[Federal Register Volume 65, Number 46 (Wednesday, March 8, 2000)]
[Notices]
[Pages 12299-12305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5556]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24323; File no. 812-11850]


Seligman Portfolios, Inc., et al.

February 29, 2000.
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) and 6e-3(T)(b)(15) thereunder.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants seek an order to permit shares of 
Seligman Portfolios, Inc. and shares of any other open-end investment 
company that is designed to fund insurance products and for which J. & 
W. Seligman & Co. Inc., or any of its affiliates, may serve, now or in 
the future, as investment adviser, administrator, manager, principal 
underwriter or sponsor (Seligman Portfolios, Inc. and such other 
investment companies hereinafter referred to collectively, as 
``Insurance Products Funds'') to be offered to, sold to and held by (a) 
variable annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies; and (2) qualified 
pension and retirement plans outside of the separate account context.

APPLICANTS: Seligman Portfolios, Inc. (``Seligman Portfolios'') and J. 
& W. Seligman & Co. Inc. (``Seligman'').

FILING DATE: The application was filed on November 16, 1999, and 
amended and restarted on January 27, 2000, and February 25, 2000.

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 March 23, 2000, and accompanied by proof of 
service on the Applicants in the form of an affidavit or,

[[Page 12300]]

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, N.W., Washington, D.C. 
20549-0609. Applicants, 100 Park Avenue, New York, New York 10017.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or 
Susan M. Olson, 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, N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Seligman Portfolios is registered under the 1940 Act as an open-
end management investment company. Seligman Portfolios was incorporated 
under the laws of the State of Maryland under the name Seligman Mutual 
Benefit Portfolios, Inc., on June 24, 1987. Seligman Portfolios is 
comprised of fifteen separately managed portfolios (each, a 
``Portfolios''), each of which has its own investment objectives and 
policies. Additional Portfolios may be added in the future.
    2. Seligman is an investment adviser registered with the Commission 
under the Investment Advisers Act of 1940 and serves as the investment 
adviser of each Portfolio of Seligman Portfolios.
    3. Each Portfolio currently offers its shares to variable annuity 
separate accounts established by Canada Life Insurance Company of 
America and Canada Life Insurance Company of New York (together, 
``Canada Life''), which are life insurance companies that are 
affiliates of each other. Applicants state that upon receipt of an 
order requested by the application, Seligman Portfolios intends to 
offer its shares to Canada Life variable annuity separate accounts and 
also to variable annuity separate accounts established by life 
insurance companies that are not affiliated with Canada Life. 
Applicants contemplate that, following the grant by the Commission of 
the exemptive order requested by the application, shares of each 
Portfolio also would be offered to one or more variable life insurance 
separate accounts established by insurance companies that are not 
affiliated with Canada Life and possibly to variable life insurance 
separate accounts established by Canada Life or its affiliates. Canada 
Life and its affiliates and the other insurance companies to which 
