[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27583-27587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12696]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21082; File No. 812-9280]


T. Rowe Price Equity Series, Inc. et al.

May 17, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 
``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'' or ``Act'').

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APPLICANTS: T. Rowe Price Equity Series, Inc., T. Rowe Price 
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc. 
(the ``Fund(s)'') and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (the ``Adviser(s)'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
Act for exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 
Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

SUMMARY OF APPLICATION: Applicants seek an order of exemption to the 
extent necessary to permit shares of the Funds to be issued to and held 
by registered and unregistered variable annuity and variable life 
insurance separate accounts of both affiliated and unaffiliated life 
insurance companies.

FILING DATE: The application was filed on October 11, 1994 and amended 
on May 4, 1995.

HEARING OR NOTIFICATION HEARING: An order granting the application will 
be [[Page 27584]] issued unless the SEC 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 must be received by the SEC by 5:30 p.m. on June 12, 
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 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 NW., Washington, D.C. 
20549. Applicants, 100 East Pratt Street, Baltimore, Maryland 21202.

FOR FURTHER INFORMATION CONTACT:
Joyce Merrick Pickholz, Senior Counsel, or Wendy Finck Friedlander, 
Deputy Chief, on (202) 942-0670, Office of Insurance Products, Division 
of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. Each Fund is a Maryland corporation registered under the Act as 
an open-end diversified management investment company. The authorized 
capital stock of each Fund may be issued as one or more classes (each a 
``Series'') of stock, each Series representing an interest in a 
different investment portfolio. T. Rowe Price Equity Series, Inc. 
currently consists of three Series. T. Rowe Price Associates, Inc. is 
the investment adviser for the three Series. T. Rowe Price 
International Series, Inc. currently consists of one Series of stock 
for which Rowe Price-Fleming International, Inc. serves as investment 
adviser. T. Rowe Price Fixed Income Series, Inc. currently consists of 
one Series for which T. Rowe Price Associates, Inc. Serves as the 
investment adviser. The registration statements for the funds on Form 
N-1A are incorporated by reference into the application (File Nos. 33-
52161, 33-52171 and 33-52749 for T. Rowe Price Equity Series, Inc., T. 
Rowe Price International Series, Inc. and T. Rowe Price Fixed Income 
Series, Inc. respectively).
    2. Shares of the Funds will be offered to insurance companies as 
investment vehicles for their separate accounts that support variable 
annuity contracts and/or variable life insurance contracts 
(collectively, ``variable contracts''). Insurance companies whose 
separate accounts do or will own shares of the Funds are referred to 
herein as ``participating insurance companies,'' respectively.
    3. Each participating insurance company will design its own 
variable annuity or variable life insurance contracts for issuance 
through its participating separate account. Each participating 
insurance company will have the legal obligation of satisfying all 
requirements applicable to it under the federal securities laws. It is 
anticipated that participating insurance companies and their registered 
separate accounts will rely on Rule 6e-2 or 6e-3(T) under the Act, 
although some may rely on individual exemptive orders as well, in 
connection with variable life insurance contracts. The Funds' role vis-
a-vis the variable contracts, so far as the federal securities laws are 
applicable, will be limited to that of offering their shares to 
participating separate accounts of participating insurance companies, 
and fulfilling any conditions the Commission may impose upon granting 
the Order requested in the application.
    4. Applicants anticipate that certain participating insurance 
companies may have a separate account investing in the Funds that will 
not be registered as an investment company under the Act in reliance on 
relevant exemptions (an ``unregistered separate account''). Applicants 
represent that these participating insurance companies would be parties 
to participation agreements with the Funds, as contemplated by the 
conditions set forth in the application, and the same conditions would 
be imposed by such agreements on unregistered separate accounts as on 
registered separate accounts. Further, with respect to voting 
privileges, shares attributable to variable contracts supported by 
unregistered separate accounts will be deemed to be shares owned by the 
insurance company for purposes of the conditions set forth in the 
application relating to voting of Fund shares, unless voting privileges 
have been extended to the variable contracts supported by such 
unregistered separate accounts. Where voting privileges have been 
extended, Fund shares attributable to the variable contracts will be 
voted in accordance with instructions received from the owners thereof.
Applicants' Legal Analysis

