PARTICIPATION AGREEMENT
BY AND AMONG
RIVERSOURCE LIFE INSURANCE COMPANY,
RIVERSOURCE LIFE INSURANCE CO. OF NEW YORK
AND
RIVERSOURCE DISTRIBUTORS, INC
THIS PARTICIPATION AGREEMENT ("Agreement") is made and entered into as of
January 1, 2007 by and among the following parties:
o RIVERSOURCE LIFE INSURANCE COMPANY ("RSLIC"), organized
under the laws of the State of Minnesota, on its own behalf
and on behalf of each of its separate accounts named in
Schedule A to this Agreement, as may be amended from time to
time (each account referred to as an "Account");
o RIVERSOURCE LIFE INSURANCE CO. OF NEW YORK ("RSLICNY"),
organized under the laws of the State of New York, on its
own behalf and on behalf of each of its separate accounts
named in Schedule A to this Agreement, as may be amended
from time to time (each account referred to as an
"Account");
each of RSLIC AND RSLICNY hereinafter also referred to as a "Company"; and
o RIVERSOURCE DISTRIBUTORS, INC. ("Distributor"), organized
under the laws of the State of Delaware.
WHEREAS, each Company currently offers or may in the future offer to
the public certain qualified and nonqualified variable annuity contracts and
variable life insurance policies (each a "Contract" and collectively, the
"Contracts"), which each Company has registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, each Company wishes to offer as investment options under the
Contracts certain subaccounts of the Accounts each investing in shares of
designated Portfolios and classes of the RiverSource Variable Portfolio Funds,
namely, RiverSource Variable Portfolio-Income Series, Inc., RiverSource
Variable Portfolio-Investment Series, Inc., RiverSource Variable
Portfolio-Managed Series, Inc., RiverSource Variable Portfolio-Money Market
Series, Inc., and RiverSource Variable Portfolio-Partners Series, Inc., (each
series a "Fund" of mutual fund shares registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), and collectively, the "Funds"); and
WHEREAS, the Funds have designated the Distributor as the principal
underwriter for the Funds pursuant to a Distribution Agreement ("Distribution
Agreement"); and
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WHEREAS, the Distributor is registered with the Securities and
Exchange Commission ("SEC") as a securities broker-dealer under the Securities
Exchange Act of 1934 ("1934 Act") and is a member of the National Association
of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Distributor is authorized under the Distribution
Agreement to enter into written agreements for the purchase of Fund shares by
affiliated and unaffiliated insurance companies that have separate accounts
allocated for investment in the Funds on terms and conditions consistent with
the Distribution Agreement;
WHEREAS, on the terms and conditions hereinafter set forth the
Distributor desires to make shares of the series and classes of the Funds
designated by each Company and agreed to by the Distributor available for
purchase by the Accounts of each Company, which Accounts shall be the
shareholder of record of the Funds, for and on behalf of owners of Contracts
under which the designated series and classes of the Fund are available as
investment options under the Contracts;
NOW, THEREFORE, each Company and the Distributor agrees as follows:
1. SALE OF FUND SHARES.
1.1 The Distributor, in accordance with the terms and conditions
of the Distribution Agreement and the Plan and Agreement of Distribution,
agrees to make available for purchase by the Accounts of each Company (as
listed in Schedule A) shares of the Portfolios of the Funds (as listed in
Schedule B) for the investment of purchase payments and contract values under
the Contracts which are allocated by the owners of the Contracts to
subaccounts of the Accounts investing in Portfolios of the Funds.
1.2 The Distributor agrees to sell shares of the Portfolios of
each Fund which each Company orders for its Accounts, executing such orders on
a daily basis in accordance with each Fund's then current Prospectus. For
purposes of this Section 1.2, receipt by Distributor (or another designee of
the Fund) of such orders from Company and receipt by the Distributor (or
another designee of the Fund) shall constitute receipt by Fund; provided that
the Distributor or other designee of the Fund receives notice of such order by
9:30 a.m. Central Time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading
and on which each Fund calculates its net asset value pursuant to the rules of
the SEC.
1.3 The Distributor (or another designee of the Fund) agrees to
redeem for cash, on Company's request, any full or fractional shares of each
Fund held by Company, executing such requests on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the
request for redemption. For purposes of this Section 1.3, receipt by the
Distributor (or another designee of the Fund) of requests for redemption from
a Company and receipt by the Distributor or other designee of the Fund shall
constitute receipt by the Fund; provided that Fund receives notice of such
request for redemption by 9:30 a.m. Central time on the next following
Business Day.
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1.4 The Distributor (or another designee of the Fund) shall
furnish, on or before the ex-dividend date, notice to Company of any income
dividends or capital gain distributions payable on the shares of any Portfolio
of the Funds. Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in
additional shares of the Portfolio. The Distributor (or another designee of
the Fund) shall notify each Company of the number of shares so issued as
payment of such dividends and distributions. Each Company reserves the right
to revoke this election by written notice to the Distributor (or another
designee of the Fund).
1.5 The Distributor (or another designee of the Fund) shall make
the net asset value per share for the selected Portfolio(s) available to each
Company on a daily basis as soon as reasonably practicable after the net asset
value per share is calculated but shall use its best efforts to make such net
asset value available by 6:30 p.m. Central time. If Distributor (or another
designee of the Fund) provides a Company with materially incorrect share net
asset value information through no fault of the Company, then the Company on
behalf of its Accounts, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct share net asset value. Any
material error (determined in accordance with SEC guidelines) in the
calculation of net asset value per share, dividend or capital gain information
shall be reported by the Distributor (or another designee of the Fund) to the
Company promptly upon discovery of the material error. In the event that such
material error is the result of the Fund's (or its designee's) gross
negligence, the Fund or its designee shall also be responsible for any of
Company's administrative or other costs or losses incurred in correcting the
values of the affected Contracts.