shares of the Insurance Products Funds will be offered are hereinafter 
referred to, collective, as ``participating Insurance Companies.''
    4. Applicants state that upon the granting of the requested 
exemptive relief, shares of each Portfolio also would be offered 
directly to qualified pension and retirement plans (``Qualified Plans'' 
or ``Plans'') outside the separate account context.
    5. The Participating Insurance Companies will establish their own 
variable annuity and variable life separate accounts (the ``Separate 
Accounts'') and design their own variable annuity and variable life 
insurance contracts (``Contracts''). Each Participating Insurance 
Company will have the legal obligation of satisfying all requirements 
applicable to such Insurance company under state and federal securities 
law. The role of the Insurance Product Funds, so far as the federal 
securities laws are applicable, will be to offer their shares to 
Participating Insurance Companies and their Separate Accounts and to 
Qualified Plans and to fulfill any conditions that the Commission may 
impose upon granting the order requested in the application.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 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 under Rule 6e-
2(b)(15) are available, however, only when 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 supplied). 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 investment company that also offers its shares to a 
variable annuity separate account of the same or of any affiliated or 
unaffiliated 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 if shares of the 
underlying management investment company are offered to variable life 
insurance separate accounts of unaffiliated life insurance companies. 
The use of a common management investment company as the underlying 
investment medium for variable life separate accounts of unaffiliated 
insurance companies is referred to herein as ``shared funding.''
    2. Applicants state that the basis for the relief granted by Rule 
6e-2(b)(15) is not affected by the purchase of shares of the Insurance 
Product Funds by Qualified Plans. However, because the relief under 
Rules 6e-2(b)(15) and 63-3(b)(15) is available only where shares of the 
underlying fund are offered exclusively to separate accounts, 
additional exemptive relief is necessary if shares of the Insurance 
Product Funds are also to be sold to Qualified Plans.
    3. In connection with the funding of 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) provides 
partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 
1940 Act to the extent that those sections have been deemed by the 
Commission to require ``pass-through'' voting with respect to an 
underlying investment company's shares. However, these exemptions are 
available only where all of the assets of the separate account consist 
of shares of one or more registered management investment companies 
which offers 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'' (emphasis 
supplied). Therefore, Rule 6e-3(T) permits mixed funding with respect 
to a flexible premium variable life insurance. However, Rule 6e-3(T) 
does not permit shared funding because the relief granted by Rule 6e-
3(T)(b)(15) is not available with respect to a flexible premium 
variable life insurance separate account that owns shares of an 
investment company that also offers its shares to separate accounts 
(including flexible premium variable life insurance separate accounts) 
of unaffiliated life insurance companies.

