27366 Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices

Applicant’s Conditions

If the requested order is granted,

applicants agree to the following

conditions:

1. The prospectus for each series and

any sales literature or advertising that

mentions the existence of the Exchange

Privilege or the Rollover Privilege will

disclose that the Exchange and the

Rollover Privilege are subject to

termination and that their terms are

subject to change.

2. Whenever the Exchange Privilege

or the Rollover Privilege is to be

terminated or its terms are to be

amended materially, any holder of a

security subject to that privilege will be

given prominent notice of the

impending termination or amendment

at least 60 days prior to the date of

termination or the effective date of the

amendment, provided that:

a. No such notice need be given if the

only material effect of an amendment is

to reduce or eliminate the sales charge

payable at the time of an exchange, to

add one or more new series eligible for

the Exchange Privilege or the Rollover

Privilege, or to delete a series which has

terminated; and

b. No notice need be given if, under

extraordinary circumstances, either

i. There is a suspension of the

redemption of units of an Exchange

Trust or a Rollover Trust under section

22(e) of the Act and the rules and

regulations thereunder, or

ii. An Exchange Trust or a Rollover

Trust temporarily delays or ceases the

sale of its units because it is unable to

invest amounts effectively in

accordance with applicable investment

objectives, policies and restrictions.

3. An investor who purchases units

under the Exchange or Rollover

Privilege will pay a lower aggregate

sales charge than that which would be

paid for the units by a new investor.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margatet H. McFarland,

Deputy Secretary.

[FR Doc. 95–12597 Filed 5–22–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21068; File No. 812–9438]

Smith Barney/Travelers Series Fund, et

al.

May 15, 1995.

AGENCY: Securities and Exchange

Commission (the ‘‘Commission’’ or the

‘‘SEC’’).

ACTION: Notice of Application for an

Order under the Investment Company

Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: Smith Barney/Travelers

Series Fund(‘‘SB/T Fund’’), Smith

Barney Series Fund (‘‘Series Fund’’),

and certain life insurance companies

and their separate accounts investing

now or in the future in the SB/T Fund

or the Series Fund.

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from the provisions

of Section 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 the extent necessary to

permit shares of the SB/T Fund, the

Series Fund and all future open-end

investment companies for which Smith

Barney Mutual Fund Management, Inc.,

or any affiliate thereof, serves as

investment adviser, manager, principal

underwriter, or sponsor and whose

shares are sold to separate accounts of

insurance companies and qualified

person and retirement plans the ‘‘Future

Funds’’) (the SB/T Fund, the Series

Fund and the Future Funds collectively

are referred to as the ‘‘Funds’’) to be

sold to and held by: (a) Variable annuity

and variable life insurance separate

accounts of both affiliated and

unaffiliated life insurance companies

(‘‘Participating Insurance Companies’’);

and (b) qualified pension and retirement

plans outside of the separate account

context (‘‘Qualified Plans’’).

FILING DATES: The application was filed

on January 18, 1995, and amended on

May 5, 1995.

HEARING AND 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 SEC’s

Secretary and serving Applicants with a

copy of the request, personally or by

mail. Hearing requests should be

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

June 9, 1995, 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 requester’s interest, the reason for

the request and the issues contested.

Persons may request notification of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

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

Applicants: Christina T. Sydor, Esquire,

Smith Barney, Inc., 388 Greenwich

Street, Twenty-Second Floor, New York,

New York 10013.

FOR FURTHER INFORMATION CONTACT:

Mark C. Amorosi, Attorney, or Wendy

Finck Friedlander, Deputy Chief, at

(202) 942–0670, Office of Insurance

Products, Division of Investment

Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the SEC’s Public Reference

Branch.

Applicants’ Representations

1. The SB/T Fund, a Maryland

corporation incorporated on February

22, 1994, is registered under the 1940

Act as an open-end, diversified

management investment company. The

SB/T Fund consists of eleven portfolios:

The Smith Barney Income and Growth

Portfolio, the Alliance Growth Portfolio,

the American Capital Enterprise

Portfolio, the Smith Barney

International Equity Portfolio, the Smith

Barney Pacific Basin Portfolio, the TBC

Managed Income Portfolio, the Putnam

Diversified Income Portfolio, the G.T.

