[Federal Register Volume 63, Number 186 (Friday, September 25, 1998)]
[Notices]
[Pages 51388-51393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25733]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23440; File No. 812-11070]
The White Elk Funds, et al.
September 21, 1998.
Agency: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
Action: Notice of application for an order under Section 6(c) of the
Investment Company Act of 1940 (the ``1940 Act'') for exemptions from
the provisions of 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.
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Summary: Applicants seek an order to permit shares of certain series of
The White Elk Funds that are designed to fund insurance products (the
``Funds'') and shares of any other investment company that is designed
to fund insurance products and for which White Elk Asset Management,
Inc. or any of its affiliates may serve as investment advisor,
administrator, manager, principal underwriter, or sponsor (collectively
with the Funds, the ``Insurance Product Funds'') to be sold to and held
by: (1) Separate accounts funding variable annuity and variable life
insurance contracts (``Separate Accounts'') of both affiliated and
unaffiliated life insurance companies (``Participating Insurance
Companies''); and (2) qualified pension or retirement plans
(``Plans'').
Applicants: The White Elk Funds (the ``Company'') and White Elk Asset
Management, Inc. (the ``Advisor'').
Filing Date: The application was filed on March 13, 1998, and amended
and restated on July 14, 1998.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on October 16, 1998, 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 Joseph J. McBrien, Esq., State Street Bank and Trust
Company, 1776 Heritage Drive, AFB4, North Quincy, MA 02171-2197.
For Further Information Contact: Zandra Y. Bailes, Senior Counsel, or
Mark C. Amorosi, Branch Chief, Division of Investment Management,
Office of Insurance Products, at (202) 942-0670.
Supplementary Information: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference Branch of the SEC, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicant's Representations
1. The Company is a Massachusetts business trust and is registered
under the 1940 Act as an open-end diversified management investment
company. The Company currently consists of eleven separate Funds, each
of which has its own investment objective and policies. The Company may
in the future issue shares of additional Funds and/or multiple classes
of shares of each Fund.
2. The Advisor, an investment manager newly registered under the
Investment Advisers Act of 1940, is the investment adviser to each of
the Funds and is responsible for the overall administration of the
Company. The Advisor has entered into a contract with William D.
Witter, Inc. (``Witter''), whereby Witter will serve as sub-portfolio
manager to various of the Funds.
3. Shares of each Fund may be offered to Separate Accounts, which
are either registered or unregistered under the federal securities
laws, that fund variable annuity contracts or variable life insurance
policies (``Contracts''). Shares of the Funds may also be offered to
Plans.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the
rules promulgated 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.
2. 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 exemptions granted by Rule 6e-
2(b)(15) are available, however, only where all of the assets of the
separate account consist of the shares of one or more registered
management investment companies which offer their shares ``exclusively
to variable life insurance separate accounts of the life insurer, or of
any affiliated life insurance company'' (emphasis added).\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 a management company that also offers its shares to variable
annuity and variable life insurance separate accounts of the same
insurance company or any other insurance company or to trustees of a
Plan. The use of a common management investment company as the
underlying investment medium for a variable annuity or a variable life
insurance separate account of the same 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 if the scheduled premium variable life insurance separate
account owns shares of any underlying
[[Page 51389]]
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 management company as the underlying
investment medium for separate accounts of unaffiliated life insurance
companies is referred to herein as ``shared funding.'' Furthermore, 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.
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\1\ The relief provided by Rule 6e-2 is also available to a
separate account's investment adviser, principal underwriter, and
sponsor or depositor.
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3. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the 1940
Act, 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. These
exemptions, however, 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 contracts or flexible
contracts, or both; or which also offer their shares to variable
annuity separate accounts of the life insurer or of an affiliated life
insurance company'' (emphasis added). Therefore, Rule 6e-3(T) grants
the exemptions if the underlying fund engages in mixed funding, subject
to certain conditions, but not if it engages in shared funding or sells
its shares to Plans.
4. Applicants state that the current federal tax law permits the
Insurance Product Funds to increase their asset base through the sale
of shares to Plans. Section 817(h) of the Internal Revenue Code of
1986, as amended (the ``Code''), imposes certain diversification
requirements on the assets underlying Contracts invested in the
Insurance Products Funds. The Code provides that such Contracts will
not be treated as annuity contracts or life insurance contracts for any
period in which the underlying assets are not, in accordance with
regulations issued by the Treasury Department (the ``Regulations''),
adequately diversified. 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 life insurance companies.
The Treasury Regulations do, however, contain certain exceptions to
this requirement, one of which allows shares in an investment company
to be held by trustees of a 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. 1.817-5(f)(3)(iii)).
