32260 Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices

Custodians for the following reasons: (i)

the availability of superior or

specialized services through other

Custodians; (ii) dissatisfaction with the

quality of a Custodian’s services; (iii) fee

increases or the availability of

comparable services from other

Custodians at more competitive rates;

(iv) changes in a Custodian’s

management, location, financial

condition, or methods of operation; (v)

regulatory developments or actions

affecting the ability or qualification of a

Custodian to serve as such; or (vi) a

determination by a Custodian to cease

offering its services.

4. Applicant will only enter into an

Agreement approved by its board of

directors (‘‘Board’’), including a

majority of directors who are not

interested persons within the meaning

of Section 2(a)(19) of the Act

(‘‘Disinterested Directors’’). In addition,

the continuance of any Agreement

would be subject to annual review by

the Board, including a majority of the

Disinterested Directors, to determine

whether the quality of services provided

by the Custodian remains satisfactory

and the fees are reasonably competitive.

Applicant submits, for all the reasons

stated above, that its request is

consistent with the protection of

investors.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15706 Filed 6–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–23244; File No. 812–10866]

Allmerica Investment Trust, et al.;

Notice of Application

June 5, 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 (the

‘‘1940 Act’’).

SUMMARY OF APPLICATION: Applicants

seek an order pursuant to Section 6(c)

of the 1940 Act for exemptions from the

provisions of Sections 9(a), 13(a), 15(a)

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

2(b)(15) and 6e–3(T)(b)(15) thereunder,

to the extent necessary to permit shares

of any current or future series of the

Trust and shares of any other

investment company that is offered as a

funding medium for insurance products

and for which the Adviser, or any of its

affiliates, or their successors or assigns,

may now or in the future serve as

manager, investment adviser,

administrator, principal underwriter or

sponsor (the Trust and such other

investment companies referred to

collectively as the ‘‘Insurance Products

Funds’’) to be sold and held by variable

annuity and variable life insurance

separate accounts (‘‘Separate

Accounts’’) of both affiliated and

unaffiliated life insurance companies

(‘‘Participating Insurance Companies’’)

and qualified pension and retirement

plans outside of the separate account

context (‘‘Qualified Plans’’ or ‘‘Plans’’).

APPLICANTS: Allmerica Investment Trust

(the ‘‘Trust’’) and Allmerica Investment

Management Company, Inc. (the

‘‘Adviser’’).

FILING DATE: The application was

originally filed on November 13, 1997,

and an amended and restated

application was filed on March 9, 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 by writing to the Secretary of

the SEC and serving Applicants with a

copy of the request, in person or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

June 30, 1998, and should be

accompanied by proof of service on

Applicants, in the form of an affidavit

or, for lawyers, a certificate of service.

hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons who wish to be notified of a

hearing may request notification of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW, Washington, DC 20549.

Applicants, c/o George M. Boyd, Esq.,

440 Lincoln Street, Worcester, MA

01653.

FOR FURTHER INFORMATION CONTACT:

Michael B. Koffler, Attorney, or Mark

Amorosi, 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 SEC, 450 Fifth

St., NW, Washington, DC 20549 (tel.

(202) 942–8090).

Applicants’ Representations

1. The Trust, a Massachusetts

business trust established on October

11, 1984, is registered with the

Commission as an open-end diversified

management investment company. The

Trust currently consists of fourteen

separate series, or portfolios.

2. The Adviser is registered with the

Commission as an investment adviser

under the Investment Adviser Act of

1940 and serves as the investment

manager for each of the Trust’s

portfolios. The Adviser is an indirect

wholly-owned subsidiary of Allmerica

Financial Corporation, a publicly traded

Delaware holding company for a group

of affiliated companies, the largest of

which is First Allmerica Financial Life

Insurance Company.

3. Currently, shares of the Trust may

be purchased only by the separate

accounts established by First Allmerica

Financial Life Insurance Company

(‘‘First Allmerica’’) or Allmerica

Financial Life Insurance and Annuity

Company, an indirect wholly-owned

subsidiary of First Allmerica, for the

purpose of funding variable annuity and

variable life insurance policies.