Global Strategic Income Portfolio, the

Smith Barney High Income Portfolio,

the MFS Total Return Portfolio, and the

Smith Barney Money Market Portfolio.

Additional portfolios may be added in

the future.

2. The Series Fund, a Massachusetts

business trust organized on May 13,

1991, is registered under the 1940 Act

as an open-end, diversified management

investment company. The Series Fund

consists of ten separate portfolios

(together with the portfolios of the

SB/T Fund and Future Funds, the

‘‘Portfolios’’): the Money Market

Portfolio, the Intermediate High Grade

Portfolio, the Diversified Strategic

Income Portfolio, the Equity Income

Portfolio, the Equity Index Portfolio, the

Growth & Global Income Portfolio, the

Appreciation Portfolio, the Total Return

Portfolio, the Emerging Growth

Portfolio, and the International Equity

Portfolio. Additional portfolios may be

added in the future.

3. Smith Barney Mutual Funds

Management, Inc. (‘‘SBMFM’’) is the

investment adviser for the SB/T Fund,

and is a wholly-owned subsidiary of

Smith Barney Holdings, Incorporated.

Smith Barney Holdings, Inc. is a whollyowned subsidiary of Travelers Group,

which is a financial services holding

company engaged, through its

subsidiaries, principally in four

business segments: investment services,

consumer finance services, life

insurance services, and property and

casualty insurance services.

4. SBMFM also is the investment

adviser for all the Series Fund Portfolios

except the Equity Index Portfolio and

the Emerging Growth Fund Portfolio.

PanAgora Asset Management, Inc. is the

investment adviser for the Equity Index
Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices 27367

Portfolio, and is 50% owned by Nippon

Life Insurance Company and 50%

owned by Lehman Brothers, Inc., which

is a wholly-owned subsidiary of

Lehman Brothers Holdings, Inc.

American Capital Asset Management,

Inc., is the investment adviser for the

Emerging Growth Fund Portfolio and is

a wholly-owned subsidiary of American

Capital Management & Research, Inc.,

which is an indirect wholly-owned

subsidiary of VKM Holdings. SBMFM,

PanAgora Asset Management, Inc. and

American Capital Asset Management,

Inc. (collectively, the ‘‘Advisers’’) are

registered as investment advisers under

the Investment Advisers Act of 1940.

5. Shares of the SB/T Fund currently

are sold to a separate account (the

‘‘Travelers Separate Account’’) of The

Travelers Insurance Company (‘‘The

Travelers’’) which funds benefits under

variable contracts issued through that

separate account. Shares of the Series

Fund currently are sold to the Travelers

Separate Account and to separate

accounts of the IDS Life Insurance

Company and the IDS Life Insurance

Company of New York which fund

benefits under variable contracts issued

by those companies.

6. Applicants state that, upon the

granting of the order requested in this

application, the Funds intend to offer

shares of their existing Portfolios and

future investment portfolios to separate

accounts of Participating Insurance

Companies (the ‘‘Separate Accounts’’) to

serve as the investment vehicle for

various types of insurance products,

which may include variable annuity

contracts, single premium variable life

insurance contracts, scheduled

premium variable life insurance

contracts and flexible premium variable

life insurance contracts.

Applicant’s 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 Section 9(a), 13(a),

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

relief provides by Rule 6e–2 is also

available to a separate account’s

investment adviser, principal

underwriter, and sponsor or depositor.

The exemptions granted by Rule 6e–

2(b)(15) are available only where the

management investment company

underlying the unit investment trust

(‘‘underlying fund’’) offers its shares

‘‘exclusively to variable life insurance

separate accounts of the life insurer, or

of 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 an underlying fund that

also offers its shares to a variable

annuity or a flexible premium variable

life insurance separate account of the

same company or of any other life

insurance company. The use of a

common management investment

company as the underlying investment

medium for both variable annuity and

variable life insurance separate accounts

of the same life insurance company or

of any affiliate life insurance company

is referred to herein as ‘‘mixed

funding.’’

