29264 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

3Each Partnership will preserve the accounts,

books and other documents required to be

maintained in an easily accessible place for the first

two years.

4Each Partnership will preserve the accounts,

books and other documents required to be

maintained in an easily accessible place for the first

two years.

years thereafter, and will be subject to

examination by the SEC and its staff.3

2. In connection with the Section 17

Transactions, the Board, through the

General Partner, will adopt, and

periodically review and update,

procedures designed to ensure that

reasonable inquiry is made, prior to the

consummation of any transaction, with

respect to the possible involvement in

the transaction of any affiliated person,

promoter of, or principal underwriter

for the Partnerships, or any affiliated

person of that person, promoter, or

principal underwriter.

3. The General Partner will not invest

the funds of any Partnership in any

investment in which a ‘‘Co-Investor’’ (as

defined below) has acquired, or

proposes to acquire, the same class of

securities of the same issuer, where the

investment involves a joint enterprise or

other joint arrangement within the

meaning of rule 17d–1 in which the

Partnership and the Co-Investor are

participants, unless the Co-Investor,

prior to disposing of all or part of its

investment (i) gives the General Partner

sufficient, but not less than one day’s,

notice of its intent to dispose of its

investment, and (ii) refrains from

disposing of its investment unless the

Partnership has the opportunity to

dispose of the Partnership’s investment

prior to, or concurrently with, on the

same terms as, and pro rata with, the

Co-Investor. The term ‘‘Co-Investor’’

means any person who is (i) an

‘‘affiliated person’’ (as that term is

defined in the Act) of the Partnership

(other than a Third Party Fund); (ii)

Chase Capital Partners or another entity

within the Chase Group; (iii) an officer,

director or partner of Chase Capital

Partners or another entity within the

Chase Group; or (iv) a company in

which the General Partner of the

Partnership acts as a general partner or

has a similar capacity to control the sale

or other disposition of the company’s

securities. The restrictions contained in

this condition, however, will not be

deemed to limit or prevent the

disposition of an investment by a CoInvestor (i) to its direct or indirect

wholly-owned subsidiary, to any

company (a ‘‘parent’’) of which the CoInvestor is a direct or indirect whollyowned subsidiary, or to a direct or

indirect wholly-owned subsidiary of its

parent; (ii) to Qualified Family Members

of the Co-Investor or a trust or other

investment vehicle established for a

Qualified Family Member; (iii) when the

investment is comprised of securities

that are listed on any exchange

registered as a national securities

exchange under section 6 of the

Exchange Act; (iv) when the investment

is comprised of securities that are

national market system securities

pursuant to section 11A(a)(2) of the

Exchange Act and rule 11Aa2–1 under

that Act, or (v) when the investment is

comprised of securities that are listed on

or traded on any foreign securities

exchange or board of trade that satisfies

regulatory requirements under the law

of the jurisdiction in which the foreign

securities exchange or board of trade is

organized similar to those that apply to

a national securities exchange or a

national market system for securities.

4. Each Partnership and the General

Partner or the investment manager of

the Partnership will maintain and

preserve, for the life of the Partnership

and at least two years thereafter, those

accounts, books, and other documents

that constitute the record forming the

basis for the audited financial

statements that are to be provided to the

Limited Partners, and each annual

report of the Partnership required to be

sent to the Limited Partners, and agree

that all of those records will be subject

to examination by the SEC and its staff.4

5. The General Partner will send to

each Limited Partner who had an

interest in any capital account of the

Partnership, at any time during the

fiscal year then ended, Partnership

financial statements audited by the

Partnership’s independent accountants.

As of the end of each fiscal year, the

General Partner will make a valuation or

have a valuation made of all of the

assets of the Partnership as of that fiscal

year end in a manner consistent with

customary practice with respect to the

valuation of assets of the kind held by

the Partnership. In addition, as soon as

practicable after the end of each fiscal

year of each Partnership, the General

Partner will send a report to each person

who was a Limited Partner at any time

during the fiscal year then ended,

setting forth tax information as will be

necessary for the preparation by the

Limited Partner of federal and state

income tax returns, and a report of the

investment activities of the Partnership

during that year.

6. In any case where purchases or

sales are made by a Partnership from or

to an entity affiliated with that

Partnership by reason of a 5% or more

investment in that entity by a Chase

Group director, officer or employee, that

individual will not participate in the

Partnership’s determination of whether

or not to effect the purchase or sale.

For the SEC, by the Division of Investment

Management, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14112 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–23199; File No. 812–10978]

U.S. Global Leaders Variable Insurance

Trust, et al.; Notice of Application

May 20, 1998.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

ACTION: Notice of Application for an

order pursuant to Section 6(c) of the

Investment Company Act of 1940

(‘‘1940 Act’’) granting exemptive relief

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.

