Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices 26225

10. The consummation of the

reorganization will be subject to the

following conditions: (a) the

shareholders of each Acquired Fund

will have approved the Plan; (b)

applicants will have received the

exemptive relief which is the subject of

the application; and (c) applicants will

have received an opinion of counsel or

independent auditors with respect to

the federal income tax aspects of the

reorganization. Applicants agree not to

make any material changes to the

proposed Plans that affect the

application without prior Commission

approval.

Applicants’ Legal Analysis

1. Section 17(a) of the Act prohibits

an affiliated person of a registered

investment company, or any affiliated

person of such person, acting as

principal, from selling any security to,

or purchasing any security from, such

registered company. Section 2(a)(3) of

the Act defines an ‘‘affiliated person’’ of

another person to include (a) any person

that owns 5% or more of the

outstanding voting securities of such

other person, (b) any person 5% or more

of whose outstanding voting securities

are directly or indirectly owned,

controlled, or held with power to vote

by such other person, (c) any person

directly or indirectly controlling,

controlled by, or under common control

with such other person, and (d) if such

other person is an investment company,

any investment adviser of that

investment company.

2. Rule 17a–8 under the Act exempts

from the prohibitions of section 17(a)

mergers, consolidations, or purchases or

sales of substantially all of the assets of

registered investment companies that

are affiliated persons solely by reasons

of having a common investment adviser,

common directors/trustees, and/or

common officers, provided that certain

conditions set forth in the rule are

satisfied.

3. Applicants believe that they may

not rely upon rule 17a–8 because they

may be affiliated for reasons other than

those set forth in the rule. The

Acquiring and Acquired Funds have a

common investment adviser, OFI. Mass

Mutual indirectly owns more than 5%

of OFI. Mass Mutual also holds of

record 5% or more of the outstanding

voting securities of one Acquiring Fund,

the Oppenheimer Disciplined Value

Fund, and controls each of the Acquired

Funds. Because of this ownership, each

Acquiring Fund and OFI may be

deemed affiliated persons of an

affiliated person of the Acquired Funds.

Therefore, the proposed reorganization

may not meet the ‘‘solely by reason of’’

requirement of rule 17a–8. Applicants

request an order pursuant to section

17(b) of the Act exempting them from

section 17(a) to the extent necessary to

consummate the proposed

reorganization.

4. Section 17(b) of the Act provides

that the Commission may exempt a

transaction from the provisions of

section 17(a) if the terms of the

proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching on the part of any person

concerned; the proposed transaction is

consistent with the policy of each

registered investment company

concerned; and the proposed

transaction is consistent with the

general purposes of the Act.

5. Applicants submit that the terms of

the Plans satisfy the standards set forth

in section 17(b) in that the terms are fair

and reasonable and do not involve

overreaching on the part of any person.

Applicants note that the Board and the

Trustees of the Trust, including the

disinterested directors and trustees,

have reviewed the terms of the Plans,

including the consideration paid or

received, and have found that the

participation in the reorganization is in

the best interests of each Acquiring and

Acquired fund and that the interests of

the existing shareholders will not be

diluted as a result of the reorganization.

Applicants also note that the exchange

of the Acquired Funds’ assets and

liabilities for the shares of the Acquiring

Funds will be based on the Funds’

relative net asset values.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–12455 Filed 5–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–23174; File No. 812–11062]

Sage Life Investment Trust, et al.

May 6, 1998.

AGENCY: The Securities and Exchange

Commission (the ‘‘Commission’’).

ACTION: Notice of application for an

order under Section 6(c) of the

Investment Company Act of 1940

(‘‘1940 Act’’) granting exemptive relief

from Sections 9(a), 13(a), 15(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 permit shares of Sage

Life Investment Trust (the ‘‘Trust’’) and

any other investment company that is

designed to fund insurance products

and for which Sage Advisors, Inc. may

serve as investment manager,

investment adviser, administrator,

manager, principal underwriter or

sponsor (‘‘Future Trusts,’’ together with

the Trust, ‘‘Trusts’’) to be sold to and

held by variable annuity and variable

life insurance separate accounts of both

affiliated and unaffiliated life insurance

companies and by qualified pension and

retirement plans (‘‘Qualified Plans’’ or

‘‘Plans’’) outside of the separate account

context.