[[Page 12301]]

    4. Applicants state that because the relief granted under Rule 6e-
3(T)(b)(15) is available only when shares are offered exclusively to 
separate accounts, exemptive relief is necessary if shares of the 
Insurance Product Funds are also to be sold to Qualified Plans.
    5. Applicants state that changes in the tax law subsequent to the 
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) afford the Insurance 
Products Funds an opportunity to increase their asset base by selling 
their shares to Qualified Plans. Section 817(h) of the Internal Revenue 
Code of 1986, as amended (the ``Code''), imposes certain 
diversification standards on the assets underlying variable annuity 
contracts and variable life insurance contracts held in the portfolios 
of the Insurance Product Funds. The Code provides that such contracts 
will not be treated as annuity contracts or life insurance contracts 
for any period (or any subsequent period) for which the investments are 
not, in accordance with regulations issued by the Treasury Department, 
adequately diversified. On March 2, 1989, the Treasury Department 
issued regulations (Treas. Reg. 1.817-5) (the ``Regulations'') which 
established specific diversification requirements for investment 
portfolios underlying variable annuity and variable life contracts. The 
Regulations generally provide that, in order to meet these 
diversification requirements, all of the beneficial interests in the 
underlying investment company must be held by the segregated asset 
accounts of one or more life insurance companies. However, the 
Regulations also contain an exception to this requirement that allows 
shares of an investment company to be held by the trustee of a 
qualified pension or retirement plan without adversely affecting the 
status of the investment company as an adequately diversified 
underlying investment for variable life contracts issued through 
separate accounts of insurance companies (Treas. Reg. 1.817-
5(f)(3)(iii)).
    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, which made 
it possible for shares of an investment company to be held by the 
trustee of a Qualified Plan without adversely affecting the ability of 
shares in the same investment company to also be held by the separate 
accounts of insurance companies in connection with their variable 
contracts. Thus, the sale of shares of the same investment company to 
separate accounts and Qualified Plans could not have been envisioned at 
the time of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    7. In general, Section 9(a) of the 1940 Act disqualifies any person 
convicted of certain offenses, and any company affiliated with that 
person, from serving in various capacities with respect to an 
underlying registered management investment company. More specifically, 
Section 9(a)(3) provides that it is unlawful for any company to serve 
as investment adviser to or principal underwriter for any registered 
open-end investment company if an affiliated person of that company is 
subject to a disqualification enumerated in Sections 9(a)(1) or (2) of 
the 1940 Act. However, Rules 6e-2(b)(15)(i) and (ii) and 6e-
3(T)(b)(15)(i) and (ii) 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 or administration of the underlying 
investment company.
    8. Applicants state that Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
recognize that it is unnecessary to apply Section 9(a) to the thousands 
of individuals who may be involved in a large insurance company but 
would have no connection with the investment company funding the 
Separate Accounts. Those individuals who participate in the management 
or administration of the Insurance Product Funds will remain the same 
regardless of which life insurance company Separate Accounts invest in 
their shares. Therefore, Applicants assert that applying the 
restrictions of Section 9(a) serves no regulatory purpose. Applicants 
further assert that applying such restrictions would increase the 
monitoring costs incurred by the Participating Insurance Companies and, 
therefore, would reduce the net rates of return realized by Contract 
owners.
    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 in limited situations, assuming the 
limitations on mixed and shared funding are satisfied. More 
specifically, Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(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 and subject to the provisions of paragraphs 
(b)(5)(i) and (b)(7)(ii)(A) of the Rules. 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 voting instructions of contract owners 
with regard to changes initiated by the contract holders in the 
investment company's investment policies, principal underwriter or any 
investment adviser (subject to paragraphs (b)(5)(ii) and (b)(7)(ii)(B) 
and (C) of the Rules).
    10. Applicants further represent that the Insurance Products Funds' 
sale of shares to Qualified Plans will not have any impact on the 
relief requested in this regard. With respect to Qualified Plans, which 
are not registered as investment companies under the 1940 Act, there is 
no requirement to pass through voting rights to Plan participants. 
Indeed, to the contrary, applicable law expressly reserves voting 
rights associated with Plan assets to certain specified persons. 
Applicants state that shares of the Insurance Product Funds sold to 
Qualified Plans would be held by the trustees of such Plans as required 
by Section 403(a) of ERISA. Section 403(a) also provides that the 
trustee(s) must have exclusive authority and discretion to manage and 
control the plan with two exceptions: (a) When the plan expressly 
provides that the trustees are subject to the direction of a named 
fiduciary who is not a trustee, in which case the trustees are subject 
to proper directions made in accordance with the terms of the Plan and 
not contrary to ERISA; and (b) when the authority to manage, acquire or 
dispose of assets of the Plan is delegated to one or more investment 
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the 
above two exceptions states in Section 403(a) applies, Plan trustees 
have the exclusive authority and responsibility for voting proxies.
    11. When 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. The Qualified Plans may have their trustee(s) or other 
fiduciaries exercise voting rights attributable to investment 
securities held by the Qualified Plans in their discretion. Some 
Qualified Plans, however, may provide for the trustee, or another named 
fiduciary to exercise voting rights in accordance with instructions 
from Plan participants.
    12. When a Qualified Plan does not provide participants with the 
right to give voting instructions, Applicants submit that there is no 
potential for material irreconcilable conflicts of interest between or 
among Contract owners and Qualified Plan participants