2. In addition, 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 separate

accounts funding variable contracts of

one or more unaffiliated life insurance

companies. The use of a common

management investment company as the

underlying investment medium for

variable life insurance separate accounts

of one insurance company and separate

accounts funding variable contracts of

one or more unaffiliated life insurance

companies is referred to herein as

‘‘shared funding.’’

3. Applicants state that the relief

granted by Rule 6e–2(b)(15) is not

affected by the purchase of shares of a

Fund by the Qualified Plans. Applicants

note, however, that because the relief

under Rule 6e–2(b)(15) is available only

where shares are offered exclusively to

separate accounts, additional exemptive

relief is necessary if shares of the Funds

also are to be sold to Qualified Plans.

4. In connection with the funding of

flexible premium variable life insurance

contracts issued through a unit

investment trust, Rule 6e–3(T)(b)(15)

provides partial exemptions from

Sections 9(a), 15(a), and 15(b) of the

1940 Act. The relief provided by Rule

6e–3(T) also is available to a separate

account’s investment adviser, principal

underwriter, and sponsor or depositor.

The exemptions granted by Rule 6e–3(T)

are available only where the unit

investment trust’s underlying fund

offers its shares ‘‘exclusively to separate

accounts of the life insurer or of any

affiliated life insurance company,

offering either scheduled contracts or

flexible contracts, or both; or which also

offer their shares to variable annuity

separate accounts of the life insurer or

of an affiliated life insurance

company * * * ’’ Therefore, Rule 6e–

3(T) permits mixed funding with respect

to a flexible premium variable life

insurance separate account subject to

certain conditions. However, Rule 6e–

3(T) does not permit shared funding

because the relief granted by Rule 6e–

3(T)(b)(15) is not available with respect

to a flexible premium variable life

insurance separate account that owns

shares of a management company that

also offers its shares to separate

accounts (including variable annuity

and flexible premium and scheduled

premium variable life insurance

separate accounts) of unaffiliated life

insurance companies.

5. Applicants state that the relief

granted by Rule 6e–3(T) is not affected

by the purchase of shares of the Funds

by the Qualified Plans. Applicants note,

however, that because the relief under

Rule 6e–3(T) is available only where

shares are offered exclusively to

separate accounts, additional exemptive

relief is necessary if shares of the Funds

are also to be sold to Qualified Plans.

6. Applicants state that changes in the

tax law have created the opportunity for

each Fund to increase its asset base

through the sale of shares of the Fund

to Qualified Plans. Applicants state the

Section 817(h) of the Internal Revenue

Code of 1986, as amended (the ‘‘Code’’),

imposes certain diversification

standards on the underlying assets of

the contracts held in the Funds. The

Code provides that such contracts shall

not be treated as annuity contracts or

life insurance contracts for any period

in which the investments are not, in

accordance with regulations prescribed

by the Department of the Treasury,

adequately diversified. On March 2,

1989, the Department of the Treasury

issued regulations which established

diversification requirements for the

investment portfolios underlying

variable contracts. Treas. Reg. § 1.817–5

(1989). The regulations provide that, to

meet the diversification requirements,

all of the beneficial interests in the

investment company must be held by

the segregated asset accounts of one or

more insurance companies. The

regulations do, however, contain certain

exceptions to this requirement, one of

which allows shares in 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 contracts. Treas. Reg.

§ 1.817–5(f)(3)(iii).

7. Applicants state that the

promulgation of Rules 6e–2 and Rule

6e–3(T) under the 1940 Act preceded

the insurance of these Treasury

regulations. Applicants assert that,

given the then current tax law, the sale

of shares of the same investment
27368 Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices

company to both separate accounts and

qualified pension and retirement 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 that

the Commission, under its authority in

Section 6(c) of the 1940 Act, grant 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 for

themselves and for variable life

insurance separate accounts of the

Participating Insurance Companies, and

the principal underwriters and

depositors of such separate accounts, to

the extent necessary to permit mixed

funding and shared funding.