4. The Insurance Products Funds will

offer shares to Separate Accounts of

Participating Insurance Companies in

support of variable annuity contracts

and variable life insurance policies

(including single premium, scheduled

premium, modified single premium and

flexible premium contracts)

(collectively, ‘‘Variable Contracts’’).

Persons who hold Variable Contracts are

referred to herein as ‘‘Contract Owners.’’

5. The Insurance Products Funds also

will offer shares directly to Qualified

Plans outside of the separate account

context. Fund shares sold to Plans

which are subject to the Employee

Retirement Income Security Act of 1974,

as amended (‘‘ERISA’’), would be held

by the truste(s) of the Plan, as mandated

by Section 403(a) ERISA. ‘‘Plan

Participants’’ or ‘‘Participants’’ include

participants in qualified pension or

retirement plans.

Applicants’ Legal Analysis

1. Section 6(c) of the 1940 Act

provides in part that the Commission,

by order upon application, may

conditionally or unconditionally

exempt any person, security, or

transaction, or any class or classes of

persons, securities, or transactions, from

any provision or provisions of the 1940

Act or of any rule or regulation

thereunder, if and to the extent that

such exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act.
Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices 32261

2. Applicants request that the

Commission issue an order pursuant to

Section 6(c) of the 1940 Act exempting

the Applicants and the Participating

Insurance Companies and their Separate

Accounts (and, to the extent necessary,

any investment adviser, principle

underwriter or depositor for such

accounts) from the provisions of

Sections 9(a), 13(a), 15(a) and 15(b)

thereof, and Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) thereunder, to the extent

necessary to permit shares of the

Insurance Products Funds to be offered

and sold to, and held by (1) variable

annuity and variable life insurance

separate accounts of the same life

insurance company or of any affiliated

life insurance company (‘‘mixed

funding’’); (2) separate accounts of

unaffiliated life insurance companies

(including both variable annuity and

variable life separate accounts) (‘‘shared

funding’’); and (3) qualified pension and

retirement plans outside the separate

account context.

3. 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 where all

of the assets of the separate account

consist of the shares of one or more

registered management investment

companies which offer their shares

exclusively to variable life insurance

separate accounts of the life insurer or

any affiliated life insurance company.

Therefore, the relief granted by Rule 6e–

2(b)(15) is not available with respect to

a scheduled premium variable life

insurance separate account that owns

shares of a management investment

company 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 an affiliated insurance

company. The relief granted by Rule 6e–

2(b)(15) also is not available if the

variable life insurance separate account

owns shares of an underlying

management investment company that

also offers its shares to variable annuity

or variable life insurance separate

accounts of unaffiliated life insurance

companies or to Plans.

4. 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.

Therefore, the exemptions provided by

Rule 6e–3(T)(b)(15) are available if the

underlying management investment

company is engaged in mixed funding,

but are not available if the investment

company is engaged in shared funding

or sells its shares to Plans.

5. Applicants state that the current tax

law permits Insurance Products Funds

to increase their asset base through the

sale of shares of Plans. Section 817(h) of

the Internal Revenue Code of 1986, as

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

diversification standards on the

underlying assets of Variable Contracts.

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. Treasury

regulations provide that, in order 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. The

regulations contain certain exceptions to

this requirement, however, 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 insurance contracts (Treas. Reg.

§ 1.817.–5(f)(3)(iii)).

6. Applicants state that the

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

preceded the issuance of these Treasury

regulations. Applicants assert that,

given the then current tax law, the sale

of shares of the same underlying fund to

separate accounts and to Plans could

not have been envisioned at the time of

the adoption of Rules 6e–2(b)(15) and

6e–3(T)(b)(15).

Disqualification

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

provides that it is unlawful for any

company to act as investment adviser to

or principal underwriter of 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).

Rule 6e–2(b)(15)(i) and (ii), and 6e–

3(T)(b)(15)(i) and (ii) provide partial

exemptions from Section 9(a) under

certain circumstances, subject to the

limitations on mixed and shared

funding. These exemptions limit the

application of the eligibility restrictions

to affiliated individuals or companies

that directly participate in the

management or administration of the

underlying investment company.