APPLICANTS: Sage Life Investment Trust

and Sage Advisor, Inc. (‘‘Sage’’).

FILING DATE: The application was filed

on March 12, 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 Commission and

serving Applicants with a copy of the

request, personally or by mail. Hearing

requests must be received by the

Commission by 5:30 p.m. on June 1,

1998, and should be 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 data of a hearing by

writing to the Secretary of the

Commission.

ADDRESSES: Secretary, Commission, 450

Fifth Street, N.W., Washington, D.C.

20549. Applicants, c/o James F.

Bronsdon, Esq., Safe Life Assurance of

America, Inc., 300 Atlantic Street, Suite

302, Stanford Connecticut 06901.

FOR FURTHER INFORMATION CONTACT:

Ethan D. Corey, Senior Counsel, or

Kevin M. Kirchoff, Branch Chief, Office

of Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee from the Public

Reference Branch of the Commission,

450 Fifth Street, N.W., Washington, D.C.

(tel. (202) 942–8090).

Applicants’ Representations

1. The Trust, a Delaware business

trust, is registered under the 1940 Act as

an open-end, management investment

company. The Trust currently consists

of four separate portfolios (each, a

‘‘Fund’’), each of which has its own
26226 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices

investment objective or objectives, and

policies.

2. Sage will serve as the investment

manager to the Trust. Sage is a whollyowned subsidiary of Sage Insurance

Group, Inc. Sage will be registered with

the Commission as an investment

adviser pursuant to the Investment

Advisers Act of 1940.

3. Upon effectiveness of the Trust’s

registration statement, shares of each

Fund will be offered to Safe Life

Assurance of America, Inc. (‘‘Current

Participating Insurance Company’’), as

investment options for its separate

accounts supporting variable annuity

and variable life contracts.

4. Applicants state that, upon the

granting of the exemptive relief

requested by the Application, the Trust

intends to offer shares representing

interests in each Fund, and any future

portfolios (each, a ‘‘Future Portfolio,’’

together with the Fund, ‘‘Portfolios’’), to

separate accounts of insurance

companies, including both the Current

Participating Insurance Company and

other insurance companies (‘‘Other

Insurance Companies’’) to serve as the

investment vehicle for variable annuity

contracts and variable life insurance

contracts (collectively, ‘‘Variable

Contracts’’). The Current Participating

Insurance Company and Other

Insurance Companies which elect to

purchase shares of one or more

Portfolios are collectively referred to

herein as ‘‘Participating Insurance

Companies.’’ The Participating

Insurance Companies will establish

their own separate accounts (‘‘Separate

Accounts’’) and design their own

Variable Contracts. Applicants also

propose that the Portfolios offer and sell

their shares directly to Qualified Plans

outside of the separate account context.

Applicants’ Legal Analysis

1. Applicants request an order

pursuant to Section 6(c) of the 1940 Act

exempting them from 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, to the extent

necessary to permit shares of the trusts

to be offered and sold to, and held by:

(a) both variable annuity and variable

life insurance separate accounts of the

same life insurance company or of any

affiliated life insurance company

(‘‘mixed funding’’); (b) separate

accounts of unaffiliated life insurance

companies (including both variable

annuity separate accounts and variable

life insurance separate accounts)

(‘‘shared funding’’); and (c) trustees of

Qualified Plans.

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) provides partial

exemptions from Sections 9(a), 13(a),

15(a), and 15(b) of the 1940 Act. These

exemptions are available only if the

separate account is organized as a unit

investment trust, all the assets of which

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 insurer. Thus, the

exemptions provided by Rule 6e–2 are

not available if a scheduled premium

variable life insurance separate account

owns shares of an underlying fund that

also offers its shares to a variable

annuity separate account or a flexible

premium variable life insurance

separate account of the same insurance

company, or to an unaffiliated life

insurance company. In addition, the

relief granted by Rule 6e–2(b)(15) is not

available if the scheduled premium

variable life insurance separate account

owns shares of an underlying fund that

also offers its shares to Qualified Plans.