9. Section 9(a) of the 1940 Act makes

it 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 any

disqualification specified in Sections

9(a)(1) or 9(a)(2), Rule 6e–2(b)(15)(i) and

(ii) and Rule 6e–3(T)(b)(15)(i) and (ii)

provide exemptions from Section 9(a)

under certain circumstances, subject to

limitations on mixed and shared

funding. The relief provided by Rules

6e–2(b)(15)(i) and 6e–3(T)(b)(15)(i)

permits a person disqualified under

Section 9(a) to serve as an officer,

director, or employee of the life insurer,

or any of its affiliates, so long as that

person does not participate directly in

the management or administration of

the underlying fund. The relief provided

by Rules 6e–2(b)(15)(ii) and 6e–

3(T)(b)(15)(ii) 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.

10. Applicants state that the partial

relief granted in Rules 6e–2(b)(15) and

6e–3(T)(b)(15) from the requirements of

Section 9(a), in effect, limits the

monitoring of an insurer’s personnel

that would otherwise be necessary to

ensure compliance with Section 9 to

that which is appropriate in light of the

policy and purposes of Section 9.

Applicants state that Rules 6e–2 and 6e–

3(T) recognize that it is not necessary for

the protection of investors or for the

purposes of the 1940 Act to apply the

provisions of Section 9(a) to the many

individuals in an insurance company

complex, most of whom typically will

have no involvement in matters

pertaining to an investment company in

that organization. Applicants submit

that there is no regulatory reason to

apply the provisions of Section 9(a) to

the many individuals in various

unaffiliated insurance companies (or

affiliated companies of Participating

Insurance Companies) that may utilize

the Funds as the funding medium for

variable contracts. The application

states that the relief requested will not

be affected by the proposed sale of

shares of the Funds to Qualified Plans.

The insulation of the Funds from

individuals disqualified under the 1940

Act remains in place. Applicants assert

that, since the Qualified Plans are not

investment companies and will not be

deemed affiliated by virtue of their

shareholdings, no additional relief is

necessary.

11. Rules 6e–2(b)(15)(iii) and 6e–

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

assume the existence of a pass-through

voting requirement with respect to

management investment company

shares held by a separate account. The

application states that the Participating

Insurance Companies will provide passthrough voting privileges to all contract

owners so long as the Commission

interprets the 1940 Act to require such

privileges.

12. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) provide partial

exemptions from Sections 13(a), 15(a),

and 15(b) of the 1940 Act to the extent

that those sections have been deemed by

the Commission to require ‘‘passthrough’’ voting with respect to

management investment company

shares held by a separate account, to

permit the insurance company to

disregard the voting instructions of its

contract owners in certain limited

circumstances.

Rules 6e–2(b)(15)(iii)(A) and 6e–

3(T)(b)(15)(iii) (A) provide that the

insurance company may disregard

voting instructions of its contract

owners in connection with the voting of

shares of an underlying fund if such

instructions would require such shares

to be voted to cause such companies to

make, or refrain from making, certain

investments which would result in

changes in the subclassification or

investment objectives of such

companies, or to approve or disapprove

any contract between a Fund and its

investment adviser, when required to do

so by an insurance regulatory authority,

subject to the provisions of paragraphs

(b)(5)(i) and (b)(7)(ii)(A) of each Rule.

Rules 6e–2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(B) provide that the

insurance company may disregard

contract owners’ voting instructions if

the contract owners initiate any change

in such company’s investment policies

or any principal underwriter or

investment adviser, provided that

disregarding such voting instructions is

reasonable and subject to the other

provisions of paragraphs (b)(5)(ii) and

(b)(7)(ii) (B) and (C) of each Rule.

13. Applicants further represent that

the sale of shares by a Fund to the

Qualified Plans does not impact relief

requested in this regard. Shares of the

Funds sold to Qualified Plans would be

held by the trustees of the Qualified

Plans as required by Section 403(a) of

ERISA. Section 403(a) also provides that

the trustee(s) must have exclusive

authority and discretion to manage and

control the Qualified Plan with two

exceptions: (a) When the Qualified Plan

expressly provides that the trustee(s) is

(are) subject to the direction of a named

fiduciary who is not a trustee, in which

case the trustee(s) is (are) subject to

proper directions made in accordance

with the terms of the Qualified 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. Unless one of the two

exceptions stated in Section 403(a)

applies, Qualified Plan trustees have the

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 to the named

fiduciary. In any event, there is no passthrough voting to the participants in

Qualified Plans. Accordingly,

Applicants note that, unlike the case

with insurance company separate

accounts, the issue of the resolution of

material irreconcilable conflicts with

respect to voting is not present with

respect to Qualified Plans because they

are not entitled to pass-through voting

privileges.