8. Applicants state that the partial

relief from Section 9(a) provided by

Rules 6e–2(b)(15) and 6e–3(T)(b)(15), in

effect, limits the amount of monitoring

necessary to ensure compliance with

Section 9 to that which is appropriate in

light of the policy and purposes of

Section 9. Applicants assert 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

many individuals in a large insurance

company complex, most of whom will

have no involvement in matters

pertaining to investment companies

managed, administered, or invested in

by that organization. Applicants state

that it also is unnecessary to apply

Section 9(a) to individuals in various

unaffiliated insurance companies (or

affiliated companies of Participating

Insurance Companies) that may utilize

an Insurance Products Fund as the

funding medium for Variable Contracts.

Applicants assert that there is no

regulatory purpose in extending the

monitoring requirements because of

mixed or shared funding or investment

by Plans. Those individuals who

participate in the management or

administration of an Insurance Products

Fund will remain the same regardless of

which separate accounts or insurance

companies use the Insurance Products

Fund. Furthermore, the increased

monitoring costs would reduce the net

rates of return realized by Contract

Owners and Plan Participants.

Pass-Through Voting

9. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) assume the existence of a

pass-through voting requirement with

respect to management investment

company shares held by a separate

account. Applicants state that passthrough voting privileges will be

provided with respect to all Contract

Owners so long as the Commission

interprets the 1940 Act to require pass-
32262 Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices

through voting privileges for Contract

Owners.

10. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) provide exemptions from

the pass-through voting requirement in

certain situations, assuming the

limitations on mixed and shared

funding imposed by the 1940 Act and

the rules thereunder are observed. Rules

6e–2(b)(15)(iii)(A) and 6e–

3(T)(b)(15)(iii)(A)(1) provide that an

insurance company may disregard the

voting instructions of its Contract

Owners with respect to the investments

of an underlying fund or any contract

between an investment company and its

investment adviser, when required to do

so by an insurance regulatory authority,

subject to certain conditions. In

addition, Rules 6e–2(b)(15)(iii)(B) and

6e–3(T)(b)(15)(A)(2) provide that an

insurance company may disregard

voting instructions of Contract Owners

in favor of any change in the investment

company’s investment policies,

principal underwriter or investment

adviser, subject to certain conditions.

11. Applicants assert that Rules 6e–2

and 6e–3(T) recognize that a variable

life insurance contract is an insurance

policy, and is subject to extensive state

regulation.

Applicants also assert that in adopting

Rule 6e–2(b)(15)(iii), the Commission

expressly recognized that state

insurance regulators have authority,

pursuant to state insurance laws or

regulations, to disapprove or require

changes in investment policies,

investment advisers or principal

underwriters of scheduled premium

variable life insurance contracts. The

Commission deemed such exemptions

necessary ‘‘to assume the solvency of

the life insurer and performance of its

contractual obligations by enabling an

insurance regulatory authority or the life

insurer to act when certain proposals

reasonably could be expected to

increase the risks undertaken by the life

insurer.’’ Applicants state that, in this

respect, the corresponding provisions of

Rule 6e–3(T) for flexible premium

variable life insurance contracts were

adopted in recognition of the same

factors.

12. Applicants represent that the offer

and sale of the Insurance Products

Funds to Qualified Plans will not have

any impact on the relief requested in

this regard. Where applicable, shares of

the Insurance Products Funds sold to

Qualified Plans will be held by the

trustees of such Plans as required by

Section 403(a) of the Employee

Retirement Income Security Act of 1974

(‘‘ERISA’’). Section 403(a) also provides

that the trustees of a Plan must have

exclusive authority and discretion to

manage and control the Plan with two

exceptions: (a) when the Plan expressly

provides that the trustees are subject to

the direction of a named fiduciary who

is not a trustee, in which case the

trustees are subject to proper directions

made in accordance with the terms of

the Plan and not contrary to ERISA; and

(b) when the authority to manage,

acquire or dispose of assets of the Plan

is delegated to one or more investment

managers pursuant to Section 402(c)(3)

of ERISA. Unless one of the two

exceptions stated in Section 403(a)

applies, the Plan trustees have exclusive

authority and responsibility for voting

proxies. Where a named fiduciary

appoints an investment manager, the

investment manager has the

responsibility to vote the shares held

unless the right to vote such shares is

reserved to the trustees or the named

fiduciary. 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.