    1. In connection with scheduled premium variable life insurance 
contracts issued through a separate account registered under the 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 Act. The exemptions 
granted to a separate account (and any investment adviser, principal 
underwriter and depositor thereof) by Rule 6e-2(b)(15), however, are 
not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an investment company 
that also offers its shares to a variable annuity separate account of 
the same or of any affiliated or unaffiliated insurance company 
(``mixed funding''). In addition, the relief granted by Rule 6e-
2(b)(15) is not available if shares of the underlying investment 
company are offered to variable annuity or variable life insurance 
separate accounts of unaffiliated insurance companies (``shared 
funding''). ``Mixed and shared funding'' denotes the use of a common 
management investment company to fund a variable annuity separate 
account of one insurance company and the variable annuity or variable 
life separate accounts of other affiliated and unaffiliated insurance 
companies. Accordingly, Applicants seek an order exempting scheduled 
premium variable life insurance separate accounts (and, to the extent 
necessary, any investment adviser, principal underwriter and depositor 
of such an account) from Sections 9(a), 13(a), 15(a) and 15(b) of the 
Act, and Rule 6e-2(b)(15) thereunder, to the extent necessary to permit 
shares of the Funds to be offered and sold in connection with both 
mixed funding and shared funding.
    2. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 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 Act. The 
exemptions granted to a separate account (and to any investment 
adviser, principal underwriter and depositor thereof) by Rule 6e-
3(T)(b)(15) permit mixed funding of flexible premium variable life 
insurance but preclude shared funding. Accordingly, Applicants seek an 
order exempting flexible premium variable life insurance separate 
accounts (and, to the extent necessary, any investment adviser, 
principal underwriter and depositor of such an account) from Sections 
9(a), 13(a), and 15(b) of the Act, and Rule 6e-3(T)(b)(15) thereunder, 
to the extent necessary to permit shares of the Funds to be offered and 
sold to separate accounts in connection with shared funding.
    3. Section 9(a) provides that it is unlawful for any company to 
serve as investment adviser or principal underwriter of any registered 
open-end investment company if an affiliated [[Page 27585]] person of 
that company is subject to a disqualification enumerated in Sections 
9(a) (1) or (2). Rules 6e-2(b)(15)(i) and ii), and 6e-3(T)(b)(15)(i) 
and (ii), provide exemptions from Section 9(a) under certain 
circumstances, subject to the limitations on mixed and shared funding. 
These exemptions limit the application of the eligibility restrictions 
to affiliated individuals or companies that directly participate in the 
management or administration of the underlying management investment 
company.
    4. The application states that the partial relief granted in Rules 
6e-2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 of 
the Act 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. The Applicants state that those Rules recognize 
that it is not necessary for the protection of investors or the 
proposes fairly intended by the policy and provisions of the Act to 
apply the provisions of Section 9(a) to individuals in a large 
insurance company complex, most of whom will have no involvement in 
matters pertaining to investment companies in (or invested in by) that 
organization. Applicants state that it is also unnecessary to apply 
Section 9(a) to 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. 
Applicants argue that applying the requirements of Section 9(a) because 
of investment by other insurers' separate accounts would be unjustified 
and would not serve any regulatory purpose. The application states that 
the participating insurers are not expected to play any role in the 
management or administration of the Funds and that those individuals 
who participate in the management or administration of the Funds will 
remain the same regardless of which separate accounts or insurance 
companies use the Funds. Furthermore, the increased monitoring costs 
would reduce the net rates of return realized by contract owners.
    5. 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 pass-through voting privileges will be provided 
with respect to all owners of variable contracts registered with the 
Commission so long as the Commission interprets the Act to require 
pass-through voting privileges for variable contract owners. Applicants 
anticipate that contracts supported by separate accounts that are not 
registered under the Act, will not provide for pass-through voting 
privileges. Applicants represent that shares of the Funds that are 
attributable to those contracts will be voted in the same proportion as 
those shares for which voting instructions have been received.
    6. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide 
exemptions from the pass-through voting requirement with respect to 
several significant matters, assuming the limitations on mixed and 
shared funding are observed. Both Rules provide that the insurance 
company may disregard the voting instructions of its contract owners 
with respect to the investments of an underlying fund or any contract 
between a fund and its investment adviser, when required to do so by an 
insurance regulatory authority. Voting instructions may also be 
disregarded by the insurance company if the contract owners initiate 
any change in the investment company's investment policies, principal 
underwriter or any investment adviser provided that disregarding such 
voting instructions is reasonable and based on a specific good faith 
determination as required under the Rules. Applicants assert that the 
rights of an insurance company or of a state insurance regulator to 
disregard contract owner's voting instructions are not inconsistent 
with mixed or shared funding. According to the Applicants, there is no 
reason why the investment policies of any portfolio of the Funds would 
or should be materially different from what it would or should be if it 
funded only annuity contracts or only scheduled or flexible premium 
life contracts and that there is no reason to believe that different 
features of various types of contracts will lead to different 
investment policies for different types of variable contracts. 
Applicants represent that the Funds will not be managed to favor or 
disfavor any particular insurer or type of insurance product.
    7. The Application states that mixed and shared funding should 
provide several benefits to variable contract holders. It would permit 
a greater amount of assets available for investment, thereby promoting 
economies of scale, permitting a greater diversification, and making 
the addition of new portfolios more feasible. The Applicants believe 
that making the 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 
in more product variation and lower charges.
    8. The Applicants see no significant legal impediment to permitting 
mixed and shared funding. 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. The Applicants do not believe that 
mixed and shared funding will have any adverse federal income tax 
consequences.