[[Page 12302]]

with respect to voting of an Insurance Product Fund's shares. 
Accordingly, Applicants note that unlike the case with insurance 
company Separate Accounts, the issue of the resolution of material 
irreconcilable conflicts with respect to voting is not present with 
respect to Qualified Plans since the Qualified Plans are not entitled 
to pass-through voting privileges.
    13. When a Qualified Plan provides participants with the right to 
give voting instructions, Applicants submit there is no reason to 
believe that participants in Qualified Plans generally or those in a 
particular Plan, either as a single group or in combination with 
participants in other Qualified Plans, would vote in a manner that 
would disadvantage Contract owners. The purchase of shares of an 
Insurance Product Fund by Qualified Plans that provide voting rights 
does not present any complications not otherwise occasioned by mixed or 
shared funding.
    14. Applicants assert that no increased conflicts of interest would 
be presented by the granting of the requested relief. Shared funding 
does not present any issues that do not already exist where a single 
insurance company is licensed to do business in several states. 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 submit that the 
possibility is no different and no greater than that which exists when 
a single insurer and its affiliates offer their insurance products in 
several states, as is currently permitted.
    15. Applicants state that affiliations do 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 any adverse effects that differences among state regulatory 
requirements may produce. For instance, if a particular state insurance 
regulator's decision conflicts with the majority of other state 
regulators, the affected insurer may be required to withdraw its 
Separate Account's investment in the relevant Insurance Products Funds.
    16. Applicants further assert that affiliation does not eliminate 
the potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company could disregard Contract owner voting 
instructions. The potential for disagreement is limited by the 
requirements in Rules 6e-2 and 6e-3(T) that an insurance company's 
disregard of voting instructions be reasonable and based on specific 
good faith determinations. However, if the 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, 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 Fund, and no 
charge or penalty would be imposed upon Contract owners as a result of 
such withdrawal.
    17. Applicants submit that no reason exists why investment policies 
of an Insurance Products Fund with mixed funding would or should be 
materially different from what they would or should be if such 
investment company or series thereof funded only variable annuity or 
only variable life insurance Contracts. Applicants represent that Each 
Insurance Products fund will be managed to attempt to achieve its 
investment objective, and will not be managed to favor or disfavor any 
particular insurer or type of Contract.
    18. Furthermore, Applicants assert 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. Those diversities are of greater 
significance than any differences in insurance products. An investment 
company supporting even one type of insurance product must accommodate 
those diverse factors.
    19. Applicants do not believe that the sale of shares to Qualified 
Plans will increase the potential for material irreconcilable conflicts 
of interest between or among different types of investors. In 
particular, Applicants see very little potential for such conflicts 
beyond that which would otherwise exist between variable annuity and 
variable life insurance Contract owners.
    20. A noted above, Section 817(h) of 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, among other things, ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company. Therefore, Applicants state 
that neither the Code, nor the Regulations, nor the 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.
    21. Applicants note that while there are differences in the manner 
in which distributions are taxed 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 Qualified Plan cannot net 
purchase payments to make the distributions, the Separate Account or 
the Plan will redeem shares of the Insurance Product Funds at their net 
asset value in conformity with Rule 22c-1 under the 1940 Act. The 
Participating Life Insurance Company will make distributions in 
accordance with the terms of the variable Contract, and the Qualified 
Plan will make distributions in accordance with the terms of the Plan.
    22. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving voting rights to 
Separate Account Contract owners and to Qualified Plans. Applicants 
represent that the transfer agent for the Insurance Products 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. The Participating Insurance Company will then 
solicit voting instructions in accordance with Rules 6e-2 and 6e-3(T). 
Shares held by Qualified Plans will be voted in accordance with 
applicable law. The voting rights provided to Qualified Plans with 
respect to shares of Insurance Products Funds would be no different 
from the voting rights that are provided to Qualified Plans with 
respect to shares of funds offered to the general public.
    23. Applicants submit that the ability of the Insurance Products 
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 Qualified Plan participant. As noted above, regardless of the rights 
and benefits of Qualified Plan participants, or Contract holders under 
Contracts, the Qualified Plans

[[Page 12303]]