14. Applicants state that no increase

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 or all states. Applicants note that

where Participating Insurance

Companies are domiciled in different

states, it is possible that the state

insurance regulatory body in a state in

which one Participating Insurance

Company is domiciled could require

action that is inconsistent with the

requirements of insurance regulators in

one or more other states in which other

Participating Insurance Companies are

domiciled. Applicants state that the

possibility, however, is no different and

no greater than exists where a single
Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices 27369

insurer and its affiliates offer their

insurance products in several states.

15. Applicants argue that affiliation

does not reduce the potential, if any

exists, 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 different 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 Fund.

16. Applicants also argue that

affiliation does not eliminate the

potential, if any exists, for divergent

judgments as to when a Participating

Insurance Company properly may

disregard voting instructions of contract

owners. Potential disagreement is

limited by the requirement that the

Participating Insurance Company’s

disregard of voting instructions be both

reasonable and based on specified good

faith determinations. However, if a

Participating Insurance Company’s

decision to disregard contract owner

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 Fund, to withdraw its

investment in that Fund. No charge or

penalty will be imposed as a result of

such withdrawal.

17. Applicants state that there is no

reason why the investment policies of a

Fund with mixed funding would or

should be materially different from what

those policies would or should be if

such investment company of series

thereof funded only variable annuity or

only variable life insurance contracts.

Applicants therefore argue that there is

no reason to believe that conflicts of

interest would result from mixed

funding. Moreover, Applicants

represent that the Portfolios will be

managed to attempt to achieve the

investment objective(s) of such Portfolio

and not to favor or disfavor any

particular insurer or type of variable

contract.

18. Applicants note that no single

investment strategy can be identified as

appropriate to a particular insurance

product. Each pool of variable annuity

and variable life insurance contract

owners is composed of individuals of

diverse financial status, age, insurance

and investment goals. An investment

company supporting even one type of

insurance product must accommodate

those diverse factors in order to attract

and retain purchasers.

19. Applicants further note that

Section 817 of the Code is the only

section in the Code where separate

accounts are discussed. Section 817(h)

imposes certain diversification

standards on the underlying assets of

variable annuity contracts and variable

life contracts held in the portfolios of

management investment companies.

Treasury Regulation 1.817–5(f)(3)(iii),

which established diversification

requirements for such portfolios,

specifically permits, among other

things, ‘‘qualified pension or retirement

plans’’ and separate accounts to share

the same underlying management

investment company. Therefore, neither

the Code, the Treasury regulations nor

the revenue rulings thereunder present

any inherent conflicts of interest if

Qualified Plans, variable annuity

separate accounts and variable life

insurance separate accounts all invest in

the same management investment

company.

20. While there are differences in the

manner in which distributions are taxed

for variable annuity contracts, variable

life insurance conflicts and Qualified

Plans. Applicants state that the tax

consequences do not raise any conflicts

of interests with respect to the use of the

Funds. When distributions are to be

made, and the separate account or the

Qualified Plan is unable to net purchase

payments to make the distributions, the

separate account or the Qualified Plan

will redeem shares of the affected Fund

at their net asset value. The Qualified

Plan will then make distributions in

accordance with the terms of the

Qualified Plan. The life insurance

company will surrender values from the

separate account into the general

account to make distributions in

accordance with the terms of the

variable contract.

21. With respect to voting rights,

Applicants state that it is possible to

provide an equitable means of giving

such voting rights to contract owners

and to Qualified Plans. Applicants

represent that the transfer agent for each

Fund will inform each Participating

Insurance Company of its share

ownership in each Separate Account, as

well as inform the trustees of the

Qualified Plans of their holdings. Each

Participating Insurance Company will

then solicit voting instructions in

accordance with Rules 6e–2 and 6e–

3(T).