Applicants' Conditions

    Applicants consent to the following conditions if an order is 
granted:
    1. A majority of the Board of Directors of each Fund (the 
``Board'') shall consist of persons who are not ``interested persons'' 
of the Fund, as defined by Section 2(a)(19) of the 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 director or directors, 
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 of Directors; (b) for a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (c) for 
such longer period as the Commission may prescribe by order upon 
application.
    2. Each Board will monitor its Fund for the existence of any 
material irreconcilable conflict between the interests of the life 
insurance contract owners and annuity contract owners and any future 
contract owners in the Fund. A material irreconcilable conflict may 
arise for a variety of reasons, including: (a) An action by any state 
insurance regulatory authority; (b) a change in applicable federal or 
state insurance, tax or securities laws or regulations, or a public 
ruling, private letter ruling, no-action or interpretative letter, or 
any similar action by insurance, tax or securities regulatory 
authorities; (c) an administrative or judicial decision in any relevant 
proceeding; (d) the manner in which the investments of any Series are 
being managed; or (e) a difference in voting instructions given by 
variable annuity contract owners and variable life insurance contract 
owners.
    3. Participating insurance companies and the Advisers will report 
any potential or existing conflicts to the Board. Participating 
insurance companies and the Advisers will be responsible for assisting 
each Board in carrying out its responsibilities under 
[[Page 27586]] these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This includes, but is not limited to, an obligation by each 
participating insurance company to inform the Board whenever contract 
owner voting instructions are disregarded. The responsibility to report 
such information and conflicts and to assist the board will be a 
contractual obligation of all participating insurance companies under 
the agreements governing participation in a Fund and these 
responsibilities will be carried out with a view only to the interests 
of the contract owners.
    4. If it is determined by a majority of the Board, or a majority of 
its disinterested directors, that a material irreconcilable conflict 
exists, the relevant insurance companies shall, at their expense and to 
the extent reasonably practicable (as determined by a majority of the 
disinterested directors), take whatever steps are necessary to remedy 
or eliminate the material irreconcilable conflict, including: (1) 
Withdrawing the assets allocable to some or all of the separate 
accounts from the Fund or any Series 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., variable annuity 
contract owners, variable life insurance contract owners or variable 
contract owners or 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 (2) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a participating insurer's decision to disregard contract owner 
voting instructions and that decision represents a minority position or 
would preclude a majority vote, the insurer may be required, at the 
Fund's election, to withdraw its separate account's investment in the 
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 under their agreements governing 
participation in a Fund.
    For purposes of condition 4, a majority of the disinterested 
members of the Board shall determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but in no 
event will the Fund or the applicable Adviser be required to establish 
a new funding vehicle for any variable contract. No participating 
insurance company shall be required by this condition 4 to establish a 
new funding vehicle for any variable contract if an offer to do so has 
been declined by vote of a majority of contract owners materially 
adversely affected by the irreconcilable material conflict, but in no 
event will a 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 to contract owners materially 
adversely affected by the irreconcilable material conflict.
    5. A Board's determination of the existence of a material 
irreconcilable conflict and its implications shall be made known 
promptly to all participating insurance companies.
    6. Participating insurance companies will pass-through voting 