1.6 At the end of each Business Day, each Company shall use the
information described in Section 1.5 to calculate Account unit values for the
day. Using these unit values, each Company shall process each such Business
Day's Account transactions based on requests and premiums received by it by
the time as of which the Fund calculates its share price as disclosed in the
current prospectus for the Fund to determine the net dollar amount of Fund
shares which shall be purchased or redeemed at that day's closing net asset
value per share. The net share purchase or redemption orders so determined
shall be transmitted to the Distributor (or another designee of the Fund) by
each Company by 9:30 a.m. Central Time on the Business Day next following
Company's receipt of such requests and premiums in accordance with the terms
of Sections 1.2 and 1.3 hereof.
If a Company's order requests the net purchase of Fund shares, the
Company shall pay for such purchase on the day the order is actually
transmitted by the Company in accordance with the instructions of the
Distributor (or another designee of the Fund). If a Company's order requests a
net redemption resulting in a payment of redemption proceeds to the Company,
the Distributor (or another designee of the Fund) shall pay the redemption
proceeds to the Company on or before the seventh business day after receipt of
notice of redemption in proper form, except as provided for in Part Three,
Section (2) of the Distribution Agreement and Section 1.7 of this Agreement.
1.7 Notwithstanding Section 1.6, the Funds reserve the right to
suspend the right of redemption or postpone the date of payment or
satisfaction upon redemption consistent with Section 22(e) of the 40 Act and
any rules thereunder.
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1.8 The Distributor agrees that shares of the Funds will be sold
only to the separate accounts of affiliated and unaffiliated insurance
companies ("Participating Insurance Companies") and/or to certain qualified
pension and other retirement plans, all in accordance with the requirements of
Section 817(h) of the Internal Revenue Code of 1986, as amended ("Code") and
Treasury Regulation 1.817-5. The Distributor will not sell shares of the Funds
to the general public.
1.9 Each Fund and the Distributor may refuse to sell shares of
any Portfolio to any person. Each Fund may suspend or terminate the offering
of the shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board of Directors of a Fund, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, deemed necessary
and in the best interests of the shareholders of such Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
2.1 Each Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the state under
which it is organized as set forth on the first page of this Agreement and
that each Account has been legally and validly established under applicable
state laws.
2.2 Each Company represents and warrants that it has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act
and will cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration is
available.
2.3 Each Company represents and warrants that the Contracts will
be registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts and that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws.
2.4 Each Company represents and warrants that the Contracts are
designed to be treated as life insurance, endowment or annuity contracts under
applicable provisions of the Code, that it will take reasonable steps to
maintain such treatment and that it will notify each affected Fund immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5 The Distributor represents and warrants that all shares of
the Funds offered and sold pursuant to this Agreement will be registered under
the 1933 Act and sold in accordance with all applicable federal and state
laws, and that each Fund shall be registered under the 1940 Act prior to and
at the time of any issuance or sale of such shares. The Distributor represents
and warrants that each Fund shall amend its registration statement under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Distributor represents and warrants
that each Fund shall register and qualify its shares for sale in accordance
with the laws of the various states to the extent necessary to perform its
obligations under this Agreement.
2.6 The Distributor represents and warrants that each Fund
currently complies, and will continue to comply with the diversification
requirements set forth in Section 817(h) of the Code, and the
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rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5 (or any successor or similar provision), and will notify
each affected Company immediately upon having a reasonable basis for believing
any Fund or Portfolio thereof has ceased to comply or might not so comply and
will immediately take all reasonable steps to adequately diversify such Fund
or Portfolio thereof to achieve compliance within the grace period afforded by
Treasury Regulation 1.817-5 (or any successor or similar provision).
2.7 The Distributor represents and warrants that each Portfolio
of each Fund invested in by an Account is currently qualified as a "regulated
investment company" under Subchapter M of the Code, that it will maintain such
qualification under Subchapter M (or any successor or similar provision) and
will notify each affected Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to so qualify or might not so qualify
in the future.
2.8 The Distributor represents and warrants that each Fund's
directors, officers and employees dealing with the money and/or securities of
the Funds are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimum coverage as required by Rule 17g-(1) under the 1940 Act
or related provisions as may be promulgated from time to time. The blanket
fidelity bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.9 Each party represents and warrants that the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate
action by such party, and, when so executed and delivered, this Agreement will
be the valid and binding obligation of such party enforceable in accordance
with its terms.
2.10 Each Company represents and warrants that all orders for the
purchase and sale of each Fund's shares submitted to Distributor (or another
designee of the Fund)(or counted by a Company in submitting a net order under
Section 1.6 of this Agreement) for execution at a price determined in
accordance with the Fund's current Prospectus, will have been received in good
order by the Company prior to the time as of which the Fund calculates its net
asset value on that Business Day, as disclosed in the prospectus for the
pertinent Portfolio (the "trading deadline"), in accordance with Rule 22c-1
under the 1940 Act (subject only to exceptions as permitted under Rule
22c-1(c) under the 1940 Act, respecting initial purchase payments on variable
annuity contracts, and to the established administrative procedures of Company
as described under Rule 6e-2, paragraph (b)(12)(ii) and Rule 6e-3(T),
paragraph (b)(12)(iii) under the 1940 Act respecting premium processing for
variable life insurance contracts).