and the Separate Accounts have rights only with respect to their 
respective shares of the Insurance Products Funds. They can only redeem 
such shares at their net asset value. No shareholder of any Insurance 
Products funds has any preference over any other shareholder with 
respect to distribution of assets or payment of dividends.
    24. Applicants submit that there are no conflicts between the 
Contract owners of the Separate Accounts and the Qualified Plan 
participants with respect to state insurance commissioners' veto powers 
over investment objectives. 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. Generally, time-consuming complex transactions 
must be undertaken to accomplish such redemptions and transfers. 
Conversely, trustees of Qualified Plans can make the decision quickly 
and redeem their shares from an Insurance Products Fund and reinvest in 
another funding vehicle without the same regulatory impediments or, as 
is the case with most Plans, even hold cash pending suitable 
investment. Therefore, Applicants conclude that even if there should 
arise issues where the interests of Contract holders and the interests 
of Qualified Plans are in conflict, the issues can be almost 
immediately resolved because the trustees of the Qualified Plans can, 
on their own, redeem the shares out of the Insurance Products Funds.
    25. Applicants also assert that there is no greater potential for 
material irreconcilable conflicts arising between the interests of 
Qualified Plan participants and variable Contract owners from possible 
future changes in federal tax laws than that which already exists 
between variable annuity and variable life insurance Contract owners.
    26. Applicants state that various factors have kept some insurance 
companies from offering variable annuity 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 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 Contract business 
on their own. Applicants submit use of the Insurance Products Funds as 
common investment media for Contracts would alleviate these concerns. 
Participating Insurance Companies would benefit not only from the 
investment advisory and administrative expertise of Seligman, but also 
from the cost efficiencies and investment flexibility afforded by a 
large pool of funds. Therefore, making the Insurance Products Funds 
available for mixed and shared funding may 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 charges. 
Applicants assert that Contract owners would benefit because mixed and 
shared funding should benefit Contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate funds. Moreover, sale of the shares of Insurance Products 
Funds to Qualified Plans should result in an increased amount of assets 
available for investment by such Funds. This, in turn, should inure to 
the benefit of Contract owners by promoting economies of scale, by 
permitting greater safety through greater diversification, and by 
making the addition of new Portfolios more feasible.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Trustees or Board of Directors (each, a 
``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 or director, then the operation of this 
condition shall be suspended: (a) For a period of 45 days if the 
vacancy or vacancies may be filled by the Board; (b) for a period of 60 
days if a vote of shareholders is required to fill the vacancy or 
vacancies; or (c) for such longer period as the Commission may 
prescribe by order upon application.
    2. Each Board will monitor its respective Insurance Products Fund 
for the existence of any material irreconcilable conflict between and 
among the interests of the Contract owners of all Separate Accounts and 
the interests of participants in Qualified Plans investing in the 
Insurance Product Funds and determine what action, if any, should be 
taken in response to any of those 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 
Products Funds are being managed; (e) a difference in voting 
instructions given by variable annuity Contract owners and variable 
life insurance Contract owners and trustees of the Qualified Plans; (f) 
a decision by a Participating Insurance Company to disregard the voting 
instructions of Contract owners; or (g) if applicable, a decision by a 
Qualified Plan to disregard the voting instructions of plan 
participants.
    3. Participating Insurance Companies and Qualified Plans that 
execute a fund participation agreement upon becoming an owner of 10% or 
more of an Insurance Products Fund's shares (``Participants'') and 
Seligman (or any other investment adviser of an Insurance Products 
Fund) will report any such potential or existing conflicts to the Board 
of any relevant Insurance Products Fund. Participants 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 Board whenever it has 
determined to disregard Contract owner voting instructions, and, when 
pass-through voting is applicable, an obligation of each Qualified Plan 
to inform the Board whenever it has determined to disregard voting 
instructions from participants in the Qualified Plans.
    4. The responsibilities to report such conflicts and information 
and to assist the Board will be contractual obligations of all 
Participants investing in Insurance Product Funds under their 
agreements governing participation in the Insurance Product Funds, and 
these responsibilities will be carried out with a view only to the 
interests of Contract owners, and, if applicable, participants in 
Qualified Plans.
    5. If it is determined by a majority of the Board of an Insurance 
Products Fund, or a majority of its disinterested trustees or 
directors, that a material irreconcilable conflict exists, the relevant 
Participants will, at their expense and to the extent reasonably

[[Page 12304]]