privileges to owners of variable contracts registered with the 
Commission so long as the Commission continues to interpret the Act as 
requiring pass-through voting privileges for such variable contracts. 
As to such owners and owners of any other variable contracts to which 
voting privileges have been extended, participating insurance companies 
will vote shares of the applicable Fund held in their separate accounts 
in a manner consistent with timely voting instructions received from 
such contract owners. Each participating insurance company will vote 
shares of the Fund held in its separate accounts for which no timely 
voting instructions from contract owners are received, as well as 
shares it owns (including shares held by unregistered separate accounts 
supporting variable contracts for which not voting privileges have been 
granted to the owners thereof), in the same proportion as those shares 
for which voting instructions have been received. Participating 
insurance companies will be responsible for assuring that each of their 
separate accounts participating in the Funds calculates voting 
privileges in a manner consistent with other participating insurance 
companies. The obligation to calculate voting privileges in a manner 
consistent with other separate accounts investing in the Funds shall be 
a contractual obligation of all participating insurance companies under 
their agreements governing participation in the Funds.
    7. All reports received by a Board of potential or existing 
conflicts, and all Board action with regard to determining the 
existence of a conflict, notifying participating insurance companies 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.
    8. Each Fund will comply with all provisions of the Act requiring 
voting by shareholders, and, in particular, will either provide for 
annual meetings (except insofar as the Commission may interpret Section 
16 as not requiring such meetings), or comply with Section 16(c) of the 
Act (although the Funds are not trusts described in Section 16(c) of 
the Act) as well as with Section 16(a) and, if and when applicable, 
16(b). Further, the Funds will act in accordance with the Commission's 
interpretation of the requirements of Section 16(a) with respect to 
periodic elections of directors and with whatever rules the Commission 
may promulgate with respect thereto.
    9. Each Fund will disclose in its prospectus that (1) the Fund is 
intended to be a funding vehicle for all types of variable annuity and 
variable life insurance contracts offered by various insurance 
companies, (2) material irreconcilable conflicts may possibly arise, 
and (3) the Fund's Board will monitor events in order to identify the 
existence of any material irreconcilable conflict and determine what 
action, if any, should be taken in response to such conflict. Each Fund 
will notify all participating insurance companies that separate account 
prospectus disclosure regarding potential risks of mixed and shared 
funding may be appropriate.
    10. If and to the extent that 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 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 this application, 
then the Funds and/or participating insurance companies, as 
appropriate, shall take such steps as may be necessary to comply with 
Rules 6e-2 and 6e-3(T), or Rule 6e-3, to the extent such amended rules 
are applicable.
    11. The participating insurance companies shall at least annually 
submit to the relevant Board such [[Page 27587]] reports, materials or 
data as the Board may reasonably request so that the Board or the Fund 
may fully carry out the obligations imposed upon them by the conditions 
contained in this application, and such reports, materials and data 
shall be submitted more frequently if deemed appropriate by the Board. 
The obligations of the participating insurance Companies 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 under their agreements governing participation in 
the Funds.

Conclusion

    For the reasons stated above, Applicants believe that the requested 
exemptions in accordance with the standards of Section 6(c), are 
appropriate in the public interest and are consistent with the 
protection of investors and the purposes fairly intended by the policy 
and the provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12696 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M