Summary of Application: Applicants

seek an order to permit shares of any

current or future series of U.S. Global

Leaders Variable Insurance Trust (the

‘‘Fund’’) and shares of any other

investment company that is designed to

fund variable insurance products for

which Yeager, Wood & Marshall, Inc.

(the ‘‘Adviser’’) or any of its affiliates,

may now or in the future serve as

manager, investment adviser,

administrator, principal underwriter or

sponsor (the Fund and such other

investment companies, collectively,

‘‘Insurance Products Funds’’) to be sold

to and held by: (1) Separate accounts

funding variable annuity and variable

life insurance contracts issued by both

affiliated and unaffiliated life insurance

companies (‘‘Participating Insurance

Companies’’); (2) qualified pension and

retirement plans outside of the separate

account context (‘‘Qualified Plans’’ or

‘‘Plans’’); and (3) the Adviser or any of

its affiliates (representing seed money

investments in the Insurance Products

Funds).

Applicants: U.S. Global Leaders

Variable Insurance Trust and Yeager,

Wood & Marshall, Inc.

Filing Date: The application was filed

on January 23, 1998, and amended on

March 26, 1998.

Hearing or Notification of Hearing: An

order granting the application will be

issued unless the Commission orders a

hearing. Interested persons may request
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices 29265

a hearing on this application by writing

to the Secretary of the Commission 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 June 15,

1998, and must 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 requester’s

interest, the reason for the request and

the issues contested. Persons may

request notification of the date of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549.

Applicants, c/o Raymond A. O’Hara, III,

Esq., Blazzard, Grodd & Hasenauer, P.C.,

943 Post Road East, Westport,

Connecticut 06881.

FOR FURTHER INFORMATION CONTACT:

Laura A. Novack, Senior Attorney, or

Kevin M. Kirchoff, Branch Chief, Office

of Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee from the SEC’s Public

Reference Branch, 450 Fifth Street, NW.,

Washington, DC 20549 (tel. (202) 942–

8090).

Applicant’s Representations

1. The Fund is a Delaware business

trust registered under the 1940 Act as an

open-end management investment

company. The Fund, which was

organized in October 1997, currently

consists of one series.

2. The Adviser, a Delaware

corporation, is registered as an

investment adviser under the

Investment Advisers Act of 1940, and

serves as the Fund’s investment adviser.

3. Applicants desire that the

Insurance Products Funds have the

flexibility to offer their shares to

separate accounts of Participating

Insurance Companies that fund variable

annuity and variable life insurance

contracts (including single premium,

scheduled premium, modified single

premium and flexible premium

contracts) (collectively, ‘‘Variable

contracts’’). These separate accounts

either will be registered as investment

companies under the 1940 Act or will

be exempt from such registration.

4. The Participating Insurance

Companies will establish their own

separate accounts and design their own

Variable Contracts. Each Participating

Insurance company will have the legal

obligation of satisfying all requirements

under the federal securities laws. Each

Participating Insurance company will

enter into a fund participation

agreement with the Insurance Products

Fund in which the Participating

Insurance company invests.

5. Applicants state that shares of the

Insurance Products Funds also may be

offered directly to Qualified Plans

outside the separate account context.

The Plans may choose one or more of

the Insurance Products Funds as the

sole investment under the Plan or as one

of several investments. Plan participants

may or may not be given the right to

select among the Insurance Products

Funds, depending on the Plan. ‘‘Plan

participants’’ include not only those

participants of qualified pension or

retirement plans as set forth in Treasury

Regulation § 1.817–5(f)(3)(iii) and

Revenue Ruling 94–62, but also include

any other trust, account, contract or

annuity that is determined to be within

the scope of Treasury Regulations

§ 1.817–5(f)(3)(iii). Fund shares sold to

Plans will be held, where applicable, by

the trustees of such Plans as required by

Section 403(a) of the Employee

Retirement Income Security Act

(‘‘ERISA’’).

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) provides partial

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

15(a) and 15(b) of the 1940 Act. The

exemptions granted by Rule 6e–2(b) are

available only where the management

investment company offers its shares

exclusively to the variable life insurance

separate accounts of the life insurer or

any affiliated life insurance company.

2. The use of a common management

investment company as the underlying

investment medium for both variable

annuity and variable life insurance

separate accounts of a single insurance

company (or of two or more affiliated

insurance companies) is referred to as

‘‘mixed funding.’’ The use of a common

management company as the underlying

investment medium for variable annuity

and/or variable life insurance separate

accounts of unaffiliated insurance

companies is referred to as ‘‘shared

funding.’’ ‘‘Mixed and shared funding’’

denotes the use of a common

management investment company to

fund the variable annuity and variable

life insurance separate accounts of

affiliated and unaffiliated insurance

companies. The relief granted by Rule

6e–2(b)(15) is not available with respect

to a scheduled premium variable life

insurance separate account that owns

shares of an underlying fund that also

offers its shares to a variable annuity

separate account of the same company

or of any other affiliated or unaffiliated

life insurance company. Therefore, Rule

6e–2(b)(15) precludes mixed and shared

funding.