2.11 Each Company will cooperate with the Distributor's reasonable
requests as principal underwriter for the Funds in taking steps to deter and
detect short-term trading and other abusive trading practices by any Contract
owner. Subject to applicable law and the terms of each Contract, Company will
provide the Distributor (or another designee of the Funds) promptly upon
request:
o the Taxpayer Identification Number of all Contract owners
that purchased, redeemed, transferred, or exchanged
subaccounts investing in shares of a Fund held under a
Contract; and,
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o the amount and dates of such Contract owners' purchases,
redemptions, transfers and exchanges in subaccounts
investing in shares of a Fund held under a Contract.
Each Company will execute any instructions from the Distributor or other
designee of a Fund to restrict or prohibit further purchases, transfers or
exchanges in subaccounts available under the Contract which invest in shares
of the Fund by any Contract owner who has been identified by the Distributor
or other designee of the Fund, as having engaged in transactions that violate
policies established by the Fund for the purpose of eliminating or reducing
any dilution of the value of the outstanding securities issued by the Fund.
2.12 The parties to this Agreement represent and warrant that
they shall comply with all the applicable laws and regulations designed to
prevent money laundering including without limitation the International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001 (Title III of
the USA PATRIOT ACT), and if required by such laws or regulations will share
information with each other about individuals, entities, organizations and
countries suspected of possible terrorist or money laundering activities in
accordance with Section 314(b) of the USA PATRIOT ACT.
2.13 Each Company will certify annually (or more frequently if so
requested by the Distributor, any Fund or any designee of a Fund) to the
Distributor, the Fund or its designee, as the case may be, that the Company is
in compliance with Sections 2.11 and 2.12 above.
3. ADMINISTRATIVE SERVICES. Each Company shall be solely
responsible for providing all administrative services for its Contract owners.
Each Company agrees that it will maintain and preserve all records as required
by law to be maintained and preserved, and will otherwise comply with all
laws, rules and regulations applicable to the marketing of the Contracts and
the provision of administrative services to its Contract owners.
4. PROSPECTUS AND PROXY MATERIALS.
4.1 The Funds or their designee shall prepare and be responsible
for filing with the SEC and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials such as
voting instruction solicitation materials), prospectuses and statements of
additional information of Fund. The Funds or their designee shall bear the
costs of registration and qualification of shares of the Portfolios,
preparation and filing of the documents listed in this Section 4.1 and all
taxes to which an issuer is subject on the issuance and transfer of its
shares.
4.2 The Distributor will provide each Company with the following
Fund (or individual Portfolio) documents, and any supplements thereto:
(i) prospectuses and statements of additional
information;
(ii) annual and semi-annual reports; and
(iii) proxy materials (including, but not limited to, the
proxy cards, notice and statement, as well as the
costs associated with tabulating votes).
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4.3 In the event any Fund initiates (i) a reorganization of the
Fund as defined by Section 2 of the 1940 Act, or (ii) a change in the name of
the Fund or a Portfolio, the Fund or its designee shall reimburse each Company
for its internal and out-of-pocket costs associated with the aforementioned
actions. Each Company agrees to use its best efforts to minimize any costs
incurred under this Section and shall provide the Fund or its designee with
acceptable documentation of any such costs incurred.
4.4 The Distributor will provide written instruction to all
Participating Insurance Companies each time the Fund amends or supplements its
current prospectus or statement of additional information directing the
Participating Insurance Companies as to whether the amendment or supplement is
to be provided (a) immediately to existing Contract owners who have Contract
value allocated to a subaccount investing in a Portfolio or (b) is to be held
and combined with another Fund or Contract related mailing as permitted by
applicable federal securities laws.
5. COMPENSATION AND EXPENSES.
5.1 The Distributor will pay no fee or other compensation to any
Company under this Agreement.
5.2 All expenses incident to performance by a Company of its
duties under this Agreement, including but not limited to, the cost of
providing the administrative services to Contract owners, shall be paid by the
Company.
6. ADDITIONAL COVENANTS AND AGREEMENTS.
6.1 Each Company and its employees or agents will not give any
information or advice, or make any representations or statements on behalf of
or concerning the Distributor or the Funds, in connection with the sale of the
Contracts unless based upon information or representations contained in the
Fund's registration statement, as such registration statement may be amended
or supplemented from time to time, or in reports or proxy statements of the
Funds, or in published reports for the Funds that are published in reputable
financial publications or approved by Distributor (or another designee of the
Funds) for distribution, or in sales literature or other material provided by
Distributor (or another designee of the Funds).
6.2 The Distributor will not give any information or make any
representations or statements on behalf of any Company or concerning any
Company, its Accounts, or its Contracts unless based upon information or
representations contained in the registration statement for the Contracts, as
such registration statement may be amended or supplemented from time to time,
or in reports for the Contracts, or in published reports for the Accounts or
the Contracts that are published in reputable financial publications or are
approved by the Company for distribution, or in sales literature or other
material provided by the Company.
