans with respect to the state insurance commissioners' veto
powers over investment objectives. The state insurance commissioners
have been given the veto power in recognition of the fact that
insurance companies cannot simply redeem shares of one underlying fund
held by their separate accounts and invest in another underlying fund.
Complex and time-consuming transactions must be undertaken to
accomplish such redemptions and transfers. On the other hand, trustees
of Qualified Plans can make the decision quickly and implement the
redemption of their shares from the Funds and reinvest 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 if there should
arise issues where the interests of contract owners and the interests
of Qualified Plans are in conflict, the issues can be resolved almost
immediately because the trustees of the Qualified Plans can, on their
own, redeem the shares out of the Funds.
23. Applicants submit that various factors have limited the number
of insurance companies that offer variable annuities and variable life
insurance policies. These factors include the costs of organizing and
operating a funding medium, the lack of expertise with respect to
investment management (principally with respect to stock and money
market investments) and the lack of name recognition by the public of
certain insurers as investment experts. Applicants submit that use of
the Funds as a common investment medium for Variable Contracts would
help alleviate these concerns. Applicants submit that mixed and shared
funding also should benefit variable contract owners by: eliminating a
significant portion of the costs of establishing and administering
separate funds; creating a greater amount of assets available for
investment by the Funds, thereby promoting economies of scale which
permit increased safety of investments through greater diversification
and make the addition of new series more feasible; and encouraging more
insurance companies to offer Variable Contracts, which should result in
increased competition with respect to both the design and pricing of
Variable Contracts, which, in turn, can be
[[Page 32843]]
expected to result in more product variation and lower charges.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of Trustees or Board of Directors (each
a ``Board'') of each of the Funds shall consist of persons who are not
``interested persons'' of the Funds, 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 of Trustees or Directors; (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 among the interests of the
contract owners of all Separate Accounts investing in the Funds and all
other persons investing in the Funds, including Qualified Plans. 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 any Series of the Funds are being
managed; (e) a difference in voting instructions given by variable
annuity contract owners and variable life insurance contract owners; or
(f) a decision by an insurer to disregard the voting instructions of
contract owners.
3. Participating insurance companies and any Qualified Plan that
executes a fund participation agreement with a Fund (collectively,
``Participating Parties'') and the Manager (or any affiliate thereof
that may serve as advisor to a Fund) will report any potential or
existing conflicts of which it becomes aware to the Board of the
relevant Fund. Participating Parties and the Manager will be
responsible for assisting the 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
each participating insurance company to inform the Board whenever
contract owner voting instructions are disregarded. The responsibility
to report such information and conflicts and to assist the Board will
be a contractual obligation of all Participating Parties in the 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 the contract owners and
Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or a
majority of its disinterested Trustees or Directors, that a material
irreconcilable conflict exists, the relevant Participating Parties
shall, 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
irreconcilable material conflict, up to and including: (a) In the case
of the participating insurance companies, withdrawing the assets
allocable to some or all of the Separate Accounts from the relevant
Fund or any series therein and reinvesting such assets in a different
investment medium (including another series, if any, of such Fund) or
submitting the question of whether such segregation should be
implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more participating insurance companies) that
votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; (b) in the case of
participating Qualified Plans, withdrawing the assets allocable to some
or all of the Qualified Plans from the relevant Fund and reinvesting
those assets in a different investment medium; and (c) establishing a
new registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of an
insurer's decision to disregard contract owner voting instructions and
that decision represents a minority position or would preclude a
majority vote, the insurer may be required, at the Fund's election, to
withdraw its Separate Account's investment in the Fund, 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 a material irreconcilable conflict and to bear the
cost of such remedial action shall be a contractual obligation of all
Participating Parties under their agreements governing participation in
the Funds, and these responsibilities will be carried out with a view
only to the interests of the contract owners and participants in
Qualified Plans, as applicable.
5. For the purposes of condition 4, a majority of the disinterested
members of the relevant Board shall determine whether or not any
proposed action adequately remedies any material irreconcilable
conflict, but in no event will the Fund or the Manager be required to
establish a new funding medium for any Variable Contract or Qualified
Plan. No participating insurance company shall be required by condition
4 to establish a new funding medium for any Variable Contract if an
offer to do so has been declined by vote of a majority of contract
owners materially and adversely affected by the irreconcilable material
conflict.
6. A Board's determination of the existence of a material
irreconcilable conflict and its implications shall be made known
promptly in writing to the Manager and all Participating Parties.
7. As to Variable Contracts issued by Separate Accounts,
participating insurance companies will provide pass-through voting
privileges to all participants so long as and to the extent that the
Commission continues to interpret the 1940 Act to require pass-through
voting privileges for Variable Contract owners. As to Variable
Contracts issued by unregistered separate accounts, pass-through voting
privileges will be extended to participants to the extent granted by
the issuing insurance company. Participating insurance companies will
be responsible for assuring that each of their registered Separate
Accounts participating in a Fund calculate voting privileges as
instructed by a Fund with the objective that each such participating
insurance company calculate voting privileges in a manner consistent
with that of other participating insurance companies. The obligation to
calculate voting privileges in a manner consistent with all other
Separate Accounts investing in a Fund will be a contractual obligation
of all participating insurance companies under their agreements
governing participation in a Fund. Each participating insurance company
will vote shares held by Separate Accounts for which it has not
received voting
[[Page 32844]]
instructions, as well as shares attributable to it, in the same
proportion as it votes shares for which it has received voting
instructions.
8. 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 a Fund), and in
particular the Funds will either provide for annual meetings (except
insofar as the Commission may interpret Section 16 not to require such
meetings) or, if annual meetings are not held, comply with Section
16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of the 1940 Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Funds 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.
9. The Funds will notify all participating insurance companies that
prospectus disclosure regarding potential risks of mixed and shared
funding may be appropriate. Each Fund shall disclosure in its
registration statement that: (1) Shares of such Fund are offered to
insurance company separate accounts offered by various participating
insurance companies which fund both variable annuity and variable life
insurance contracts, and to Qualified Plans; (b) due to the differences
of tax treatment or other considerations, the interests of various
contract owners participating in the Fund and the interests of
Qualified Plans investing in the Fund may conflict; and (c) the Board
will monitor for any material conflicts and determine what action, if
any, should be taken in response to a conflict.
10. No less than annually, the Participating Parties and/or the
Manager shall submit to the Boards such reports, materials, or data as
each Board 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 relevant Board. The
obligations of the Participating Parties to provide these reports,
materials, and data to a Board shall be a contractual obligation of all
Participating Parties under the agreements governing their
participation in the Funds.
11. All reports received by a Board of potential or existing
conflicts, and all Board action with regard to determining the
existence of a conflict, notifying the Manager or Participating Parties
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. Such minutes or other records shall
be made available to the Commission upon request.
12. If an 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 or shared
funding on terms and conditions materially different from any
exemptions granted in the order requested in the application, then the
Funds and/or the Participating Parties, as appropriate, shall take such
steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
13. In the event that a Qualified Plan should ever become an owner
of 10% or more of the assets of a Fund, such Qualified Plan will
executive a fund participation agreement with such Fund. A Qualified
Plan will executive an application containing an acknowledgement of
this condition at the time of its initial purchase of shares of the
Fund.
Conclusion
For the reasons stated above, Applicants represent that the
exemptions requested are necessary and 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. 97-15770 Filed 6-16-97; 8:45 am]
BILLING CODE 8010-01-M