5. Applicants note that if the Insurance Product Funds were to sell
their shares only to Plans, no exemptive relief would be necessary. The
relief provided under Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15) does not
relate to Plans or to a registered investment company's ability to sell
its shares to Plans.
6. Applicants also note that the promulgation of Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) preceded the issuance of the Regulations. Thus, the
sale of shares of the same investment company to both separate accounts
and Plans could not have been envisioned at the time Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) were promulgated, given the then-current tax law.
7. 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 either
Section 9(a)(1) or 9(a)(2) of the 1940 Act. Rules 6e-2(b)(15) (i) and
(ii) and 6e-3(T)(b)(15) (i) and (ii) provide exemptions from Section
9(a), 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 granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 of the
1940 Act limits, in effect, 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 who may be involved in an insurance company complex, but
who would have no involvement in matters pertaining to investment
companies funding the separate accounts. Applicants, assert, therefore,
that there is no regulatory purpose in denying the partial exemptions
because of mixed and shared funding and sales to Plans.
9. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) under the 1940 Act provide exemptions from the pass-
through voting requirement with respect to several significant matters,
assuming the limitations on mixed and shared funding are observed. More
specifically, Rules 6e-2(b)(15)(iii)(A) and 6e-2(b)(15)(iii)(A) provide
that the insurance company may disregard the voting instructions of its
contract with respect to the investment of an underlying investment
company or any contract between an underlying investment company 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 the voting instructions of contract
owners if the contract owners initiate any change in an underlying
investment company's investment policies, principal underwriter or any
investment adviser (provided that disregarding such voting instruction
is reasonable and subject to the other provisions of Rules 6e-2 and 6e-
3(T)).
10. Applicants assert that the offer and sale of shares of
Insurance Product Funds to Plans will not have an impact on the relief
requested. Under Section 403(a) of the Employee Retirement Income
Security Act (``ERISA''), shares of the Insurance Product Funds sold to
Plans would be held by the trustees of the Plan. Section 403(a) also
provides that the trustee(s) must have exclusive authority and
discretion to manage and control the Plan investments with two
exceptions: (a) When the Plan expressly provides that the trustee(s) is
(are) subject to the direction of a named fiduciary who is not a
trustee, in which case the trustee(s) is (are) subject to proper
directions of such fiduciary 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)93) of ERISA. Unless one
of the above two exceptions stated in Section 403(a) applies, Plan
trustees have the exclusive authority and responsibility for voting
proxies.
11. Where a named fiduciary to a Plan 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
trustee or the named fiduciary. In any event, Applicants assert that
ERISA permits but does not require pass-through voting to participants
in Plans. Some of the Plans, however, may provide participants with the
right to give voting instructions.
[[Page 51390]]
12. Where a Plan provides participants with the right to give
voting instructions, Applicants assert that there is no reason to
believe that participants in Plans generally or those in a particular
Plan, either as a single group or in combination with participants in
other Plans, would vote in a manner that would disadvantage Contract
owners. The purchase of shares of the Insurance Product Funds by Plans
that provide voting rights to participants does not present any
complications not otherwise occasioned by mixed and shared funding.
13. Applicants also maintain that no increased conflicts of
interest would be presented by the granting of the requested relief. In
this regard, Applicants assert that shared funding does not prevent any
issues that do not already exist where a single insurance company is
licensed to do business in several or all states. A particular state
insurance regulatory body could require action that is inconsistent
with the requirements of insurance regulators of other states in which
the insurance company offer its policies. The fact that different
insurers may be domiciled in different states does not create a
sigfificantly different or enlarged problem.
14. Applicants submit that shared funding is, in this respect, no
different that the use of the same investment company as the funding
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) permit under various circumstances. Affiliated insurers may
be domiciled in different states and be subject to differing state law
requirements. Affiliation does not reduce the potential, if any exists,
for differences in state regulatory requirements. In any event,
Applicants submit that the conditions set forth in the application and
included in this notice are designed to safeguard against, and provide
procedures for, resolving any adverse effects that differences among
state regulatory requirements may produce.
15. Applicants assert that the right of an insurance company under
Rules 6e-1(b)(15) and 6e-3(T)(b)(15) to disregard contract owners'
voting instructions does not raise any issues different from those
raised by the authority of state insurance administrators over separate
accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can
disregard contract owner voting instructions only with respect to
certain specific items. Affiliation does not eliminate the potential,
if any exists, for divergent judgments as to the advisability or
legality of a change in investment policies, principal underwriter, or
investment adviser initiated by contract owners. The potential for
disagreement is limited by the requirements in Rules 6e-26 and 6e-3(T)
that an insurance company's disregard of voting instructions be
reasonable and based on specific good-faith determinations.