7. INDEMNITY.
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7.1 The Distributor agrees to indemnify and hold harmless each
Company and each person, if any, who controls the Company within the meaning
of the 1933 Act, and any officers, directors, employees, agents, and
affiliates of the foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 7.1) against any losses, claims, expenses, damages or
liabilities (including amounts paid in settlement thereof) or litigation
expenses (including reasonable legal and other expenses) (collectively,
"Losses"), to which the Indemnified Parties may become subject, insofar as
such Losses (i) result from a breach by the Distributor (or any designee of
the Funds performing or failing to perform such duties) of a material
provision of this Agreement, including the incorrect calculation or reporting
of the daily net asset value per share or dividend or capital gain
distribution rate, or (ii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement or any prospectus of the Funds or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Distributor will reimburse any legal or other expenses reasonably incurred by
the Indemnified Parties in connection with investigating or defending any such
Losses. The Distributor shall not be liable for indemnification hereunder if
such Losses are attributable to the negligence or misconduct of the Company
performing its obligations under this Agreement.
7.2 Each Company agrees to indemnify and hold harmless the
Distributor and the Funds and each person, if any, who controls the
Distributor or the Funds within the meaning of the 1933 Act, and their
respective officers, directors, employees, agents, and affiliates of the
foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any Losses to which the Indemnified Parties may become
subject, insofar as such Losses (i) result from a breach by a Company of a
material provision of this Agreement or (ii) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the sales literature of a Company or in a registration statement
or any prospectus of a Company regarding the Contracts or the Account if any,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arise out of or as a result of conduct,
statements or representations of a Company or its agents (other than
statements or representations contained in the prospectuses or sales
literature of the Funds), with respect to the sale and distribution of
Contracts for which the Funds' shares serve as the underlying investments. The
Company will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such
Losses. The Company shall not be liable for indemnification hereunder if such
Losses are attributable to the negligence or misconduct of Distributor, the
Funds or a designee of the Funds in performing their obligations under this
Agreement.
7.3 Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 7. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof the indemnifying party will
be entitled to participate therein and, to the extent that it may wish to,
assume the defense thereof with counsel satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election to assume the defense thereof the indemnifying party will not
be liable to such indemnified party under this Section 7 for any legal or
other
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expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
7.4 If the indemnifying party assumes the defense of any such
action, the indemnifying party shall not, without the prior written consent of
the indemnified parties in such action, settle or compromise the liability of
the indemnified parties in such action, or permit a default or consent to the
entry of any judgment in respect thereof, unless in connection with such
settlement, compromise or consent, each indemnified party receives from such
claimant an unconditional release from all liability in respect of such claim.
8. POTENTIAL CONFLICTS.
8.1 Each Company has received and hereby acknowledges receipt of
a copy of the amended and restated Notice of Application for Exemption (the
"Application") as set forth in Schedule C to this Agreement filed by the Funds
(then known as AXP Variable Portfolio-Income Series, Inc., AXP Variable
Portfolio-Investment Series, Inc., AXP Variable Portfolio-Managed Series,
Inc., AXP Variable Portfolio-Money Market Series, Inc., and AXP Variable
Portfolio-Partners Series, Inc.) and Ameriprise Financial, Inc. (then known as
American Express Financial Corporation), an affiliate of Distributor, with the
SEC on June 16, 2004, and the order issued by the SEC in response thereto (the
"Mixed and Shared Funding Exemptive Order"). Each Company has reviewed the
conditions to the requested relief set forth in the Application. As set forth
in the Application, the Board of Directors of each Fund (each a "Board" and
collectively the "Boards") will monitor the Funds for the existence of any
material irreconcilable conflict between the interests of the contract owners
of all separate accounts investing in Funds. An irreconcilable material
conflict may arise for a variety of reasons, including: (i) an action by any
state insurance regulatory authority; (ii) 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
actions by insurance, tax or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract owners
and variable life insurance contract owners or by contract owners of different
Participating Insurance Companies; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners.
8.2 Each Company will promptly report any potential or existing
conflicts of which it is aware to the applicable Board. This includes, but is
not limited to, an obligation by each Company to immediately inform the
applicable Board whenever Contract owner voting instructions will be
disregarded. Each Company will assist each Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order. No less
than annually, each Company shall submit to each Board such reports, materials
or data (collectively "Materials") as it may request so that each Board may
fully carry out its obligations as described in the Application and the Mixed
and Shared Funding Exemptive Order. Any Board may request any Company to
provide the Materials more frequently than annually, in which case, the
Company receiving the request shall promptly provide the Materials to the
Board which has requested the Materials.
8.3 If a majority of a Board or a majority of its independent
Directors determines that a material irreconcilable conflict exists, each
affected Company, at its expense and to the extent reasonably
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practicable (as determined by a majority of the Board's independent
Directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of its Accounts from the Fund or any Portfolio
thereof and reinvesting those assets in a different investment medium, which
may include another Portfolio or Fund or another investment company or
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., 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 (b) establishing a new registered management investment company or managed
separate account. If a material irreconcilable conflict arises because of a
Company's decision to disregard Contract owner voting instructions, and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the election of the Fund, to withdraw its
Accounts' investment in the Fund, and no charge or penalty will be imposed as
a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Contract owners.
For the purposes of this Section 8.3, a majority of the independent members of
the Board shall determine whether or not any proposed action adequately
remedies any material irreconcilable conflict, but in no event will any Fund
be required to establish a new funding medium for any Contract. Further, no
Company shall be required by this Section 8.3 to establish a new funding
medium for any Contract if any offer to do so has been declined by a vote of a
majority of Contract owners materially affected by the irreconcilable material
conflict.
8.4 A Board's determination of the existence of a material
irreconcilable conflict and its implications shall be made known promptly and
in writing to each affected Company.