Where a Plan does not provide Plan

Participants with the right to give voting

instructions, Applicants state that they

do not see any potential for

irreconcilable material conflicts of

interest between or among Contract

Owners and Plan Participants with

respect to voting of the respective

Insurance Products Fund’s shares.

Accordingly, Applicants note that,

unlike the case with insurance company

separate accounts, the issue of the

resolution of material irreconcilable

conflicts with respect to voting is not

present with respect to such Plans since

the Plans are not entitled to passthrough voting privileges.

13. Applicants state that some Plans

may provide for the trustee(s), an

investment adviser or another named

fiduciary to exercise voting rights in

accordance with instructions from Plan

Participants. Applicants note, however,

that there is no reason to believe that

participants in Plants generally, or those

in a particular Plan, either as a single

group or in combination with other

Plans, would vote in a manner that

would disadvantage Contract Owners.

Applicants submit, therefore, that the

purchase of shares by Plans that provide

voting rights to Participants does not

present any complications not otherwise

occasioned by mixed and shared

funding.

Conflicts of Interest

14. Applicants state that no increased

conflicts of interest would be presented

by the granting of the requested relief.

Applicants submit that shared funding

does not present any issues that do not

already exist where a single insurance

company is licensed to do business in

several states. In this regard, Applicants

note that when different Participating

Insurance Companies are domiciled in

different states, it is possible that the

state insurance regulatory body in a

state in which one Participating

Insurance Company is domiciled could

require action that is inconsistent with

the requirements of other insurance

regulators in one or more other states in

which other participating Insurance

Companies are domiciled. This

possibility, however, is no different or

greater than exists when a single insurer

and its affiliates offer their insurance

products in several states, as is currently

permitted. Applicants submit that

shared funding by unaffiliated insurers,

in this respect, is not different than the

use of the same investment ocmpany as

the funding vechile for affiliated

insurers, which Rules 6e–2(b)(15) and

6e–(T)(b)(15) permit.

15. Applicants state that affiliation

does not reduce the potential, if any

exists, for differences in state regulatory

requirements. In any event, the

conditions set forth in the application

and later in this notice (which are

adapted from the conditions included in

Rule 6e–3(T)(b)(15)) are designed to

safeguard against, and provide

procedures for resolving, any adverse

effects that differences among state

regulatory requirements may produce. If

a particular state insurance regulator’s

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. This

requirement will be provided for in

agreements that will be entered into by

Participating Insurance Companies with

respect to their participation in the

Insurance Products Funds.

16. Rules 6e–2(b)(15) and 6e–

(T)(b)(15) give the insurance company

the right to disregard the voting

instructions of the Contract Owners.

This right does not raise any issues

different from those raised by the

authority of state insurance

administrators over separate accounts.

Applicant’s also assert that affiliation

does not eliminate the potential, if any

exists, for divergent judgments as to

when a Participating Insurance

Company could disregard Contract

Owner voting instructions. The

potential for disagreement is limited by

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

3(T) that the insurance company’s

disregard of voting instructions be

reasonable and based on specified good

faith determinations.
Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices 32263

17. If the Participating Insurance

Company’s decision to disregard

Contract Owner voting instructions

represents a minority position or would

preclude a majority vote approving a

particular change, such Participating

Insurance Company may be required, at

the election of the relevant Insurance

Products Fund, to withdraw its separate

account’s investment in that Insurance

Products Fund and no charge or penalty

will be imposed upon the contract

Owners as a result of such withdrawal.

In addition, if a material irreconcilable

conflict involving Plans arises, the Plans

may simply redeem their shares and

make alternative investments.

18. Applicants submit that there is no

reason why the investment policies of

an Insurance Products Fund would or

should be materially different from what

annuity or variable life insurance

contracts. In this regard, Applicants

assert that the Insurance Products Funds

will not be managed to favor or disfavor

any particular Participating Insurance

Company or type of insurance product

or Plan. Each type of insurance product

is designed as a long-term investment

program. Similarly,the investment

objective of Plans, long-term

investment, coincides with that of the

Variable Contracts and should not

increase the potential for conflicts.