22. Applicants argue that the ability of

Funds to sell their shares directly to

Qualified Plans does not create a

‘‘senior security’’, as such term is

defined under Section 18(g) of the 1940

Act, with respect to any variable

annuity or variable life contract owner

as opposed to a participant under a

Qualified Plan. Regardless of the rights

and benefits of participants and contract

owners under the respective Qualified

Plans and contracts, the Qualified Plans

and the separate accounts have rights

only with respect to their respective

shares of the Funds. Such shares may be

redeemed only at net asset value. No

shareholder of any Fund has any

preference over any other shareholder of

that Fund with respect to distribution of

assets or payment of dividends.

23. Finally, Applicants assert that

there are no conflicts between contract

owners and participants under the

Qualified Plans with respect to the state

insurance commissioners’ veto powers

(direct with respect to variable life

insurance and indirect with respect to

variable annuities) over investment

objectives. The basic premise of

shareholder voting is that not all

shareholders may agree with a

particular proposal. The state insurance

commissioners have been given the veto

power in recognition of the fact that

insurance companies cannot simply

redeem their separate accounts out of

one fund and invest those monies in

another fund. To accomplish such

redemptions and transfers, complex,

time consuming transactions must be

undertaken. Conversely, trustees of

Qualified Plans can make the decision

quickly and implement redemption of

shares from a Fund and reinvest the

monies in another funding vehicle

without the same regulatory

impediments or, as is the case with most

Qualified Plans, hold cash pending

suitable investment. Based on the

foregoing, Applicants represent that

even should there arise issues where the

interests of contract owners and the

interests of Qualified Plans conflict, the

issues can be resolved almost

immediately because trustees of the

Qualified Plans can, independently,

redeem shares out of the Funds.

24. Applicants state that various

factors have kept certain insurance

companies from offering variable

annuity and variable life insurance

contracts. These factors include the cost

of organizing and operating an

investment funding medium, the lack of

expertise with respect to investment

management and the lack of public

name recognition of certain insurers as

investment professionals. Applicants

argue that use of the Funds as common

investment media for the contracts

would ameliorate these concerns.

Applicants submit that mixed funding

and shared funding should benefit

variable contract owners by: (a)
27370 Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices

Eliminating a significant portion of the

costs of establishing and administering

separate funds; (b) allowing for a greater

amount of assets available for

investment by the Funds, thereby

promoting economies of scale,

permitting greater safety through greater

diversification, and/or 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 variable contract design

and pricing, which can be expected to

result in more product variation and

lower charges. Each Fund will be

managed to attempt to achieve its

investment objectives and not to favor

or disfavor any particular Participating

Insurance Company or type of insurance

product.

25. Applicants assert that there is no

significant legal impediment to

permitting mixed and shared funding.

Applicants state that separate accounts

organized as unit investment trusts have

historically been employed to

accumulate shares of mutual funds

which have not been affiliated with the

depositor or sponsor of the separate

account. Applicants also assert that

mixed and shared funding will have no

adverse federal income tax

consequences.

Applicants’ Conditions

The Applicants have consented to the

following conditions:

1. A majority of the Board of Directors

or Board of Trustees (as appropriate)

(the ‘‘Board’’) of each Fund shall consist

of persons who are not ‘‘interested

persons,’’ as defined by Section 2(a)(19)

of the 1940 Act and Rules thereunder

and as modified by any applicable

orders of the Commission, except that,

if this condition is not met by reason of

death, disqualification, or bona fide

resignation of any director or directors,

then the operation of this condition

shall be suspended: (i) For a period of

45 days, if the vacancy or vacancies may

be filled by the Board; (ii) for a period

of 60 days, if a vote of shareholders is

required to fill the vacancy or vacancies;

or (iii) for such longer period as the

Commission may prescribe by order

upon application.

2. The Board of each fund will

monitor its Fund for the existence of

any material irreconcilable conflict

between and among the interests of the

contract owners of all Separate

Accounts investing in the Fund. A

material irreconcilable conflict may

arise for a variety of reasons, including:

(a) State insurance regulatory authority

action; (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 any series are being

managed; (e) a difference in voting

instructions given by variable annuity

and variable life insurance contract

owners; or (f) a decision by a

Participating Insurance Company to

disregard contract owner voting

instructions.

3. Participating Insurance Companies,

the Advisers and any Qualified Plan

that executes a fund participation

agreement upon becoming an owner of

10% or more of the assets of a Fund (the

‘‘Participants’’) will report any potential

or existing conflicts, of which they

become aware, to the Board.