16. A particular insurer's disregard of voting instructions
nevertheless could conflict with the majority of Contract owner voting
instructions. The insurer's action could be different from the
determination of all or some of the other insurers (including
affiliated insurers) that the contract owners' voting instructions
should prevail, and either could preclude a majority vote approving the
change or could represent a minority view. If the insurer's judgment
represents a minority position or would preclude a majority vote, the
insurer may be required, at the election of the relevant Insurance
Product Fund to withdraw its Separate Account's investment in that
Insurance Product Fund, and no charge or penalty would be imposed as a
result of such withdrawal.
17. Applicants submit that there is no reason why the investment
policies of the Insurance Product Funds would or should be materially
different from what those policies would or should be if the Insurance
Product Funds funded only annuity contracts or only scheduled or
flexible premium life contracts. In this regard, Applicants note that
each type of insurance product is designed as a long-term investment
program. In addition, Applicants represent that each Insurance Product
Fund will be managed to attempt to achieve the investment objective of
that Insurance Product Fund and not to favor or disfavor any particular
insurer or type of insurance product.
18. Furthermore, Applicants submit that no one investment strategy
can be identified as appropriate to a particular insurance product or
to a Plan. Each pool of variable annuity and variable life insurance
contract owners is composed of individuals of diverse financial status,
age, insurance and investment goals. A fund supporting even one type of
insurance product must accommodate those factors in order to attract
and retain purchasers.
19. Applicants note that Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity
and variable life insurance contracts held in the portfolios of
management investment companies. The Regulations specifically permit
``qualified pension or retirement plans'' and insurance company
separate accounts to share the same underlying investment company. For
this reason, Applicants have concluded that neither the Code, nor the
Treasury Regulations, nor the revenue rulings thereunder, present any
inherent conflicts of interest if Plans, variable annuity separate
accounts, and variable life insurance separate accounts all invest in
the same management investment company.
20. Applicants note that while there are differences in the manner
in which distributions from variable annuity contracts, variable life
insurance contracts and Plans are taxed, the tax consequences do not
raise any conflicts of interest. When distributions are to be made, and
a Separate Account or Plan is unable to net purchase payments to make
the distributions, the Separate Account or the Plan will redeem shares
of the Insurance Product Fund at their net asset value. A Plan will
make distributions in accordance with the terms of the Plan, and the
Participating Insurance Company will make distributions in accordance
with the terms of the Contract.
21. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving voting rights to
Contract owners and to Plans. Applicants represent that the Insurance
Product Funds will inform each shareholder, including each Separate
Account and each Plan, of information necessary for the shareholder
meeting, including its respective share of ownership in the respective
Insurance Product Fund. Each Participating Insurance Company will then
solicit voting instructions in accordance with the ``pass-through''
voting requirement.
22. Applicants contend that the ability of the Insurance Product
Funds to sell their respective shares directly to qualified plans does
not create a ``senior security,'' as that term is defined in Section
18(g) of the 1940 Act. Regardless of the rights and benefits of
participants under the Plans or Contract owners under the Contracts,
the Plans and the Separate Accounts have rights only with respect to
their respective shares of the Insurance Product Funds. They can only
redeem such shares at their net asset value. No shareholder of any of
the Insurance Product Funds has any preference over any other
shareholder with respect to distribution of assets or payments of
dividends.
23. Applicants submit that there are no conflicts between the
Contract owners of the separate accounts and plan participants with
respect to the state insurance commissioners' veto powers over
investment objectives. State insurance commissioners have been given
the veto power in recognition of
[[Page 51391]]
the fact that insurance companies usually cannot simply redeem their
separate accounts out of one fund and invest in another. Generally,
time-consuming complex transactions must be undertaken to accomplish
such redemptions and transfers. Conversely, trustees of Plans can make
the decision quickly and redeem their interest in an Insurance Product
Fund and reinvest in another funding vehicle without the same
regulatory impediments faced by separate accounts or, as is the case
with most Plans, even hold cash pending suitable investment. Based on
the foregoing, Applicants have concluded that even if there should
arise issues where the interests of Contract owners and the interests
of participants in Plans are in conflict, the issues can be resolved
almost immediately because the trustees of Plans can, on their own,
redeem the shares out of the Insurance Product Fund.
24. Applicants assert that various factors have limited the number
of insurance companies that offer variable annuities and variable life
insurance contracts. 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. In particular, some 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.