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. These exemptions are

available only where all of the assets of

the separate account consist of the

shares of one or more registered

management investment companies

which offer their shares exclusively to

separate accounts of the life insurer, or

of any affiliated life insurance company,

offering either scheduled premium

variable life insurance contracts or

flexible premium variable life insurance

contracts, or both; or which also offer

their shares to variable annuity separate

accounts of the life insurer or of an

affiliated life insurance company. Thus,

Rule 6e–3(T) permits mixed funding

with respect to a flexible-premium

variable life insurance separate account,

but precludes shared funding.

4. Applicants assert that the use of the

Insurance Products Funds as common

investment media for the Variable

Contracts would allow Participating

Insurance Companies to benefit not only

from the investment and administrative

expertise of the Adviser, but also from

the cost efficiencies and investment

flexibility afforded by a larger pool of

funds. Applicants also submit that

mixed and shared funding would

benefit Variable Contract owners by: (a)

Eliminating a significant portion of the

costs of establishing and administering

separate funds; (b) permitting a greater

amount of assets available for

investment by the Insurance Products

Funds, thereby promoting economies of

scale, permitting greater diversification,

and making the addition of new

portfolios more feasible; and (c)

encouraging more insurance companies

to offer Variable Contracts, resulting in

increased competition with respect to

both the design and pricing of Variable

Contracts, which can be expected to

result in greater product variation and

lower charges.

5. Applicants assert that the relief

granted by sub-paragraph (b)(15) of

Ruled 6e–2 and 6e–3(T) will not be

affected by the proposed sale of

Insurance Products Fund shares to

Plans. Applicants note, however, that

because the relief under sub-paragraph
29266 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

(b)(15) of Rules 6e–2 and 6e–3(T) is

available only where shares are offered

exclusively to separate accounts of life

insurance companies, additional

exemptive relief is necessary if shares of

the Insurance Products Funds also are to

be sold to Plans.

6. Applicants state that current tax

law permits the Insurance Products

Funds to increase their asset base

through the sale of fund shares to Plans.

Applicants state that Section 817(h) of

the Internal Revenue Code of 1986, as

amended (the ‘‘Code’’), imposes certain

diversification standards on the

underlying assets of variable annuity

contracts and variable life insurance

contracts held by the portfolios of the

Insurance Products Funds. The Code

provides that such contracts shall not be

treated as an annuity contract or life

insurance contract for any period (and

any subsequent period) during which

the investments are not adequately

diversified in accordance with

regulations prescribed by the Treasury

Department. The regulations provide

that, to meet the diversification

requirements, all of the beneficial

interests in an investment company

must be held by the segregated asset

accounts of one or more insurance

companies. Treas. Reg. § 1.817–5(1989).

The regulations do, however, contain

certain exceptions to this requirement,

one of which permits shares of an

investment company to be held by the

trustee of a qualified pension or

retirement plan without adversely

affecting the ability of shares in the

same investment company also to be

held by the separate accounts of

insurance companies in connection

with their variable annuity and variable

life contracts. Treas. Reg. § 1.817–

5(f)(3)(iii).

7. Applicants state that the

promulgation of Rules 6e–2 and 6e–3(T)

under the 1940 Act preceded the

issuance of these Treasury regulations,

and that the sale of shares of the same

investment company to both separate

accounts and Plans could not have been

envisioned at the time of the adoption

of Rules 6e–2(b)(15) and 6e–3(T)(b)(15).

8. Applicants therefore request an

Order of the Commission exempting

variable life insurance and variable

annuity separate accounts of

Participating Insurance Companies (and,

to the extent necessary, any investment

adviser, principal underwriter and

depositor of such an account) and

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

15(a) and 15(b) of the 1940 Act, and subparagraph (b)(15) of Rules 6e–2 and 6e–

3(T) thereunder, when shares of the

Insurance Products Funds are offered

and sold to, and held by, such separate

accounts in the mixed and shared

funding context, regardless of whether

shares of the Insurance Products Funds

also are offered and sold directly to

Plans.

9. Section 9(a) of the 1940 Act

provides that it is unlawful for any

company to serve as an 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 Section 9(a)(1) or (2).