9. VOTING.
9.1 Each Company will provide pass-through voting privileges to
its Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring pass-through voting privileges for Contract owners. Accordingly,
each Company, where applicable, will vote shares of each Fund held by its
Accounts in a manner consistent with voting instructions timely received from
its Contract owners. Each Company shall vote shares for which it has not
received timely voting instructions, as well as shares it owns, in the same
proportion as it votes those shares for which it has received voting
instructions.
9.2 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
Mixed and Shared Funding Exemptive Order, then each affected Fund and/or each
affected Company, as appropriate, shall take such steps as may be necessary to
comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted,
to the extent such Rules are applicable.
10. TERM; TERMINATION.
10.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate in accordance with the
following provisions:
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(a) At the option of a Company or the Distributor at
any time from the date hereof upon 90 days' notice,
unless a shorter time is agreed to by the parties;
(b) At the option of a Company, if a Fund's shares are
not reasonably available to meet the requirements
of the Contracts as determined by the Company.
Prompt notice of election to terminate shall be
furnished by the Company, said termination to be
effective ten days after receipt of notice unless
the Distributor makes available a sufficient number
of shares to reasonably meet the requirements of
the Contracts within said ten-day period;
(c) At the option of a Company, upon the institution of
formal proceedings against a Fund by the SEC, or
any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in the Company's reasonable judgment,
materially impair the Fund's ability to meet and
perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be
furnished by the Company to the Distributor with
said termination to be effective upon receipt of
notice;
(d) At the option of the Distributor, upon the
institution of formal proceedings against a Company
by the SEC, or any other regulatory body, the
expected or anticipated ruling, judgment or outcome
of which would, in the Distributor's reasonable
judgment, materially impair a Company's ability to
meet and perform its obligations and duties
hereunder. Prompt notice of election to terminate
shall be furnished by the Distributor to the
Company with said termination to be effective upon
receipt of notice;
(e) At the option of a Company, in the event a Fund's
shares are not registered, issued or sold in
accordance with applicable state or federal law, or
such law precludes the use of such shares as the
underlying investment medium of the Contracts
issued or to be issued by the Company. Termination
shall be effective immediately upon notice to the
Distributor;
(f) At the option of the Distributor if the Contracts
cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code,
or if the Distributor reasonably believes that the
Contracts may fail to so qualify. Termination shall
be effective upon receipt of notice by the Company;
(g) At the option of a Company, upon the Distributor's
breach or a Fund's breach (or a breach by any
designee of a Fund) of any material provision of
this Agreement, which breach has not been cured to
the satisfaction of Company within ten days after
written notice of such breach is delivered to the
Distributor;
(h) At the option of the Distributor, upon a Company's
breach of any material provision of this Agreement,
which breach has not been cured to the satisfaction
of the
Page 11 of 33
Distributor within ten days after written notice of
such breach is delivered to the Company;
(i) At the option of the Distributor, if the Contracts
are not registered, issued or sold in accordance
with applicable federal and/or state law.
Termination shall be effective immediately upon
notice to the affected Company;
(j) At the option of a Company in the event that any
Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code
or under any successor or similar provision, or if
the Company reasonably believes that any Portfolio
may fail to so qualify. Termination shall be
effective immediately upon notice to the
Distributor;
(k) At the option of a Company in the event that any
Portfolio fails to meet the diversification
requirements specified in Section 2.6 hereof or if
the Company reasonably believes that any Portfolio
may fail to meet such diversification requirements.
Termination shall be effective immediately upon
notice to the Distributor;
10.3 Notwithstanding any termination of this Agreement pursuant
to Section 10.2 hereof, the Distributor shall, at the option of a Company,
continue to make available additional Fund shares, as provided below, for so
long as the Company desires pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if a Company elects to make additional Fund
shares available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in a Fund, redeem investments in a Fund and/or invest
in a Fund upon the payment of additional premiums under the Existing
Contracts. In the event of a termination of this Agreement pursuant to Section
10.2 hereof, the Company, as promptly as is practicable under the
circumstances, shall notify the Distributor whether the Company elects to
continue to make the Fund's shares available after such termination. If the
Fund's shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect.
10.4 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, no
Company shall redeem the shares attributable to its Contracts (as opposed to
the shares attributable to Company's assets held in the Accounts or invested
directly), and no Company shall prevent its Contract owners from allocating
payments to a Portfolio that was otherwise available under its Contracts,
until thirty (30) days after the Company shall have notified the affected Fund
of its intention to do so.
11. NOTICES. All notices and other communications hereunder
shall be given or made in writing and shall be delivered personally, or sent
by telex, telecopier, express delivery or registered or certified mail,
postage prepaid, return receipt requested, to the party or parties to whom
they are directed at the following addresses, or at such other addresses as
may be designated by notice from such party to all other parties.
Page 12 of 33
TO A COMPANY:
RiverSource Life Insurance Company
RiverSource Life Insurance Co. of New York
0000 Xxxxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Vice President-Fund Relationships
WITH A COPY TO:
General Counsel
RiverSource Life Insurance Company
General Counsel
RiverSource Life Insurance Co. of New York
00 Xxxxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
TO THE DISTRIBUTOR OR TO A FUND:
RiverSource Distributors, Inc.
00 Xxxxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: President, RiverSource Distributors, Inc.
WITH A COPY TO:
General Counsel
RiverSource Distributors, Inc.
00 Xxxxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Any notice, demand or other communication given in a manner prescribed in this
Section 11 shall be deemed to have been delivered on receipt.
12. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
13. GOVERNING LAW. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the
State of Minnesota. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
Page 13 of 33
14. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned
without the written consent of all parties to the Agreement at the time of
such assignment. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective permitted successors and assigns.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement and
any party hereto may execute this Agreement by signing any such counterpart.
16. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
17. CUSTOMER PRIVACY AND CONFIDENTIAL INFORMATION.
Notwithstanding anything to the contrary contained in this Agreement, in
addition to and not in lieu of other provisions of this Agreement:
(a) "Confidential Information" includes but is not
limited to all proprietary and confidential
information of a Company and its subsidiaries,
affiliates and licensees (collectively, the
"Protected Parties" for purposes of this Section
17), including without limitation all information
regarding the customers of the Protected Parties;
or the accounts, account numbers, names, addresses,
social security numbers or any other personal
identifier of such customers; or any information
derived thereon.
(b) The Distributor will not use or disclose
Confidential Information for any purpose other than
to carry out the purpose for which Confidential
Information was provided under this Agreement; the
Distributor agrees to cause all its employees,
agents and representatives, or any other party to
whom any of them may provide access to or disclose
Confidential Information to limit the use and
disclosure of Confidential Information to that
purpose.
(c) The Distributor acknowledges that all computer
programs and procedures or other information
developed or used by the Protected Parties or any
of their employees or agents in connection with a
Company's performance of its duties under this
Agreement are the valuable property of the
Protected Parties.
(d) The Distributor agrees to implement appropriate
measures designed to ensure the security and
confidentiality of Confidential Information, to
protect such information against any anticipated
threats or hazards to the security or integrity of
such information, and to protect against
unauthorized access to, or use of, Confidential
Information that could result in substantial harm
or inconvenience to any customer of the Protected
Parties; the Distributor further agrees to cause
its agents, representatives or subcontractors, or
any other party to whom any of them may provide
access to or disclose Confidential Information to
implement appropriate measures designed to meet the
objectives set forth in this Section 17.
Page 14 of 33
(e) The Distributor acknowledges that any breach of the
agreements in this Section 17 would result in
immediate and irreparable harm to the Protected
Parties for which there would be no adequate remedy
at law and agree that in the event of such a
breach, the Protected Parties will be entitled to
equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any
court of competent jurisdiction deems appropriate.
The provisions contained in this Section 17 will
survive any termination of this Agreement.
18. ACCESS TO BOOKS AND RECORDS. Each party to this Agreement
agrees to cooperate with each other party and all appropriate government
authorities (including without limitation the SEC, the NASD and state
insurance regulators) and will permit each other and such authorities'
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Each party agrees to permit the other party or the
appropriate governmental authority to make copies of portions of its books and
records that relate to the party's performance of its duties under this
Agreement and which are the subject matter of the investigation or inquiry.
19. FUND ASSETS. The parties agree that the assets and
liabilities of each Fund are separate and distinct from the assets and
liabilities of each other Fund. No Fund shall be liable or shall be charged
for any debt, obligation or liability of any other Fund. No director, officer
or agent shall be personally liable for such debt, obligation or liability of
any Fund.
20. FORM OF AGREEMENT. Although the parties have executed this
Agreement in this form for administrative convenience, this Agreement shall
constitute a separate participation agreement with each Company.
21. AMENDMENT. Neither this Agreement, nor any provision hereof,
may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all of the parties hereto.
22. ENTIRE AGREEMENT. This Agreement, including the Schedules
hereto, constitutes the entire agreement between the parties with respect to
the matters dealt with herein, and supersedes all previous agreements, written
or oral, with respect to such matters.
Page 15 of 33
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
RIVERSOURCE DISTRIBUTORS, INC. RIVERSOURCE LIFE INSURANCE COMPANY
RIVERSOURCE LIFE INSURANCE CO.
OF NEW YORK
By: /s/ Xxxx X. Xxxxxxxxxxx By: /s/ Xxx X. Xxxxx
------------------------------------ ------------------------------------
Name: President Name: Vice President-Fund
Relationships of each Company
Page 16 of 33
Schedule A
Separate Accounts of RSLIC:
RiverSourse Account F
RiverSource Variable Account 10
RiverSource Variable Annuity Fund A
RiverSource Variable Annuity Fund B
RiverSource Variable Annuity Account 1
RiverSource Variable Annuity Account
RiverSource Variable Life Account
RiverSource Account SBS
RiverSource Variable Account for Xxxxx Xxxxxx
RiverSource Variable Life Separate Account
Separate Accounts of RSLICNY:
RiverSource of New York Variable Annuity Account 1
RiverSource of New York Variable Annuity Account 2
RiverSource of New York Account 4
RiverSource of New York Variable Annuity Account
RiverSource of New York Account SBS
RiverSource of New York Account 8
RiverSource of New York Account 7
Page 17 of 33
SCHEDULE B
RSLIC AND RSLICNY:
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - INCOME SERIES, INC. as set
forth in the registration statement of the Fund (File No. 2-73113) on the
effective date of this agreement and as thereafter may be amended from time to
time.
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. as
set forth in the registration statement of the Fund (File No. 2-73115) on the
effective date of this agreement and as thereafter may be amended from time to
time.
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - MANAGED SERIES, INC. as set
forth in the registration statement of the Fund (File No. 2-96367) on the
effective date of this agreement and as thereafter may be amended from time to
time.
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - MONEY MARKET SERIES, INC.
as set forth in the registration statement of the Fund (File No. 2-72584) on
the effective date of this agreement and as thereafter may be amended from
time to time.
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - PARTNERS SERIES, INC. as
set forth in the registration statement of the Fund (File No. 333-61346) on
the effective date of this agreement and as thereafter may be amended from
time to time.