19. Applicants submit that no one

investment strategy can be identified as

appropriate to a particular insurance

product or Plan. Each pool of Contract

Owners is composed of individuals of

diverse financial status, age, and

insurance and investment goals. A fund

supporting even one type of insurance

product must accommodate these

diverse factors in order to attract and

retain purchasers.

20. Applicants submit that permitting

mixed and share funding will provide

economic support for the establishment

of the Insurance Products Funds. In

addition, permitting mixed and shared

funding will facilitate the establishment

of additional series of Insurance

Products Funds serving diverse goals,

since a broader base of Contract Owners

can be expected to provide economic

justification for the creation of

additional portfolios with greater variety

of investment objectives and policies.

21. Applicants state that 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)(iii)

specifically permits ‘‘qualified pension

or retirement plans’’ and insurance

company separate accounts to share the

same underlying investment company.

Therefore, Applicants assert that neither

the Code, nor the Treasury regulations,

nor the revenue rulings thereunder

recognize any inherent conflicts of

interest if Plans, variable annuity

separate accounts, and variable life

insurance separate accounts all invest in

the same management investment

company.

22. Applicants note that while there

are differences in the manner in which

distributions for variable annuity

contracts, variable life insurance

contracts and Plans are taxed, these

differences will have no impact on the

Insurance Products Funds and therefore

do not raise any conflicts of interest.

When distributions are to be made, and

a Separate Account or Plan cannot net

purchase payments to make the

distributions, the Separate Account or

Plan will redeem shares of the Insurance

Products Funds at their respective net

asset value to provide proceeds to meet

distribution needs. The Plan will then

make distributions in accordance with

the terms of the Plan, and the

Participating Insurance Company will

make distributions in accordance with

the terms of the Variable Contract.

Accordingly, Applicants assert that the

tax consequences of distributions from

Variable Contracts and Plans do not

raise any conflicts of interest with

respect to the use of the Insurance

Products Funds.

23. Applicants represent that the

Insurance Products Funs will inform

each shareholder, including each

Separate Account and Plan, of

information necessary for any meeting

of shareholders. Each Participating

Insurance Company will then solicit

voting instructions in accordance with

the ‘‘pass-through’’ voting requirement.

The voting rights provided to Qualified

Plans with respect to shares of the

Insurance Products Funds would be no

different from the voting rights that are

provided to Qualified Plans with respect

to shares of mutual funds sold to the

general public.

24. Applicants submit that the ability

of the Insurance Products Funds to sell

their shares directly to Plans does not

create a ‘‘senior security,’’ as such term

is defined under Section 18(g) of the

1940 Act, with respect to any Contract

Owner as opposed to a Plan Participant.

As noted above, regardless of the rights

and benefits of Participants under the

Plans, or Contract Owners under their

Variable Contracts, the Plans and

Separate Accounts have rights only with

respect to their respective shares of the

Insurance Products Funds. They can

redeem such shares only at their net

asset value. 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 assert that there are no

conflicts between Contract Owners and

Plan Participants with respect to 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.

The 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. While

time-consuming, complex transactions

must be undertaken to accomplish

redemptions and transfers by Separate

Accounts, trustees of Plans can quickly

redeem their shares from Insurance

Products Funds and reinvest in another

funding vehicle without the same

regulatory impediments or, as is the

case with most Plans, even hold cash

pending suitable alternative investment.

Applicants maintain that even if there

should arise issues where the interests

of Contract Owners and the interests of

Participants in Qualified Plans are in

conflict, the issues can be almost

immediately resolved because the

trustees of the Plans can, on their own,

redeem shares out of the Insurance

Products Funds.

26. Applicants submit that mixed and

shared funding should provide benefits

to Contract Owners by eliminating a

significant portion of the costs of

establishing and administering separate

funds. The Separate Accounts of

Participating Insurance Companies will

benefit not only from the investment

and administrative expertise available

through the Insurance Products Funds,

but also from the cost efficiencies and

investment flexibility afforded by a

larger pool of assets. Mixed and shared

funding also would permit a greater

amount of assets available for

investment, thereby promoting

economies of scale, permitting greater

diversification, and making the addition

of new series more feasible.