10. Rules 6e–2 and 6e–3(T) provide

partial exemptions from Section 9(a)

under certain circumstances, subject to

the limitations on mixed and shared

funding. The relief provided by subparagraph (b)(15(i) of Rules 6e–2 and

6e–3(T) permits a person disqualified

under Section 9(a) to serve as an officer,

director, or employee of an insurance

company or any of its affiliates, so long

as that person does not participate

directly in the management or

administration of the underlying

investment company. The relief

provided by sub-paragraph (b)(15)(ii) of

Rules 6e–2 and 6e–3(T) permits the life

insurer to serve as the underlying fund’s

investment adviser or principal

underwriter, provided that none of the

insurer’s personnel who are ineligible

pursuant to Section 9(a) participate in

the management or administration of

the fund.

11. Applicants state that the partial

relief from Section 9(a) found in subparagraph (b)(15) of Rules 6e–2 and 6e–

3(T), 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 that Section. Applicants

state that those rules recognize that it is

not necessary to apply the provisions of

Section 9(a) to the many individuals

who may be involved in an insurance

company complex, but who have no

connection with the investment

company funding the separate accounts.

Applicants note that the Participating

Insurance Companies are not expected

to play any role in the management or

administration of the Insurance

Products Funds. Therefore, Applicants

assert that applying the restrictions of

Section 9(a) serves no regulatory

purpose. Applicants state that the relief

requested should not be affected by the

proposed sale of Insurance Products

Funds to Qualified Plans, because the

insulation of the Insurance Products

Funds from those individuals who are

disqualified under the 1940 Act remains

in place. Moreover, since the Plans are

not investment companies and will not

be deemed affiliated solely by virtue of

their shareholdings, no additional relief

is necessary.

12. Sections 13(a), 15(a) and 15(b) of

the 1940 Act require ‘‘pass-through’’

voting with respect to underlying

investment company shares held by a

separate account. Subparagraph

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

under the 1940 Act provides partial

exemptions from the pass-through

voting requirements in limited

circumstances.

13. For example subparagraph

(b)(15)(iii)(B) of Rules 6e–2 and 6e–3(T)

provide that the insurance company

may disregard the voting instructions of

its contract owners if the contract

owners initiate any change in the

investment company’s investment

policies, principal underwriter, or

investment adviser. Under the rules,

voting instructions with respect to a

change in investment policies may be

disregarded only if the insurance

company makes a good faith

determination that such changes would:

(a) Violate state law; (b) result in

investments that were not consistent

with the investment objectives of the

separate account; or (c) result in

investments that would vary from the

general quality and nature of

investments and investment techniques

used by other separate accounts of the

company or of an affiliated life

insurance company with similar

investment objectives.

14. Applicants state that Rule 6e–2

recognizes that variable life insurance

contracts have important elements

unique to insurance contracts and are

subject to extensive state regulation of

insurance. Applicants maintain,

therefore, that in adopting Rule 6e–2,

the Commission expressly recognized

that exemptions from pass-through

voting requirements were necessary to

assure the solvency of the life insurer

and the performance of its contractual

obligations by enabling an insurance

regulatory authority or the life insurer to

act when certain proposals reasonable

could be expected to increase the risks

undertaken by the life insurer. Flexible

premium variable life insurance

contracts and variable annuity contracts

are subject to substantially the same

state insurance regulatory authority, and

therefore, corresponding provisions of

Rule 6e–3(T) presumably were adopted

in recognition of the same

considerations the Commission applied

in adopting Rule 6e–2. Applicants

submit that these considerations are no

less important or necessary when an

insurance company funds its separate

accounts in connection with mixed and

shared funding, and that such funding

does not compromise the goals of the
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices 29267

insurance regulatory authorities or of

the Commission.

15. Applicants further state that the

sales of shares of the Insurance Products

Funds to Plans does not affect the relief

requested in this regard. As previously

noted, shares of the Insurance Products

Funds will be held, where applicable,

by the trustees of such Plans as required

by Section 403(a) of ERISA. Section

403(a) also provides that the trustees

must have exclusive authority and

discretion to manage and control the

Plan with two exceptions: (a) When the

Qualified Plan expressly provides that

the trustees are subject to the direction

of a name 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 Qualified Plan is

delegated to one or more investment

managers pursuant to Section 402(c)(3)

of ERISA.

16. Applicants submit that there is no

contractual or other relationship

between the Participant Insurance

Companies and any Plans which would

affect the solvency of the life insurer,

would affect the performance of the life

insurer’s contractual obligations, or

would be expected to increase the risks

undertaken by the life insurer.

Accordingly, Applicants submit that

where Plans provide participants with

the right to give voting instructions, the

purchase of shares by Plans does not

present any complications not otherwise

occasioned by mixed or shared funding.

17. Applicants state that no increased

conflicts of interest would be presented

by the granting of the requested relief.

Applicants assert that shared funding

does not present any issues that do not

already exist where a single insurance

company is licensed to do business in

several states. Applicants note that

where 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 which

the requirements of other insurance

regulators in one or more other states in

which other Participating Insurance

Companies are domiciled. Applicants

submit that this possibility is no

different or greater than exists where a

single insurer and its affiliates offer

their insurance products in several

states.