RSLIC:
All Portfolios of RIVERSOURCE VARIABLE PORTFOLIO - SELECT SERIES, INC. as set
forth in the registration statement of the Fund (File No. 333-113780) on the
effective date of this agreement and as thereafter may be amended from time to
time.
Page 18 of 33
SCHEDULE C
NOTICE OF APPLICATION FOR EXEMPTION
Page 19 of 33
S.E.C. Release No. 26468
*1 Investment Company Act of 1940
AXP VARIABLE PORTFOLIO FUNDS, ET AL., NOTICE OF APPLICATION
File No. 812-13088
June 16, 2004
Agency: The Securities and Exchange Commission ("SEC" or the "Commission").
Action: Notice of Application for Exemption under Section 6(c) of the
Investment Company Act of 1940, as amended (the "1940 Act"), for an exemption
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.
Applicants: AXP Variable Portfolio-Income Series, Inc., AXP Variable
Portfolio-Investment Series, Inc., AXP Variable Portfolio-Managed Series,
Inc., AXP Variable Portfolio-Money Market Series, Inc., AXP Variable
Portfolio-Partners Series, Inc., AXP Variable Portfolio-Select Series, Inc.
(the "AXP VP Funds") and American Express Financial Corporation ("AEFC")
(collectively, the "Applicants").
Summary of Application: Applicants seek an order pursuant to Section 6(c) of
the 1940 Act exempting certain life insurance companies and their separate
accounts that currently invest or may hereafter invest in the AXP VP Funds
(and, to the extent necessary, any investment adviser, principal underwriter
and depositor of such an account) 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 the AXP VP Funds and
shares of any other existing or future investment company that is designed to
fund insurance products and for which AEFC or any of its affiliates may serve
in the future as investment adviser, investment manager, subadviser, principal
underwriter, sponsor or administrator (the "Future Funds") (the AXP VP Funds
together with the Future Funds being hereinafter referred to individually as a
"Fund" and collectively as the "Funds"), or to permit shares of any existing
or future series of any Fund (individually, a "Portfolio" and collectively,
the "Portfolios") to be sold and held by: (a) separate accounts funding
variable annuity and variable life insurance contracts (the "Variable
Contracts") issued by both affiliated and unaffiliated life insurance
companies; (b) qualified pension and retirement plans (the "Qualified Plans")
outside of the separate account context; (c) separate accounts that are not
registered as investment companies under the 1940 Act pursuant to exemptions
from registration under Section 3(c) of the 1940 Act; (d) any investment
manager to a Portfolio and affiliates thereof that is permitted to hold shares
of a Portfolio consistent with the requirements of regulations issued by the
Treasury Department (individually, a "Treasury Regulation" and collectively,
the "Treasury Regulations"), specifically Treasury Regulation Section 1.817-5
-----------------------------------
(collectively, the "Manager") and (e) any other person permitted to hold
shares of the Portfolios pursuant to Treasury Regulation Section 1.817-5 (the
-----------------------------------
"General Accounts").
*2 Filing Date: The Application was filed on May 17, 2004 and amended and
restated on June 14, 2004.
Hearing or Notification of Hearing: An order granting the application will
be 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 should be received by
the SEC by 5:30 p.m. on July 8, 2004, and should be accompanied by proof of
service on the applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues contested.
Persons may request notification of a hearing by writing to the Commission's
Secretary.
Page 20 of 33
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx Xxxxxx,
XX, Xxxxxxxxxx, XX 00000-0000. Applicants: Xxxx Xxxxx Xxxxxxx, Esq., Vice
President and Group Counsel, American Express Financial Advisors Inc., 50607
AXP Financial Center, Xxxxxxxxxxx, XX 00000 with a copy to Xxxxxxx X. Xxxxxxx,
Esq., Xxxxxxxxx Xxxxx Xxxxx Xxxxxxx & Xxxxxxx, P.A., Xxxxxxxxx Xxxxxx Xxxxx
Xxxxx 000, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000.
For Further Information Contact: Xxxx Xxxxx, Senior Counsel, or Xxxxxx
Xxxxxx, Branch Chief, Office of Insurance Products, Division of Investment
Management, at (000) 000-0000.
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, 000 Xxxxx Xxxxxx, XX, Xxxxxxxxxx, XX 00000-0000 (telephone
(202) 000- 0000).
Applicants' Representations:
1. The AXP VP Funds are all Minnesota corporations and are registered as
open-end management investment companies under the 1940 Act. AEFC, a Delaware
corporation, is registered with the Commission under the Investment Advisers
Act of 1940, as amended, (the "Advisers Act") and has served as the investment
adviser to the AXP VP Funds since November 1, 2004. Prior to that time, IDS
Life Insurance Company, a wholly owned subsidiary of AEFC, served as the
investment adviser to the AXP VP Funds while AEFC served as the subadviser.
Pursuant to investment subadvisory agreements, AEFC retains both affiliated
and unaffiliated subadvisers for certain Portfolios under the AXP VP Funds.
Each subadviser is registered as an investment adviser with the Commission
under the Advisers Act. The AXP VP Funds currently consist of six open-end
management investment companies offering shares of twenty-three Portfolios.
Currently, shares of the AXP VP Funds Portfolios are offered solely to
separate accounts funding flexible premium variable life insurance policies
and variable annuity contracts issued by insurance company affiliates of AEFC.