Additionally, making the Insurance

Products Funds available for mixed and

shared funding will 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
32264 Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices

in more product variation and lower

charges.

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’’) will consist

of persons who are not ‘‘interested

persons’’ thereof, as defined by Section

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

thereunder and as modified by any

applicable orders of the Commission,

except that if this condition is not met

by reason of the death, disqualification,

or bona fide resignation of the trustee(s)

or directors(s), then the operation of this

condition shall be suspended: (a) for a

period of 45 days, if the vacancy or

vacancies may be filled by the Board; (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 its respective fund

for the existence of any material

irreconcilable conflict between and

among the interests of Contract Owners

of all Separate Accounts and of Plan

Participants investing in the respective

Insurance Products Fund, 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, noaction or interpretive letter, or any

similar action by insurance, tax, or

securities regulatory authorities; (c) an

administrative or judicial decision in

any relevant proceeding; (d) the manner

in which the investments of the

Insurance Products Funds are being

managed; (e) a difference in voting

instructions given by variable annuity

contract owners, variable life insurance

contract owners and trustees of

Qualified Plans; (f) a decision by a

Participating Insurance Company to

disregard the voting instructions of

Contract Owners; or (g) if applicable, a

decision by a Participating Qualified

Plan (as defined below) 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 Plan that

executes a fund participation agreement

upon becoming an owner of 10% or

more of the assets of an Insurance

Products Fund (referred to herein as a

‘‘Participating Qualified Plan’’) will

report any potential or existing conflicts

to the Board. The Adviser, Participating

Insurance Companies, and Participating

Qualified Plans 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 Contract

Owner voting instructions are

disregarded and, if pass-through voting

is applicable, an obligation by each

Participating 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 Participating Qualified

Plans investing in the Insurance

Products Funds under their respective

agreements governing participation in

the Insurance Products Funds, and such

agreements will provide that these

responsibilities will be carried out with

a view only to the interests of Contract

Owners and Plan Participants, as

applicable.

4. If a majority of an Insurance

Products Fund’s Board members, or a

majority of its disinterested directors,

determine that a material irreconcilable

conflicts exists, the relevant

Participating Insurance Companies,

adviser and Participating Qualified

Plans, at their expense and to the extent

reasonably practicable (as determined

by a majority of the disinterested

directors of the fund), will 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

Contract Owners and, as appropriate,

segregating the assets of any appropriate

group (i.e., variable annuity or variable

life insurance contract owners of one or

more Participating Insurance

Companies) that votes in favor of such

segregation, or offering to the affected

Contract Owners the option of making

such a change; and (c) establishing a

new registered management investment

company or managed separate account.

If a material irreconcilable conflicts

arises because of a decision by a

Participating Insurance Company to

disregard 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, or any series thereof, and no

change or penalty will be imposed as a

result of such withdrawal. If a material

irreconcilable conflicts arises because of

a Participating 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

Participating Qualified Plan may be

required, at the election of the Insurance

Products Fund, to withdraw its

investment in such fund, or any series

thereof, and no charge or penalty will be

imposed as a result of such withdrawal.

To the extent permitted by applicable

law, 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

Participating Insurance Companies and

Participating Qualified Plans under

their agreements governing participation

in the Insurance Products Funds and

these responsibilities will be carried out

with a view only to the interests of the

Contract Owners and Plan Participants,

as applicable.

5. For purposes of Condition 4, a

majority of the disinterested members of

the applicable Board will determine

whether or not any proposed action

adequately remedies any material

irreconcilable conflict, but in no event

will an Insurance Products Fund or the

Adviser (or any other investment

adviser of an Insurance Products Fund)

be required to establish a new funding

medium for any Variable Contract. No

Participating Insurance Company will

be required by Condition 4 to establish

a new funding medium for any Variable

Contract if a majority of Contract

Owners materially and adversely

affected by the material irreconcilable

conflict vote to decline such offer. No

Participating Qualified Plan will be

required by Condition 4 to establish a

new funding medium for such plan if (a)

a majority of Plan Participants

materially and adversely affected by the

material irreconcilable conflict vote to
Federal Register / Vol. 63, No. 113 / Friday, June 12, 1998 / Notices 32265

decline such offer or (b) pursuant to

governing Plan documents and

applicable law, the Participating

Qualified Plan makes such decision

without Plan Participant vote.