18. Applicants further submit that

affiliation does not reduce the potential

for differences in state regulatory

requirements. In any event, the

conditions (adapted from the conditions

included in Rule 6e–3(T)(b)(15))

discussed below are designed to

safeguard against any adverse effects

that these differences may produce. 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.

19. Applicants also argue that

affiliation does not eliminate the

potential, if any exists, for divergent

judgments as to when a Participating

Insurance Company could disregard

Variable Contract owner voting

instructions. Potential disagreement is

limited by the requirements that the

Participating Insurance Company’s

decision to disregard voting instructions

be both reasonable and based on

specified good faith determinations.

However, if a Participating Insurance

Company’s decision to disregard

Variable 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 Insurance Products

Fund. No charge or penalty will be

imposed upon the Variable Contract

owners as a result of such a withdrawal.

20. Applicants submit that there is no

reason why the investment policies of

an Insurance Products Fund with mixed

funding would, or should, be materially

different from what those policies

would, or should, be if such Insurance

Products Fund or series thereof funded

only variable annuity or variable life

insurance contracts. Moreover,

Applicants represent that the Insurance

Products Funds will not be managed to

favor or disfavor any particular insurer

or type of insurance product.

21. 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. 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 insurance

company separate accounts to share the

same underlying investment company.

Therefore, Applicants assert that neither

the Code, the Treasury regulations, nor

the Revenue Rulings thereunder,

present any inherent conflicts of interest

if the Qualified Plans, variable annuity

separate accounts, and variable life

insurance separate accounts all invest in

the same management investment

company.

22. Applicants note that while there

are differences in the manner in which

distributions are taxed for variable

annuity contracts, variable life

insurance contracts and Plans, these tax

consequences do not raise any conflicts

of interest. When distributions are to be

made, and the separate account or

Qualified Plan is unable to net purchase

payments to make the distributions, the

separate account or the Plan will

redeem shares of the Insurance Products

Funds at their respective net asset

values. The Qualified Plan will then

make distributions in accordance with

the terms of the Plan. The Participating

Insurance Company will make

distributions in accordance with the

terms of the Variable Contract.

23. Applicants state that they do not

see any greater potential for

irreconcilable material conflicts arising

between the interests of participants

under the Plans and owners of the

Variable Contracts issued by the

separate accounts of Participating

Insurance Companies from possible

future changes in the federal tax laws

than that which already exists between

variable annuity contract owners and

variable life insurance contract owners.

24. 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 Variable

Contract owners as opposed to a

participant under a Qualified Plan.

Regardless of the rights and benefits of

participants under the Qualified Plans,

or Variable Contract owners under their

Variable Contracts, the Plans and the

separate accounts have rights only with

respect to their respective shares of the

Insurance Products Funds. No

shareholder of any of the Insurance

Products Funds has any preference over

any other shareholder with respect to

distribution of assets or payments of

dividends.

25. Applicants state that there are no

conflicts between the Variable Contract

owners and the Plan participants with

respect to state insurance

commissioners’ veto powers over

investment objectives. The state

insurance commissioners have been

given the veto power to prevent, among

other things, insurance companies from

indiscriminately redeeming their

separate accounts out of one fund and

investing in another. To accomplish

such redemptions and transfers,
29268 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

complex and time consuming

transactions must be undertaken.

Conversely, trustees of Plans or the

participants in participant-directed

Plans can make the decision quickly

and implement redemption of shares

from an Insurance Products Fund and

reinvest the moneys in another funding

vehicle without the same regulatory

impediments, or, as is the case with

most Plans, even hold cash pending a

suitable alternative investment. Based

on the foregoing, Applicants represent

that even should the interests of

Variable Contract owners and the

interests Plan participants conflict the

conflicts can be resolved almost

immediately in that trustees of the Plans

can, independently, redeem shares out

of the Insurance Products Funds.

26. Applicants state that, regardless of

the types of Insurance Products Fund

shareholders, a fund’s adviser is legally

obligated to manage the fund in

accordance with the fund’s investment

objectives, policies and restrictions as

well as any guidelines established by

the fund’s board. Applicants assert that

the Adviser does so, and thus, would

manage the Insurance Products Funds

in the same manner as any other mutual

fund.

Applicants’ Conditions

Applicants have consented to the

following conditions:

1. A majority of each Insurance

Products Fund’s Board of Trustees or

Directors (each, a ‘‘Board’’) shall consist

of persons who are not ‘‘interested

persons’’ thereof, as defined by Section

2(a)(19) of the 1940 Act and the rules

thereunder and as modified by any

applicable orders of the Commission,

except that if this condition is not met

by reason of the death, disqualification,

or bona fide resignation of any Board

member, 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 Insurance Products Fund’s

Board will monitor the fund for the

existence of any material irreconcilable

conflict between and among the

interests of the Variable Contract owners

of all separate accounts and of Plan

participants and Qualified Plans

investing in the Insurance Products

Funds, 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 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 funds 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 Variable Contract

owners; or (g) if applicable, a decision

by a Qualified Plan to disregard the

voting instructions of Plan participants.