3. Rule 6e–3(T)(b)(15) provides

similar partial exemptions in

connection with flexible premium

variable life insurance contracts issued

through a separate account registered

under the 1940 Act as a unit investment

trust. These exemptions, however, are

available only if all the assets of the

separate account consist of the shares of

one or more registered management

investment companies which offer their

shares ‘‘exclusively to separate accounts

of the life insurer, or of any affiliated

life insurance company, offering either

scheduled premium variable life

insurance contacts or flexible premium

variable life insurance contracts or both;

or which also offer their shares to

variable annuity separate accounts of

the life insurer or of an affiliated life

insurance company.’’ Thus, the

exemptions provided by Rule 6e–

3(T)(b)(15) are available if the

underlying fund is engaged in mixed

funding, but are not available if the fund

is engaged in shared funding or if the

fund sells its shares to Qualified Plans.

4. Applicants state that current tax

law permits the Trust to increase its

asset base through the sale of its 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 Contracts, such as

those in each Portfolio. The Code

provides that Variable Contracts will not

be treated as annuity contracts or life

insurance contracts, as the case may be,

for any period (or any subsequent

period) for which the underlying assets

are not, in accordance with regulations

issued by the Treasury Department (the

‘‘Regulations’’), adequately diversified.

On March 2, 1989, the Treasury

Department issued regulations (Treas.

Reg. 1.817–5) which established specific

diversification requirements for

investment portfolios underlying

Variable Contracts. The Regulations

generally provide that, in order to meet

these 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.

Notwithstanding this, the Regulations

also contain an exception to this

requirement that permits trustees of a

qualified pension or retirement plan to

hold shares of an investment company,

the shares of which are also held by

insurance company segregated asset

accounts, without adversely affecting

the status of the investment company as

an adequately diversified underlying

investment for Variable Contracts issued

through such segregated asset accounts

(Treas. Reg. 1.817–5(f)(3)(iii)).

5. The promulgation of rules 6e–2 and

6e–3(T) preceded the issuance of the

Regulations. Applicants state that, given

the then-current tax law, the sale of

shares of the same investment company

to both the separate accounts of insurers

and to Qualified Plans could not have

been envisioned at the time of the

adoption of Rules 6e–2(b)(15) and Rule

6e–3(T)(b)(15).

6. Section 9(a)(3) of the 1940 Act

provides, among other things, 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 Sections

9(a) (1) or (2) of the 1940 Act. Rules 6e–

2(b)(15) (i) and (ii) and Rules 6e–

3(T)(b)(15) (i) and (ii) under the 1940

Act provide exemptions from Section

9(a) under certain circumstances,

subject to the limitations on mixed and

shared funding imposed by the 1940 Act

and the rules thereunder. These

exemptions limit the application of the

eligibility restrictions to affiliated

individuals or companies that directly

participate in the management of the

underlying management company.

7. 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, 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
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices 26227

Section 9. Applicants state that those

1940 Act 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 a large

insurance company complex, most of

whom will have no involvement in

matters pertaining to investment

companies in that organization.

Applicants state that it is unnecessary to

apply Section 9(a) to individuals in

various unaffiliated Participating

Insurance Companies (or affiliated

companies of Participating Insurance

Companies) that may utilize the Trusts

as the funding medium for Variable

Contracts. According to Applicants,

there is no regulatory purpose in

extending the Section 9(a) monitoring

requirements because of mixed or

shared funding. The Participating

Insurance Companies and Qualified

Plans are not expected to play any role

in the management or administration of

the Trusts. Moreover, those individuals

who participate in the management or

administration of the Trusts will remain

the same regardless of which Separate

Accounts, or Qualified Plans use the

Trusts. Applicants argue that applying

the monitoring requirements of Section

9(a) because of investment by other

insurers’ separate accounts would be

unjustified and would not serve any

regulatory purpose.

8. Applicants also state that in the

case of Qualified Plans, the Plans,

unlike the Separate Accounts, are not

themselves investment companies, and

therefore are not subject to Section 9 of

the 1940 Act. Furthermore, it is not

anticipated that a Qualified Plan would

be an affiliated person of any of the

Trusts by virtue of its shareholders.

9. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) under the 1940 Act

provide exemptions from the passthrough voting requirement with respect

to several significant matters, assuming

that the limitations on mixed and

shared funding imposed by the 1940 Act

and the rules promulgated thereunder

are observed.

10. Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) under the 1940 Act give the

Participating Insurance Companies the

right to disregard voting instructions of

contract owners. Rules 6e–

2(b)(15)(iii)(A) and 6e–3(T)(b)(15)(iii)(A)

each 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 (subject

to the provisions of paragraphs (b)(5)(i)

and (b)(7)(ii)(A) of Rules 6e–2 and 6e–

3(T) under the 1940 Act). Rules 6e–

2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(A)(2) each provide that

the insurance company may disregard

voting instructions of contract owners if

the contract owners initiate any change

in the underlying investment company’s

investment policies, principal

underwriter, or any investment adviser

(subject to the provisions of paragraphs

(b)(5)(ii), (b)(7)(ii)(B), and (b)(7)(ii)(C) of

Rules 6e–2 and 6e–3(T) under the 1940

Act). Applicants represent that these

rights do 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 voting instructions of

contract owners only with respect to

certain specified items. Applicants also

note that the potential for disagreement

among Separate Accounts is limited by

the requirements in Rules 6e–2 and 6e–

3(T) that a Participating Insurance

Company’s disregard of voting

instructions be reasonable and based on

specific good faith determinations.

11. Applicants further represent that

the offer and sale of Portfolio shares to

Qualified Plans will not have any

impact on the relief requested in this

regard. With respect to the 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. Under Section

403(a) of the Employee Retirement

Income Security Act (‘‘ERISA’’), shares

of a fund sold to a Qualified Plan must

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 with two exceptions: (a) when

the Plan expressly provides that the

trustee(s) 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 stated

in Section 403(a) applies, Plan trustees

have the exclusive authority and

responsibility for voting proxies.

12. If a named fiduciary to a Qualified

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 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 of the Qualified Plans, however,

may provide for the trustees(s), an

investment adviser (or advisers) or

another named fiduciary to exercise

voting rights in accordance with

instructions from participants.

13. If a Qualified Plan does not

provide participants with the right to

give voting instructions, Applicants do

not see any potential for material

irreconcilable conflicts of interest

between or among variable contract

owners and Plan investors with respect

to voting of the respective Portfolio’s

shares. 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

respect to such Qualified Plans since the

Qualified Plans are not entitled to passthrough voting privileges.

14. Applicants further note that there

is no reason to believe that participants

in Qualified Plans which provide

participants with the right to give voting

instructions 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

variable contract owners. Applicants,

therefore, submit that the purchase of

shares of the Portfolios by Qualified

Plans that provide voting rights does not

present any complications not otherwise

occasioned by mixed or shared funding.

15. Applicants state that no increased

conflicts of interest would be presented

by granting the requested relief. Shared

funding by unaffiliated insurance

companies does not present any issues

that do not already exist where a single

insurance company is licensed to do

business in several or all states. 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. The fact that

different insurers may be domiciled in

different states does not create a

significantly different or enlarged

problem.

16. Applicants submit that shared

funding by unaffiliated insurers, in this

respect, is no different than 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) under the 1940 Act permit.
26228 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices

Affiliated insurers may be domiciled in

different states and be subject to

differing state law requirements.

Affiliation does not reduce the potential

for differences in state regulatory

requirements. Applicants state that the

conditions set forth below 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

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

Portfolios. This requirement will be

provided for in agreements that will be

entered into by Participating Insurance

Companies with respect to their

participation in the relevant Portfolio.

17. Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) under the 1940 Act give the

insurance company the right to

disregard the voting instructions of the

contract owners. Applicants assert that

this right 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 specified 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–2 and 6e–3(T) under the 1940 Act

that the insurance company’s disregard

of voting instructions be reasonable and

based on specific good-faith

determinations.

18. A particular insurer’s disregard of

voting instructions, nevertheless, could

conflict with the majority of contract

owners’ voting instructions. The

insurer’s action possibly could be

different than the determination of all or

some of the other insurers (including

affiliated insurers) that the voting

instructions of contract owners should

prevail, and either could preclude a

majority vote approving the change or

could represent a minority view. If the

insurer’s judgment represent a minority

position or would preclude a majority

vote, then the insurer may be required,

at the relevant Portfolio’s election, to

withdraw its Separate Account’s

investment in such Trust, and no charge

or penalty will be imposed as a result

of such withdrawal. This requirement

will be provided for in the agreements

entered into with respect to

participation by the Participating

Insurance Companies in the Portfolios.