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 contract

owner voting instructions are

disregarded. These responsibilities will

be contractual obligations of all

Participating Insurance Companies and

Qualified Plans investing in a Fund

under their agreements governing

participation therein, and such

agreements shall provide that such

responsibilities will be carried out with

a view only to the interests of the

contract owners.

4. If a majority of the Board, or a

majority of the disinterested members of

the Board, determine that a material

irreconcilable conflict exists the

relevant Participating Insurance

Companies and Qualified Plans shall, at

their expense and to the extent

reasonably practicable (as determined

by a majority of disinterested members

of the Board), take whatever steps are

necessary to remedy or eliminate the

irreconcilable material conflict, up to

and including: (a) Withdrawing the

assets allocable to some or all of the

Separate Accounts from the Fund or any

series therein and reinvesting such

assets in a different investment medium

(including another series of the Fund),

or submitting the question whether such

segregation should be implemented to a

vote of all affected contract owners and,

as appropriate, segregating the assets of

any appropriate group (i.e., annuity

contract owners, life insurance contract

owners, or variable contract owners of

one or more Participating Insurance

Company) that votes in favor of such

segregation, or offering to the affected

contract owners the option of making

such a change; (b) withdrawing the

assets allocable to some or all of the

Qualified Plans from the affected Fund

or any Portfolio of the Fund and

reinvesting such assets in a different

investment medium, including another

Portfolio of the Fund; and (c)

establishing a new registered

management investment company or

managed separate account. If a material

irreconcilable conflict arises because of

a Participating Insurance Company’s

decision to disregard contract owner

voting instructions, and that decision

represents a minority position or would

preclude a majority vote, the

Participating Insurance Company may

be required, at the election of the Fund,

to withdraw its Separate Account’s

investment therein, 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 an irreconcilable

material 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 Fund and

these responsibilities will be carried out

with a view only to the interests of the

contract owners and participants in the

Qualified Plans.

For the purposes of condition (4), a

majority of disinterested members of the

Board shall determine whether or not

any proposed action adequately

remedies any irreconcilable material

conflict, but in no event will the Fund

or the Advisers be required to establish

a new funding medium for any variable

contract. No Participating Insurance

Company shall be required by this

condition (4) to establish a new funding

medium for any variable contract if an

offer to do so has been declined by a

vote of a majority of contract owners

materially affected by the irreconcilable

material conflict.

5. The determination by the Board of

the existence of an irreconcilable

material conflict and its implications

shall be made known promptly in

writing to all Participating Insurance

Companies and Qualified Plans.

6. 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 to require passthrough voting privileges for variable

contract owners. Accordingly, each

Participating Insurance Company,

where applicable, will vote shares of the
Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices 27371

Fund held in its Separate Accounts in

a manner consistent with timely voting

instructions received from contract

owners. Each Participating Insurance

Company also will vote shares of each

Fund held in its Separate Accounts for

which no timely voting instructions

from contract owners are received, as

well as shares it owns, in the same

proportion as those shares for which

voting instructions are received. Each

Participating Insurance Company shall

be responsible for assuring that each of

their Separate Accounts participating in

the Fund calculates voting privileges in

a manner consistent with all other

Participants. The obligation to calculate

voting privileges in a manner consistent

with all other Separate Accounts

investing in the Fund shall be a

contractual obligation of all

Participating Insurance Companies

under their agreements governing

participation in the Fund.

7. Each Fund will notify all

Participants that prospectus disclosure

regarding potential risks of mixed and

shared funding may be appropriate.

Each Fund shall disclose in its

prospectus that: (a) Its shares are offered

to qualified pension and retirement

plans and to separate accounts which

fund both annuity and life insurance

contracts of both affiliated and

unaffiliated Participating Insurance

Companies; (b) material irreconcilable

conflicts may arise from mixed and

shared funding; and (c) the Board will

monitor the Fund for any material

conflicts and determine what action, if

any, should be taken.

8. All reports received by the Board

regarding potential or existing conflicts,

and all Board action with respect to

determining the existence of a conflict,

notifying Participants of a conflict, and

determining whether any proposed

action adequately remedies a conflict,

will be properly recorded in the minutes

of the Board or other appropriate

records, and such minutes or other

records shall be made available to the

Commission upon request.