3. The Adviser (or any other

investment adviser of an Insurance

Products Fund), any Participating

Insurance Company and any Qualified

Plan that executes a fund participation

agreement upon becoming an owner of

10% of more of the assets of an

Insurance Products Fund (collectively,

‘‘Participants’’) will report any potential

or existing conflicts to the Board of any

relevant Insurance Products Fund.

Participants will be obligated to assist

the appropriate Board in carrying out its

responsibilities under these conditions

by providing the Board with all

information reasonably necessary for the

Board to consider any issues raised.

This responsibility includes, but is not

limited to, an obligation by each

Participating Insurance Company to

inform the Board whenever Variable

Contract owner voting instructions are

disregarded and, if pass-through voting

is applicable, an 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 Boards will be contractual

obligations of all Participating Insurance

Companies and Qualified Plans

investing in the Insurance Products

Funds under their respective

agreements governing participation in

the Insurance Products Funds, and such

agreements shall provide that these

responsibilities will be carried out with

a view only to the interests of Variable

Contract owners and, if applicable, Plan

participants.

4. If a majority of an Insurance

Products Fund’s Board members, or a

majority of the disinterested Board

members, determine that a material

irreconcilable conflict exists, the

relevant Participating Insurance

Companies and Qualified Plans, at their

expense and to the extent reasonably

practicable (as determined by a majority

of the disinterested Board members),

shall take whatever steps are necessary

to remedy or eliminate the material

irreconcilable conflict. Such steps could

include: (a) Withdrawing the assets

allocable to some or all of the separate

accounts from the Insurance Products

Fund or any of its series and reinvesting

such assets in a different investment

medium, which may include another

series of the Insurance Products Fund or

another Insurance Products Fund; (b) in

the case of Participating Insurance

Companies, submitting the question as

to whether such segregation should be

implemented to a vote of all affected

Variable Contract owners and, as

appropriate, segregating the assets of

any appropriate group (i.e., variable

annuity or variable life insurance

contract owners of one ore more

Participating Insurance Companies) that

votes in favor of such segregation, or

offering to the affected Variable 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 Variable Contract owner

voting instructions, and this 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 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 fund, and no

charge or penalty will be imposed as a

result of such withdrawal. The

responsibility to take remedial action in

the event of a Board determination of a

material irreconcilable conflict and to

bear the cost of such remedial action

shall be a contractual obligation of all

Participating Insurance Companies and

Qualified Plans under their agreements

governing participation in the Insurance

Products Funds and these

responsibilities shall be carried out with

a view only to the interests of the

Variable Contract owners and, as

applicable, Plan participants.
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices 29269

5. For purposes of Condition 4, a

majority of the disinterested members of

the applicable Board shall determine

whether or not any proposed action

adequately remedies any material

irreconcilable conflict, but in no event

will an Insurance Products Fund or the

Adviser (or any other investment

adviser of the Insurance Products

Funds) be required to establish a new

funding medium for any Variable

Contract. No Participating Insurance

Company shall be required by Condition

4 to establish a new funding medium for

any Variable Contract if a majority of

Variable Contract owners materially

affected by the material irreconcilable

conflict vote to decline such offer. No

qualified Plan shall be required by

Condition 4 to establish a new funding

medium for such Qualified Plan if: (a)

A majority of Plan participants

materially and adversely affected by the

material irreconcilable conflict vote to

decline such offer; or (b) pursuant to

governing plan documents and

applicable law, the Plan makes such

decision without Plan participant vote.

6. Participants will be informed

promptly in writing of a Board’s

determination of the existence of an

irreconcilable material conflict and its

implications.

7. Participating Insurance Companies

will provide pass-through voting

privileges to all Variable Contract

owners so long as the Commission

continues to interpret the 1940 Act as

requiring pass-through voting privileges

for Variable Contract Owners.

Accordingly, such Participating

Insurance Companies, where applicable,

will vote shares of the Insurance

Products Fund held in their separate

accounts in a manner consistent with

voting instructions timely received from

Variable Contract owners. In addition,

each Participating Insurance Company

will vote shares of the Insurance

Products Fund held in its separate

accounts for which it has not received

timely voting instructions from contract

owners, as well as shares it owns, in the

same proportion as those shares for

which it has received voting

instructions. Participating Insurance

Companies will be responsible for

assuring that each of their separate

accounts investing in an Insurance

Products Fund calculates voting

privileges in a manner consistent with

all other Participating Insurance

Companies. The obligation to vote an

Insurance Products Fund’s shares and

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 Plan will vote as

required by applicable law and

governing Plan documents.