19. Applicants submit that there is no

reason why the investment policies of

the Portfolios would or should be

materially different from what these

policies would or should be if the

Portfolios funded only variable annuity

contracts or variable life insurance

policies, whether flexible premium or

scheduled premium policies. Each type

of insurance product is designed as a

long-term investment program. Each

Portfolio will be managed to attempt to

achieve the investment objective or

objectives of such Portfolio, and not to

favor or disfavor any particular

Participating Insurance Company or

type of insurance product.

20. 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. A

Portfolio supporting even one type of

insurance product must accommodate

these diverse factors in order to attract

and retain purchasers. Permitting mixed

and shared funding will provide

economic justification for the

continuation of the relevant Portfolio.

Mixed and shared funding will broaden

the base of contract owners which will

facilitate the establishment of additional

portfolios serving diverse goals.

21. Applicants do not believe that the

sale of the shares of the Portfolios 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.

22. As noted above, Section 817(h) of

the Code imposes certain diversification

standards on the underlying assets of

variable annuity contracts and variable

life insurance contracts held in the

portfolios of management investment

companies. The Code provides that a

variable contract shall not be treated as

an annuity contract or life insurance, as

applicable, for any period (and any

subsequent period) for which the

investments are not, in accordance with

Regulations, adequately diversified.

23. Regulations issued under Section

817(h) provide that, in order to meet the

statutory diversification requirements,

all of the beneficial interests in the

investment company must be held by

the segregated asset accounts of one or

more insurance companies. The

Regulations, however, contain certain

exceptions to this requirement, one of

which allows shares in an underlying

mutual fund to be held by the trustees

of a Qualified Plan without adversely

affecting the ability of shares in the

underlying fund also to be held by

separate accounts of insurance

companies in connection with their

variable contracts. (Treas. Reg. 1.817–

5(f)(3)(iii)). Thus, the Regulations

specifically permit Qualified Plans and

separate accounts to invest in the same

portfolio of an underlying fund. For this

reason, Applicants assert that neither

the Code, nor the Regulations, nor the

Revenue Rulings thereunder, present

any inherent conflicts of interest.

24. Applicants note that while there

are differences in the manner in which

distributions from Variable Contracts

and Qualified Plans are taxed, these

differences will have no impact on the

Trusts. When distributions are to be

made, and a Separate Account or a

Qualified Plan is unable to net purchase

payments to make the distributions, the

Separate Account and Qualified Plan

will redeem shares of the relevant

Portfolio at their respective net asset

value in conformity with Rule 22c–1

under the 1940 Act (without the

imposition of any sales charge) to

provide proceeds to meet distribution

needs. A Participating Insurance

Company then will make distributions

in accordance with the terms of its

Variable Contract, and a Qualified Plan

then will make distributions in

accordance with the terms of the Plan.

25. Applicants state that it is possible

to provide an equitable means of giving

voting rights to contract owners in the

Separate Accounts and to Qualified

Plans. In connection with any meeting

of shareholders, the Trusts will inform

each shareholder, including each

Separate Account and Qualified Plan, of

information necessary for the meeting,

including their respective share of

ownership in the relevant Portfolio.

Each Participating Insurance Company

then will solicit voting instructions in

accordance with Rules 6e–2 and 6e–

3(T), as applicable, and its participation

agreement with the relevant Trust.

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

the Trusts would be no different from

the voting rights that are provided to

Qualified Plans with respect to shares of

funds sold to the general public.

26. Applicants submit that the ability

of the Portfolios to sell their shares

directly to Qualified Plans does not

create a ‘‘senior security’’ as such term

is defined under Section 18(g) of the
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices 26229

1940 Act. ‘‘Senior security’’ is defined

under Section 18(g) of the 1940 Act to

include ‘‘any stock of a class having

priority over any other class as to

distribution of assets or payment of

dividends.’’ As noted above, regardless

of the rights and benefits of participants

under Qualified Plans, or contract

owners under Variable Contracts, the

Qualified Plans and the Separate

Accounts only have rights with respect

to their respective shares of the Portfolio

and any Future Portfolio. They only can

redeem such shares at net asset value.