practicable (as determined by a majority of the disinterested Board 
members), take whatever steps are necessary to remedy or eliminate the 
material conflict, including: (a) Withdrawing the assets allocable to 
some or all of the Separate Accounts from the Insurance Products Fund 
or any series and reinvesting such assets in a different investment 
medium, which may include another series of an Insurance Products Fund 
or another Insurance Products Fund; (b) in the case of Participating 
Insurance Companies, submitting the question of whether such 
segregation should be implemented to a vote of all affected Contract 
owners and, as appropriate, segregating the assets of any appropriate 
group (i.e., variable annuity 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; 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 owners' voting instructions and that decision represents a 
minority position or would preclude a majority vote, the Participating 
Insurance Company may be required, at the election of the Insurance 
Products Fund, to withdraw its Separate Account's investment in such 
fund, and no charge or penalty will be imposed as a result of such 
withdrawal. If a material irreconcilable conflict arises because of a 
Qualified Plan's decision to disregard Qualified Plan participant 
voting instructions, if applicable, and that decision represents a 
minority position or would preclude a majority vote, the Qualified Plan 
may be required, at the election of the Insurance Products Fund, to 
withdraw its investment in such Insurance Products Fund, with no charge 
or penalty 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 Participants under their 
agreements governing participation in the Insurance Products Funds, and 
these responsibilities will be carried out with a view only to the 
interests of Contract holders and Qualified Plan participants.
    6. For purposes of Condition 5, 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 Insurance Products Fund, Seligman or 
any of their respective affiliates be required to establish a new 
funding medium for any Participant. No Participating Insurance Company 
or Qualified Plan will be required by Condition 5 to establish a new 
funding medium for any contract if a majority of Contract owners 
materially and adversely affected by the irreconcilable material 
conflict vote to decline this offer. No Qualified Plan shall be 
required by Condition 5 to establish a new funding medium for any such 
Plan if: (i) A majority of Qualified Plan participants materially and 
adversely affected by the irreconcilable material conflict vote to 
decline such offer or (ii) pursuant to governing Qualified Plan 
documents and applicable law, the Qualified Plan makes the decision 
without Qualified Plan participant vote.
    7. Any Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known 
promptly in writing to all Participants and Seligman.
    8. Participating Insurance Companies will be provided 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 an Insurance Product Fund 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 
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 the 
agreements governing participation in the Insurance Products Fund. Each 
Participating Insurance Companies will vote shares for which it has not 
received voting instructions as well as shares attributable to it in 
the same proportion as it votes shares for which it has received 
instructions. Each Qualified Plan will vote as required by applicable 
law and its governing documents.
    9. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants and Seligman 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 will be 
made available to the Commission upon request.
    10. Each Insurance Products Fund will notify all Participants that 
Separate Account prospectus disclosure or Qualified Plan disclosure 
documents regarding potential risks of mixed and shared funding may be 
appropriate. Each Insurance Products Fund will disclose in its 
prospectus that: (a) the Insurance Products fund is intended to be a 
funding vehicle for variably annuity and variable life insurance 
contracts offered by various insurance companies and for Plans; (b) due 
to differences of tax treatment and other considerations, the interests 
of various Contract owners participating in an Insurance Products Fund 
and the interests of Qualified Plans investing in that Insurance 
Product Fund may conflict; and (c) the Board of that Insurance Products 
Fund will monitor for the existence of any material conflicts of 
interest and determine what action, if any, should be taken.
    11. Each Insurance Products Fund will comply with all provisions of 
the 1940 Act requiring voting by shareholders (which, for these 
purposes, shall be the persons having a voting interest in the shares 
of the Insurance Products Fund), and, in particular, each Fund will 
either provide for annual meeting (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 (although the 
Insurance Product Funds are not within the trusts described in 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 directors and with whatever rules the Commission 
may promulgate with respect thereto.
    12. If and to the extent Rules 6e-2 and 6e-3(T) are amended (or 
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 or shared funding on terms and conditions materially different 
from any exemptions granted in the order requested by Applicants, then 
the Insurance Products Funds and the Participating Insurance Companies, 
as appropriate, shall be required to take

[[Page 12305]]

such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), 
as amended, or Rule 6e-3, as adopted, to the extent applicable.
    13. No less than annually, Seligman and the Participants shall 
submit to the Boards such reports, materials or data as such Boards may 
reasonably request so that the Boards may fully carry out obligations 
imposed upon them by the conditions contained in the application. Such 
reports, materials and data shall be submitted more frequently if 
deemed appropriate by the applicable Boards. The obligations of 
Seligman, the Participating Insurance Companies and Qualified Plans to 
provide these reports, materials and data to the Boards, shall be a 
contractual obligation of Seligman, all Participating Insurance 
Companies and Qualified Plans under the agreements governing their 
participation in the Insurance Products Funds.
    14. In the event that a Qualified Plan should ever become an owner 
of 10% or more of the assets of an Insurance Products Fund, the 
Qualified Plan will execute a fund participation agreement with the 
Insurance Products Fund, including the conditions set forth herein to 
the extent applicable. A Qualified Plan shareholder will execute an 
application containing an acknowledgment of this condition at the time 
of its initial purchase of shares of the 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. 00-5556 Filed 3-7-00; 8:45 am]
BILLING CODE 8010-01-M