25. Applicants contend that the use of the Insurance Product Funds
as common investment vehicles for variable contracts would reduce or
alleviate these concerns. Mixed and shared funding should provide
several benefits to variable contract owners by eliminating a
significant portion of the costs of establishing and administering
separate funds. Participating Insurance Companies will benefit not only
from the investment and administrative expertise of the Advisor, but
also from the cost efficiencies and investment flexibility afforded by
a larger pool of assets. Therefore, making the Insurance Product Funds
available for mixed and shares funding will encourage more insurance
companies to offer variable contracts, and accordingly should result in
increased competition with respect to both variable contract design and
pricing, which can be expected to result in more product variation and
lower charges. Applicants also assert that the sale of shares of the
Insurance Product Funds to Plans can also be expected to increase the
amount of assets available for investment by the Insurance Product
Funds and thus promote economies of scale and diversification.
Applicants' Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of each Insurance Product Fund shall
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 Board Member or Members, 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 remaining Board
Members; (b) for a period of 60 days if a vote of shareholder is
required to fill the vacancy or vacancies; or (c) for such longer
period as the Commission may prescribe by order upon application.
2. The Board will monitor their respective Insurance Product Funds
for the existence of any material irreconcilable conflict among the
interests of the Contract owners of all Separate Accounts investing in
the Insurance Product Funds and of the Plan participants investing in
the Insurance Product Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) An action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of the Insurance Product Funds are being managed; (e) a
difference in voting instructions given by variable annuity Contract
owners, variable life insurance Contract owners, and trustees of Plans;
(f) a decision by an insurer to disregard the voting instructions of
Contract owners; or (g) if applicable, a decision by a Plan to
disregard the voting instructions of Plan participants.
3. Participating Insurance Companies, the Advisor or any primary
investment advisor of the Insurance Product Funds, and any Plan that
executes a fund participation agreement upon becoming an owner of 10
percent or more of the assets of an Insurance Product Fund (a
``Participating Plan''), will report any potential or existing
conflicts of which it becomes aware to the Board of any relevant
Insurance Product Fund. Participating Insurance Companies, the Advisor
and the 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
responsibility includes, but is not limited to, an obligation by each
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
Plan to inform the Board whenever it has determined to disregard Plan
participant voting instructions. The responsibility to report such
information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Insurance Companies investing in the
Insurance Product Funds under their agreements governing participation
in the Insurance Product Funds, and such agreements shall provide that
these responsibilities will be carried out with a view only to the
interests of the Contract owners. The responsibility to report such
information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Plans under their agreements governing
participation in the Insurance Product Funds, and such agreements will
provide that their responsibilities will be carried out with a view
only to the interests of Plan participants.
4. If it is determined by a majority of the Board of an Insurance
Product Fund, or by a majority of the disinterested Board Members, that
a material irreconcilable conflict exists, the relevant Participating
Insurance Companies and Participating Plans will, at their own expense
and to the extent reasonably practicable as determined by a majority of
the disinterested Board Members, take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps
could include: (a) In the case of Participating Insurance Companies,
withdrawing the assets allocable to some or all of the Separate
Accounts from the Insurance Product Fund or any portfolio thereof and
reinvesting such assets in a different investment medium, including
another portfolio of an Insurance Product Fund or another Insurance
Product Fund, or submitting the question as to whether such segregation
should be implemented to a
[[Page 51392]]
vote of all affected Contract owners and, as appropriate, segregating
the assets of any appropriate group (i.e., variable annuity Contract
owners or variable life insurance Contract owners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of
making such a change; (b) in the case of Participating Plans,
withdrawing the assets allocable to some or all of the Plans from the
Insurance Product Fund and reinvesting such 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 a decision by a Participating
Insurance Company to disregard Contract owner voting instructions, and
that decision represents a minority position or would preclude a
majority vote, then the insurer may be required, at the Insurance
Product Fund's election, to withdraw the insurer's Separate Account
investment in such Insurance Product 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 Insurance Product Fund's election, to withdraw its investment in
such Insurance Product 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 determination by a Board of a material
irreconcilable conflict and to bear the cost of such remedial action
will be a contractual obligation of all participating Insurance
Companies and Participating Plans under their agreements governing
participation in the Insurance Product Funds, and these
responsibilities will be carried out with a view only to the interest
of Contract owners and Plan participants.
5. For purposes of Condition 4, a majority of the disinterested
Board 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 Product Fund or
the Advisor be required to establish a new funding medium for any
Contract. No Participating Insurance Company shall be required by
Condition 4 to establish a new funding medium for any Contract if any
offer to do so has been declined by vote of a majority of the Contract
owners materially and adversely affected by the material irreconcilable
conflict. Further, no Participating Plan shall be required by Condition
4 to establish a new funding medium for any Participating Plan if (a) A
majority of Plan 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
Participating Plan makes such decision without a Plan participant vote.