8. As long as the Commission

continues to interpret the 1940 Act as

requiring pass-through voting privileges

for Variable Contract owners, the

Adviser (or any of its affiliates) will vote

its shares of any series of any Insurance

Products Fund in the same proportion

as all Variable Contract owners having

voting rights with respect to that series;

provided, however, that the Adviser (or

any of its affiliates) shall vote its shares

in such other manner as may be

required by the Commission or its staff.

9. All reports of potential or existing

conflicts received by a Board, and all

Board action with regard to: (a)

Determining the existence of a conflict;

(b) notifying Participants of a conflict;

and (c) determining whether any

proposed action adequately remedies a

conflict, will be properly recorded in

the minutes of the meetings of the

appropriate Board or other appropriate

records. Such minutes or other records

shall be made available to the

Commission upon request.

10. Each Insurance Products Fund

will notify all Participating Insurance

Companies that separate account

prospectus disclosure regarding

potential risk of mixed and shared

funding may be appropriate. Each

Insurance Products Fund shall disclose

in its prospectus that: (a) Its shares may

be offered to insurance company

separate accounts that fund both

variable annuity and variable life

insurance contracts, and to Qualified

Plans; (b) differences in tax treatment or

other considerations may cause the

interests of various Variable Contract

owners participating in the Insurance

Products Fund and the interests of

Qualified Plans investing in the

Insurance Products Fund to conflict; (c)

the Board will monitor the Insurance

Products Funds for any material

conflicts and determine what action, if

any, should be taken.

11. Each Insurance Products Funds

will comply with all provisions of the

1940 Act requiring voting by

shareholders (for these purposes, the

persons having a voting interest in the

shares of the Insurance Products Funds).

In particular, each such Insurance

Products Fund either will provide for

annual shareholder meetings (except

insofar as the Commission may interpret

Section 16 of the 1940 Act not to require

such meetings) or comply with Section

16(c) of the 1940 Act (although none of

the Insurance Products Funds shall be

one of the trusts described in Section

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

Section 16(a) of the 1940 Act and, if and

when applicable, Section 16(b) of the

1940 Act. Further, each Insurance

Products Fund will act in accordance

with the Commission’s interpretation of

the requirements of Section 16(a) with

respect to periodic elections of Board

members and with whatever rules the

Commission may promulgate with

respect thereto.

12. If and to the extent that Rule 6e–

2 or rule 6e–3(T) under the 1940 Act is

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 promulgated

thereunder, with respect to mixed or

shared funding, on terms and conditions

materially different from any

exemptions granted in the order

requested in the application, then the

Insurance Products Funds and/or the

Participants, as appropriate, shall take

such steps as may be necessary to

comply with Rule 6e–2 or Rule 6e–3(T),

as amended, or proposed rule 6e–3 as

adopted, to the extent such Rules are

applicable.

13. The Participants, at least annually,

shall submit to each Board such reports,

materials or data as each Board may

reasonably request so that such Boards

may fully carry out the obligations

imposed upon them by the conditions

stated in the application. Such reports,

materials and data shall be submitted

more frequently if deemed appropriate

by the Board. The obligations of the

Participants to provide these reports,

materials and data upon reasonable

request of a Board shall be contractual

obligation of all Participants under the

agreements governing their participation

in the Insurance Products Funs.

14. If a Qualified Plan or Plan

participant shareholder should become

an owner of 10% or more of the assets

of an Insurance Products Fund, such

Plan will execute a participation

agreement with such fund which

includes the conditions set forth herein

to the extent applicable. A Qualified

Plan or Plan participant will execute an

application containing an

acknowledgment of this condition upon

such Plan’s initial purchase of the

shares of any Insurance Products Fund.

Conclusion

For the reasons summarized above,

Applicants assert that the requested

exemptions are appropriate in the

public interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act.
29270 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

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

2 17 CFR 240.19b–4.

4The text of the proposed rule change contains

a list of the component securities including the

individual component security weights and average

daily trading value and market capitalization for

each security.

4Section 106(j) of the Amex Company Guide

provides that in order to list warrants on a stock

index industry group pursuant to Section

19(b)(3)(A) of the Act, the Exchange may file for

approval of a stock index industry group underlying

a proposed warrant pursuant to the procedures and

criteria set forth in Commentary .02 to Exchange

Rule 901C. (See also Securities Exchange Act

Release No. 34–37007 (March 21, 1996), 61 FR

14165 (March 29, 1996).

5See Securities Exchange Act Release No. 34157

(June 3, 1994), 59 FR 30062 (June 10, 1994).