No shareholder of the Portfolios has any

preference over any other shareholder

with respect to distribution of assets or

payment of dividends.

27. Applicants assert that there are no

conflicts between the contract owners of

the Separate Accounts and participants

under the Qualified Plans with respect

to the state insurance commissioners’

veto powers over investment objectives.

Applicants note that the basic premise

of corporate democracy and shareholder

voting is that not all shareholders may

agree with a particular proposal.

Although the interests and opinions of

shareholders may differ, this does not

mean that inherent conflicts of interest

exist between or among such

shareholders. State insurance

commissioners have been given the veto

power in recognition of 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.

28. Conversely, the trustees of

Qualified Plans or the participants in

participant-directed Qualified Plans can

make the decision quickly and redeem

their interest in the Portfolios and

reinvest in another funding vehicle

without the same regulatory

impediments faced by separate accounts

or, as is the case with most Qualified

Plans, even hold cash pending suitable

investment.

29. Applicants also assert that there is

no greater potential for material

irreconcilable conflicts arising between

the interest of participants in the

Qualified Plans and contract owners of

the Separate Accounts from future

changes in the federal tax laws than that

which already exist between variable

annuity contract owners and variable

life insurance contract owners.

30. Applicants state that various

factors have kept more insurance

companies from offering variable

annuity and variable life insurance

contracts than currently offer such

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

with whom the public feels comfortable

entrusting their investment dollars. Use

of a Portfolio as a common investment

media for variable contracts would

reduce or eliminate these concerns.

Mixed and shared funding also 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 Sage, but also from the cost

efficiencies and investment flexibility

afforded by a large pool of funds. Mixed

and shared funding also would permit

a greater amount of assets available for

investment by a Portfolio, thereby

promoting economics of scale, by

permitting increased safety through

greater diversification, or by making the

addition of new Portfolios more feasible.

Applicants assert that making the

Portfolios available for mixed and

shared funding will, therefore,

encourage more insurance companies to

offer variable contracts, and this 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 portfolios

to Qualified Plans in addition to the

Separate accounts will result in an

increased amount of assets available for

investment by such Portfolios. This may

benefit variable contract owners by

promoting economies of scale, by

permitting increased safety of

investments through greater

diversification, and by making the

addition of new Portfolios more feasible.

31. Applicants see no significant legal

impediment to permitting mixed and

shared funding. Separate accounts

organized as unit investment trusts

historically have been employed to

accumulate shares of mutual funds

which have not been affiliated with the

depositor or sponsor of the separate

account. As noted above, Applicants

assert that mixed and shared funding

will not have any adverse Federal

income tax consequences.

Applicants’ Conditions

Applicants have consented to the

following conditions:

1. A majority of the Board of each

Trust will consist of persons who are

not ‘‘interested persons’’ of such Trust,

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 trustees,

then the operation of this condition will

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 Trust for the existence of any

material irreconcilable conflict between

the interests of the contract owners of

all Separate Accounts and participants

of all Qualified Plans investing in such

Trust, and determine what action, if

any, should 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 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 such Trust are being

managed; (e) a difference in voting

instructions given by variable annuity

contract owners, variable life insurance

contract owners, and trustees of the

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,

Sage, and any Qualified Plan that

executes a participation agreement upon

becoming an owner of 10 percent or

more of the assets of any Portfolio

(collectively, the ‘‘Participants’’) will

report any potential or existing conflicts

to the relevant Board. Participants will

be responsible for assisting the relevant

Board in carrying out the Board’s

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

relevant Board whenever contract owner

voting instructions are disregarded, and,

if pass-through voting is applicable, an
26230 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices

obligation by each Qualified 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 a

contractual obligation of all

Participating Insurance Companies

under their participation agreements

with the Trusts, and 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, also will be

contractual obligations of all Qualified

Plans with participation agreements,

and such agreements will provide that

these responsibilities will be carried out

with a view only to the interests of Plan

participants.