6. The determination of any Board of the existence of a material
irreconcilable conflict and its implications will be made known in
writing promptly to all Participating Insurance Companies and
Participating Plans.
7. Participating Insurance Companies will provide pass-through
voting privileges to Contract owners who invest in registered Separate
Accounts so long as and to the extent that the Commission continues to
interpret the 1940 Act as requiring pass-through voting privileges for
Contract owners. As to Contracts issued by unregistered Separate
Accounts, pass-through voting privileges will be extended to
participants to the extent granted by issuing insurance companies. Each
Participating Insurance Company will also vote shares of the Insurance
Product Funds held in its Separate Accounts for which no voting
instructions from Contract owners are timely received, as well as
shares of the Insurance Product Funds which the Participating Insurance
Company itself owns, in the same proportion as those shares of the
Insurance Product Funds for which voting instructions from contract
owners are timely received. Participating Insurance Companies will be
responsible for assuring that each of their registered Separate
Accounts participating in the Insurance Product Funds 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 registered Separate Accounts investing in the
Insurance Product Funds will be a contractual obligation of all
Participating Insurance Companies under their agreements governing
their participation in the Insurance Product Funds. Each Participating
Plan will vote as required by applicable law and governing Plan
documents.
8. All reports of potential or existing conflicts received by the
Board of an Insurance Product Fund, and all action by such Board with
regard to determining the existence of a conflict, notifying
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
meeting of such Board or other appropriate records, and such minutes or
other records shall be made available to the Commission upon request.
9. Each Insurance Product Fund will notify all Participating
Insurance Companies that separate disclosure in their respective
Separate Account prospectuses may be appropriate to advise accounts
regarding the potential risks of mixed and shared funding. Each
Insurance Product Fund shall disclose in its prospectus that (a) the
Insurance Product Fund is intended to be a funding vehicle for variable
annuity and variable life insurance contracts offered by various
insurance companies and for qualified pension and retirement plans; (b)
due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Insurance
Product Fund and/or the interests of Plans investing in the Insurance
Product Fund may at some time be in conflict; and (c) the Board of such
Insurance Product Fund will monitor events in order to identify the
existence of any material irreconcilable conflicts and to determine
what action, if any, should be taken in response to any such conflict.
10. Each Insurance Product 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 Product Funds), and, in particular, the Insurance Product
Funds will either provide for annual shareholder meetings (except
insofar as the Commission may interpret Section 16 of the 1940 Act not
to require such meetings) or comply with Section 16(c) of the 1940 Act,
although the Insurance Product Funds are not the type of trust
described in Section 16(c) of the 1940 Act, as well as with Section
16(a) of the 1940 Act and, if and when applicable, Section 16(b) of the
1940 Act. Further, each Insurance Product Fund will act in accordance
with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of Board Members and with
whatever rules the Commission may promulgate with respect thereto.
11. If and to the extent Rule 6e-2 or 6e-3(T) under the 1940 Act is
amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to
provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder, with respect to mixed or
[[Page 51393]]
shared funding on terms and conditions materially different from any
exemptions granted in the order requested in the application, then the
Insurance Product Funds and/or Participating Insurance Companies and
Participating Plans, as appropriate, shall take such steps as may be
necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or
proposed Rule 6e-3(T), as adopted, to the extent that such Rules are
applicable.
12. The Participating Insurance Companies and Participating Plans
and/or the Advisor, at least annually, will submit to each Board such
reports, materials or data as the Board may reasonably request so that
the Board may fully carry out obligations imposed upon it by the
conditions contained in the application. Such reports, materials and
data will be submitted more frequently if deemed appropriate by the
applicable Board. The obligations of the Participating Insurance
Companies and Participating Plans to provide these reports, materials
and data to the Board, when the Board so reasonably requests, shall be
a contractual obligation of all Participating Insurance Companies and
Participating Plans under their agreements governing participation in
the Insurance Product Funds.
13. If a Plan should ever become a holder of ten percent or more of
the assets of an Insurance Product Fund, such Plan will execute a
participation agreement with the Insurance Product Fund that includes
the conditions set forth herein to the extent applicable. A Plan will
execute an application containing an acknowledgment of this condition
upon such Plan's initial purchase of the shares of any Insurance
Product Fund.
Conclusion
For the reasons summarized above, Applicants submit that the
exemptive relief requested is 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. 98-25733 Filed 9-24-98; 8:45 am]
BILLING CODE 8010-01-M