9. If and to the extent Rule 6e–2 and

Rule 6e–3(T) are amended, or Rule 6e–

3 is adopted, to provide exemptive relief

from any provision of the 1940 Act or

the rules thereunder with respect to

mixed and shared funding on terms and

conditions materially different from any

exemptions granted in the order

requested, then the Funds and/or the

Participants, as appropriate, shall take

such steps as may be necessary to

comply with Rule 6e–2 and Rule 6e–

3(T), as amended, the Rule 6e–3, as

adopted, to the extent such rules are

applicable.

10. Each Fund will comply with all

provisions of the 1940 Act requiring

voting by shareholders (which, for these

purposes, shall be the persons having a

voting interest in the shares of the

Fund), and in particular each Fund will

either provide for annual 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) (although the Funds

are not within the trusts described in

this section) as well as with Sections

16(a) and, if and when applicable,

Section 16(b). Further, each Fund will

act in accordance with the

Commission’s interpretation of the

requirements of Section 16(a) with

respect to periodic elections of directors

(or trustees) and with whatever rules the

Commission may promulgate with

respect thereto.

11. The Participants, at least annually,

shall submit to the Board such reports,

materials or data as the Board may

reasonably request so that the Board

may fully carry out the obligations

imposed upon it by these stated

conditions, and said reports, materials,

and data shall be submitted more

frequently if deemed appropriate by the

Board. The obligations of the

Participating Insurance Companies and

Qualified Plans to provide these reports,

materials, and data to the Board when

it so reasonably requests shall be a

contractual obligation of all

Participating Insurance Companies and

Qualified Plans under their agreements

governing participation in the Funds.

12. In the event that a Qualified Plan

ever should become an owner of 10

percent or more of the assets of a Fund,

such Qualified Plan will execute a fund

participation agreement with the

applicable Fund. A Qualified Plan

shareholder will execute an application

with each of the Funds, including

Future Funds, that contains an

acknowledgement of this condition at

the time of the Qualified Plan’s initial

purchase of shares of the Fund.

Conclusion

For the reasons stated above,

Applicants believe that the requested

exemptions, in accordance with the

standards of Section 6(c), as 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. 95–12521 Filed 5–22–95; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

[License No. 04/05–0018]

Investor’s Equity, Inc.; Notice of

Surrender of Licensee

Notice is hereby given that Investor’s

Equity, Inc., 1355 Peachtree Street,

Atlanta, Georgia 30309 has surrendered

its License to operate as a small

business investment company under the

Small Business Investment Act of 1958,

as amended (Act). Investor’s Equity was

licensed by the Small Business

Administration on August 10, 1961.

Under the authority vested by the Act

and pursuant to the Regulations

promulgated thereunder, the surrender

of the License was accepted on May 4,

1995, and accordingly, all rights,

privileges, and franchises derived

therefrom have been terminated.

(Catalog of Federal Domestic Assistance

Program No. 59.011, Small Business

Investment Companies)

Dated: May 16, 1995.

Robert D. Stillman,

Associate Administrator for Investment.

[FR Doc. 95–12571 Filed 5–22–95; 8:45 am]

BILLING CODE 8025–01–M

[License No. 02/02–5351]

Exim Capital Corporation

Notice is hereby given that Exim

Capital Corporation (Exim), 241 Fifth

Avenue, New York, New York 10016, a

Federal Licensee under the Small

Business Investment Act of 1958, as

amended (the Act), in connection with

the proposed financing of a small

concern is seeking an exemption under

Section 312 of the Act and Section

107.903 Conflicts of interest of the SBA

Rules and Regulations (13 CFR 107.903

(1994)). An exemption may not be

granted by SBA until Notices of this

transaction have been published. Exim

proposes to provide debt financing to

KBJ Cleaners, Inc. (KBJ) located 6–01

Saddle River Road, Fairlawn, New

Jersey. The financing is contemplated

for use in the expansion of KBJ’s

existing operations and additional

working capital.

The financing is brought within the

purview of Section 107.903(b)(1) of the

regulations because Mr. Byung Hyun An