Accordingly, the Exchange has represented that the

proposed rule will not become operative for 30 days

after the date of this filing. The Exchange also has

provided at least five business days notice to the

Commission of its intent to file this proposed rule

change.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14019 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40008; File No. SR–Amex–

98–17]

Self-Regulatory Organizations; Notice

of Filing of Immediate Effectiveness of

Proposed Rule Change by American

Stock Exchange, Inc. Relating to the

Listing and Trading of Warrants on the

PaineWebber Oil & Gas Producers

Index

May 19, 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 29,

1998, the American Stock Exchange,

Incorporated (‘‘Amex’’ or Exchange’’)

filed with the Securities and Exchange

Commission (‘‘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 The Proposed Rule Change

The Amex proposes to list and trade

warrants on the PaineWebber Oil & Gas

Producers Index (‘‘Index’’), a narrowbased index developed by PaineWebber

Incorporated currently comprised of

stocks of 22 companies in the oil and

gas industry. The text of the proposed

rule change is available at the Office of

the Secretary, Amex and at the

Commission.3

II. Self-Regulatory Organization’s

Statement of The Purpose of, and

Statutory Basis For, The Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and represented that no comments were

received on the proposed rule change.

The text of these statements may be

examined at the places specified in Item

IV below. The Amex has prepared

summaries, set forth in sections A, B

and C below, of the most significant

aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to permit the Amex to list and

trade warrants on the Index. The Amex

states that warrants on the Index are

designed to provide investors with an

investment vehicle to participate in or

hedge against volatility associated with

the ownership of stocks of companies in

the oil and gas industry and decrease

the risk involved in selecting individual

stocks in this industry. The Amex filed

this proposal pursuant to Section

19(b)(3)(A) of the Act, and Section 106 4

of the Amex Company Guide and Amex

Rule 901C, Commentary .02, which

together provide for the commencement

of the trading of warrants on the Index

thirty days after the date of this filing.

The proposal meets all the criteria set

forth in Section 106 of the Amex

Company Guide, Amex Rule 901C,

Commentary .02 and the Commission’s

order approving Exchange Rule 910C.5

Criteria Under Section 106 of the

Amex Company Guide. Warrant issues

on the Index will conform to the listing

guidelines under Section 106 of the

Amex Company Guide, which provide,

among other things, that (1) the issuer

shall have tangible net worth in excess

of $250,000,000 and otherwise

substantially exceed size and earnings

requirements in Section 101(A) of the

Company Guide or meet the alternate

guideline in paragraph (a); (2) the term

of the warrants shall be for a period

ranging from one to five years from date

of issuance; and (3) the minimum public

distribution of such issues shall be

1,000,000 warrants, together with a

minimum of 400 public holders, and

have an aggregate market value of

$4,000,000.

Criteria Under Exchange Rule 901C

For Index Components. Pursuant to

Commentary .02 to Exchange Rule 901C,

(1) each of the component securities has

a minimum market capitalization of at

least $75 million and has a trading

volume in each of the last six months of

not less than 1,000,0000 shares; (2) the

lesser of the five highest weighted

component securities in the Index or the

highest weighted component securities

in the index that in the aggregate

represent at least 30% of the total

number of component securities in the

index, each have an average monthly

trading volume of at least 2,000,000

shares over the previous six months; (3)

at least 90% of the Index’s numerical

index value and at least 80% of the total

number of component securities meet

the current criteria for standardized

option trading set forth in Exchange

Rule 915 (in fact, all of the component

securities in the Index currently

underlie standardized options); (4) the

Index contains no American Depositary

Receipts (‘‘ADRs’’); (5) all component

stocks are listed on the Amex, the New

York Stock Exchange (‘‘NYSE’’), or

traded through the facilities of the

National Association of Securities

Dealers Automated Quotation System

and are reported National Market

System securities (‘‘Nasdaq/NMS’’); and

(6) no component security represents

more than 25% of the weight of the

Index, and the five highest weighted

component securities in the Index do

not in the aggregate account for more

than 60% of the weight of the Index.

Index Design. The Index was designed

by PaineWebber and will be maintained

by the Amex. The Amex represents that

the Index is a narrow-based index

currently comprised of stocks of 22

companies from the oil and gas

industry. The total capitalization of the

component securities in the Index as of

April 21, 1998 was approximately $57

billion. The average capitalization on

that date was approximately $2.6

billion. The individual market

capitalization of the component

securities ranges from $324 million to

$9.9 billion. the components in the

Index had a six month average daily

trading volume of 7 million shares per

day and ranged from 1.6 million shares

per day to 13.2 million shares per day.

Index Calculation. The Index is

market capitalization-weighted such

that the Index value is calculated by

multiplying the primary exchange

regular way last sale price of each

component security by its number of

shares outstanding, adding the sums