6. A Board’s determination of the

existence of a material irreconcilable

conflict and its implications will be

made known promptly in writing to the

Adviser and to all Participating

Insurance Companies and all

Participating Qualified Plans.

7. Participating Insurance Companies

will provide pass-through voting

privileges to all Contract Owners so long

as the Commission continues to

interpret the 1940 Act as requiring passthrough voting privileges for Contract

Owners. Accordingly, Participating

Insurance Companies will vote shares of

Insurance Products Funds held in their

Separate Accounts in a manner

consistent with timely voting

instructions received from Contract

Owners. In addition, each Participating

Insurance Company will vote shares of

Insurance Products Fund held in its

Separate Accounts for which it has not

received timely voting instructions from

Contract Owners, as well as shares

which the Participating Insurance

Company itself 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 the Separate Accounts of all other

Participating Insurance Companies

investing in that fund. The obligation to

calculate voting privileges in a manner

consistent with all other Separate

Accounts investing in an Insurance

Products Fund will be a contractual

obligation of all Participating Insurance

Companies under their agreements

governing participation in the Insurance

Products Fund. Each Participating

Qualified Plan will vote as required by

applicable law and governing Plan

documents.

8. 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 the Adviser and

Participating Insurance Companies and

Participating Qualified Plans 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 will be made available to

the Commission upon request.

9. Each Insurance Products Fund will

notify all Participating Insurance

Companies that Separate Account

prospectus disclosure regarding

potential risks of mixed and shared

funding may be appropriate. Due to

differences in tax treatment and other

considerations, each Insurance Products

Fund will disclose in its prospectus

that: (a) its shares are intended to be a

funding vehicle for both variable

annuity and variable life insurance

contracts offered by various

Participating Insurance Companies and

for Qualified Plans; (b) material

irreconcilable conflicts may arise among

various Contract Owners and Plan

Participants investing in the Insurance

Products Fund; and (c) the Board will

monitor the Insurance Products Fund

for any material irreconcilable conflicts

and determine what action, if any,

should be taken in response to any such

conflict.

10. Each Insurance Products Fund

will comply with all provisions of the

1940 Act requiring voting by

shareholders (which, for these purposes,

will be the persons having a voting

interest in shares of the Insurance

Products Funds). In particular, each

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 the Insurance Products Funds

are not 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.

11. 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

Participating Insurance Companies, as

appropriate, will 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.

12. The Adviser, the Participating

Insurance Companies and Participating

Qualified Plans, at least annually, will

submit to each Board such reports,

materials or data as each Board may

reasonable request so that the Board

may fully carry out the obligations

imposed upon it by the conditions

stated in the application. Such reports,

materials and data will be submitted

more frequently if deemed appropriate

by the Board. The obligations of the

Participating Insurance Companies and

Participating Qualified Plans to provide

these reports, materials and data upon

reasonable request of a Board shall be a

contractural obligation of all

Participating Insurance Companies and

Participating Qualified Plans under

their agreements governing their

participation in the Insurance Products

Funds.

13. If a Plan or Plan Participant

should become an owner of 10% or

more of the assets of an Insurance

Products Fund, such Plan or Plan

Participant will execute a participation

agreement with such fund which

includes the conditions set forth herein

to the extent applicable. A Plan or Plan

Participant will execute an application

containing an acknowledgment of this

condition upon 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.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15707 Filed 6–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Issuer Delisting; Notice of Application

To Withdraw From Listing and

Registration; (GP Strategies

Corporation, Common Stock, $.01 Par

Value) File No. 1–7234

June 9, 1998.

GP Strategies Corporation

(‘‘Company’’) has filed an application

with the Securities and Exchange

Commission (‘‘Commission’’), pursuant

to Section 12(d) of the Securities

Exchange Act of 1934 (‘‘Act’’) and Rule

12d2–2(d) promulgated thereunder, to