4. If it is determined by a majority of

a Board, or a majority of the

disinterested trustees of such Board,

that a material irreconcilable conflict

exists, then the relevant Participant will,

at its expense and to the extent

reasonably practicable (as determined

by a majority of the disinterested

trustees), take whatever steps are

necessary to remedy or eliminate the

material irreconcilable conflict, up to

and including: (a) withdrawing the

assets allocable to some or all of the

Separate Accounts from the relevant

Portfolio and reinvesting such assets in

a different investment medium,

including another Portfolio, or in the

case of insurance company participants

submitting the question as to 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 or

life insurance contract owners of one or

more Participating Insurance Company)

that votes in favor of such segregation,

or offering to the affected contract

owners the option of making such a

change; and (b) 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 election

of the relevant Trust, to withdraw such

insurer’s Separate Account’s investment

in such Trust, 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 Plan

participant voting instructions, if

applicable, and that decision represents

a minority position or would preclude

a majority vote, the Plan may be

required, at the election of the relevant

Trust, to withdraw its investment in

such Trust, 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 will be a

contractual obligation of all Participants

under their agreements governing

participation in the Trusts, and these

responsibilities will be carried out with

a view only to the interests of contract

owners and Plan participants.

For purposes of this Condition 4, a

majority of the disinterested members of

a Board will determine whether or not

any proposed action adequately

remedies any material irreconcilable

conflict, but, in no event, will any Trust

or Sage be required to establish a new

funding medium for any variable

contract. No Participating Insurance

Company will be required by this

Condition 4 to establish a new funding

medium for any variable 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 Qualified Plan will be required by

this Condition 4 to establish a new

funding medium for the Plan if: (a) a

majority of the Plan participants

materially and adversely affected by the

irreconcilable material conflict vote to

decline such offer; or (b) pursuant to

documents governing the Qualified

Plan, the Plan makes such decision

without a Plan participant vote.

5. A Board’s determination of the

existence of a material irreconcilable

conflict and its implications will be

made known in writing promptly to all

Participants.

6. Participating Insurance Companies

will provide pass-through voting

privileges to all contract owners as

required by the 1940 Act. Accordingly,

each such Participant, where applicable,

will vote shares of the applicable

Portfolio held in its Separate Accounts

in a manner consistent with voting

instructions timely received from

contract owners. Participating Insurance

Companies will be responsible for

assuring that each Separate Account

investing in a Portfolio calculates voting

privileges in a manner consistent with

other Participants. The obligation to

calculate voting privileges as provided

in the application will be a contractual

obligation of all Participating Insurance

Companies under their agreement with

Trust governing participation in a

Portfolio. Each Participating Insurance

Company will vote shares for which it

has not received timely voting

instructions as well as shares it owns in

the same proportion as it votes those

shares for which it has received voting

instructions. Each Qualified Plan will

vote as required by applicable law and

governing Plan documents.

7. Each Trust will comply with all

provisions of the 1940 Act requiring

voting by shareholders, and, in

particular, each Trust will either

provide for annual meetings (except to

the extent that the Commission may

interpret Section 16 of the 1940 Act not

to require such meetings) or comply

with Section 16(c) of the 1940 Act, as

well as with Section 16(a) of the 1940

Act and, if and when applicable,

Section 16(b) of the 1940 Act. Further,

each Trust will act in accordance with

the Commission’s interpretation of the

requirements of Section 16(a) with

respect to periodic elections of trustees

and with whatever rules the

Commission may promulgate with

respect thereto.

8. The Trusts will notify all

Participants that separate account

prospectus disclosure regarding

potential risks of mixed and shared

funding may be appropriate. Each Trust

will disclose in its prospectus that: (a)

shares of such Trust may be offered to

insurance company separate accounts of

both variable annuity and variable life

insurance contracts and to Qualified

Plans; (b) due to differences in tax

treatment and other considerations, the

interests of various contract owners

participating in such Trust and the

interests of Qualified Plans investing in

such Trust may conflict; and (c) the

Trust’s Board of Trustees 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.

9. If and to the extent that Rule 6e–

2 and Rule 6e–3(T) under the 1940 Act

are 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 shared funding, on terms and

conditions materially different from

those terms and conditions associated

with the exemptive relief requested in

the application, then the Trusts and/or

Participating Insurance Companies, as

appropriate, shall take such steps as

may be necessary to comply with Rules

6e–2 and 6e–3(T), or Rule 6e–3, as such

rules are applicable.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices 26231

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

10. The Participants, at least annually,

will submit to the Board of each Trust

such reports, materials, or data as a

Board reasonably may request so that

the trustees of the Board may fully carry

out the obligations imposed upon a

Board by the conditions contained in

the application, and said reports,

materials, and data will be submitted

more frequently if deemed appropriate

by a Board. The obligations of the

Participants to provide these reports,

materials, and data to a Board, when it

so reasonably requests, will be a

contractual obligation of all Participants

under their agreements governing

participation in the Portfolios.

11. 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 of a conflict, and

determining whether any proposed

action adequately remedies a conflict,

will be properly recorded in the minutes

of the relevant Board or other

appropriate records, and such minutes

or other records shall be made available

to the Commission upon request.

12. The Trusts will not accept a

purchase order from a Qualified Plan if

such purchase would make the Plan

shareholder an owner of 10 percent or

more of the assets of such Portfolio

unless such Plan executes an agreement

with the relevant Trust governing

participation in such Portfolio. A Plan

will execute an application containing

an acknowledgment of this condition at

the time of its initial purchase of shared

of any Portfolio.

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. 98–12555 Filed 5–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[File No. 81–926]

Application and Opportunity for

Hearing: Summit Properties Inc.

May 6, 1998.

Notice is hereby given that Summit

Properties Inc. (‘‘Applicant’’) has filed

an application pursuant to Section 12(h)

of the Securities Exchange Act of 1934,

as amended (the ‘‘Exchange Act’’) for an

order exempting applicant from the

provisions of Section 16 of the Exchange

Act with respect to its ownership of and

transactions in units of limited

partnership interest of Summit

Properties Partnership, L.P.

For a detailed statement of the

information presented, all persons are

referred to this application, which is on

file at the office of the Commission in

the Public Reference Room 450 Fifth

Street, N.W., Washington, D.C. 20549.

Notice is also given that any

interested person not later than June 1,

1998 may submit to the Commission in

writing its views or any substantial facts

bearing on the application, or the

desirability of a hearing thereon. Any

such communication or request should

be addressed to: Secretary, Securities

and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549,

and should state briefly the nature of the

interest of the person submitting such

information or requesting the hearing,

the reason for such a request, and the

issues of fact and law raised by the

application which it wishes to contest.

Persons who request a hearing or

advice as to whether a hearing is

ordered will receive any notices and

orders issued in this matter, including

the date of the hearing (if ordered) and

any postponements thereof. At any time

after the date, an order granting

application may be issued upon request

or upon the Commission’s own motion.

For the Commission, by the Division of

Corporation Finance, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–12559 Filed 5–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following meeting during

the week of May 11, 1998.

A closed meeting will be held on

Thursday, May 14, 1998, at 10:00 a.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designee, has

certified that, in his opinion, one or

more of the exemptions set forth in 5

U.S.C. 552b(c)(4), (8), (9)(A) and (10)

and 17 CFR 200.402(a)(4), (8), (9)(i) and

(10), permit consideration of the

scheduled matters at the closed meeting.

Commissioner Hunt, as duty officer,

voted to consider the items listed for the

closed meeting in a closed session.

The subject matter of the closed

meeting scheduled for Thursday, May

14, 1998, at 10:00 a.m., will be:

Institution of injunctive actions.

Institution and settlement of

administrative proceedings of an

enforcement nature.

At times, changes in Commission

priorities require alternations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact: The Office

of the Secretary at (202) 942–7070.

Dated: May 7, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–12703 Filed 5–8–98; 2:37 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39959; File No. SR–AMEX–

98–16]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange, Inc.,

Relating to the Announcement of

Closing Rotations in Equity Options

After 4:02 p.m.

May 5, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on April 8,

1998, the American Stock Exchange,

Inc. (‘‘Amex’’ or ‘‘the Exchange’’), filed

with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘the

Commission’’) the proposed rule change

as described in Items I, II, and III below,

which Items have been prepared by the

Amex. The Commission is publishing

this notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes to amend

Exchange Rule 1 to permit closing