2. Shares of the Portfolios may be offered in the future to separate
accounts of both affiliated and unaffiliated insurance (each a "Participating
Insurance Company" and collectively, the "Participating Insurance Companies")
to serve as investment vehicles to fund Variable Contracts. These separate
accounts either will be registered as investment companies under the 1940 Act
or will be exempt from registration pursuant to exemptions from registration
under Section 3 (c) of the 1940 Act (individually, a "Separate Account" and
collectively, the "Separate Accounts"). Shares of the Portfolios may also be
offered to Qualified Plans, the Manager and General Accounts, including the
general account of any life insurance company whose separate account holds, or
will hold, shares of the Funds.
*3 3. The Participating Insurance Companies at the time of their investment
in the Funds have established or will establish their own Separate Accounts
and design their own Variable Contracts. Each Participating Insurance Company
has or will have the legal obligation of satisfying all applicable
requirements under both state and federal law. Each Participating Insurance
Company, on behalf of its Separate Accounts, has entered or will enter into an
agreement with the Funds concerning such Participating Insurance Company's
participation in the Portfolios. The role of the Funds under this agreement,
insofar as the federal securities laws are applicable, will consist of, among
other things, offering shares of the Portfolios to the participating Separate
Accounts and complying with any conditions that the Commission may impose upon
granting the order requested herein.
Applicants' Legal Analysis:
1. Applicants seek an order pursuant to Section 6(c) of the 1940 Act
Page 21 of 33
exempting certain life insurance companies and their separate accounts that
currently invest or may hereafter invest in the AXP VP Funds (and to the
extent necessary, any investment adviser, principal underwriter and depositor
of such an account) 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 the AXP VP Funds and shares of any
Future Funds to be sold to and held by: (a) separate accounts funding Variable
Contracts issued by both affiliated and unaffiliated life insurance companies;
(b) Qualified Plans outside of the separate account context; (c) separate
accounts that are not registered as investment companies under the 1940 Act
pursuant to exemptions from registration under Section 3(c) of the 1940 Act;
(d) the Manager; and (e) any General Accounts, including the general account
of any life insurance company whose separate account holds, or will hold,
shares of the Funds.
2. In connection with the funding of scheduled premium variable life
insurance contracts issued through a separate account registered as a unit
investment trust ("UIT") under the 1940 Act, Rule 6e-2(b)(15) provides partial
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act. The
relief provided by Rule 6e-2 is also granted to the investment adviser,
principal underwriter and depositor of the separate account. Section 9(a)(2)
of the 1940 Act makes it unlawful for any company to serve as an investment
adviser or principal underwriter of any UIT if an affiliated person of that
company is subject to a disqualification enumerated in Sections 9(a)(1) or (2)
of the 1940 Act. Sections 13(a), 15(a) and 15(b) of the 1940 Act have been
deemed by the Commission to require "pass-through" voting with respect to an
underlying investment company's shares. Rule 6e-2(b)(15) provides that these
exemptions apply only where all of the assets of the UIT are shares of
management investment companies "which offer their 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 life
insurance separate account that owns shares of an underlying fund that also
offers its shares to a variable annuity separate account or a flexible premium
variable life insurance separate account of the same company or any other
affiliated insurance company. The use of a common management investment
company as the underlying investment vehicle for both variable annuity and
variable life insurance separate accounts of the same life insurance company
or of any affiliated life insurance company is referred to herein as "mixed
funding."
*4 3. The relief granted by Rule 6e-2(b)(15) also 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 vehicle for variable annuity and/or variable life insurance
separate accounts of unaffiliated life insurance companies is referred to
herein as "shared funding."
4. The relief under Rule 6e-2(b)(15) is available only where shares are
offered exclusively to variable life insurance separate accounts of a life
insurer or any affiliated life insurance company; additional exemptive relief
is necessary if the shares of the Portfolios are also to be sold to Qualified
Plans or other eligible holders of shares, as described above. Applicants note
that if shares of the Portfolios are sold only to Qualified Plans, exemptive
relief under Rule 6e-2 would not be necessary. The relief provided by this
section does not relate to Qualified Plans or to a registered investment
company's ability to sell its shares to Qualified Plans. The use of a common
management investment company as the underlying investment vehicle for
variable annuity and variable life separate accounts of affiliated and
unaffiliated insurance companies, and for Qualified Plans, is referred to
herein as "extended MIXED and SHARED funding."
5. In connection with flexible premium variable life insurance contracts
Page 22 of 33
issued through a separate account registered under the 1940 Act as a UIT, Rule
6e-3(T)(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940. The exemptions granted by Rule 6e-3 (T)(b)(15) are
available only where all the assets of the separate account consist of the
shares of one or more registered management investment companies that offer to
sell their shares "exclusively to separate accounts of the life insurer, or of
any affiliated life insurance companies, 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 or which offer their shares to any such life insurance
company in consideration solely for advances made by the life insurer in
connection with the operation of the separate account." Therefore, Rule
6e-3(T)(b)(15) permits mixed funding but does not permit shared funding.
6. The relief under Rule 6e-3(T) is available only where shares are offered
exclusively to variable life insurance separate accounts of a life insurance
company or any affiliated life insurance company, and additional exemptive
relief is necessary if the shares of the Portfolios are also to be sold to
Qualified Plans or other eligible holders of shares as described above.
Applicants note that if shares of the Portfolios were sold only to Qualified
Plans, exemptive relief under Rule 6e-3(T)(b)(15) would not be necessary. The
relief provided for under this section does not relate to Qualified Plans or
to a registered investment company's ability to sell shares to Qualified
Plans.
*5 7. Applicants maintain, as discussed below, that there is no policy
reason for the sale of the Portfolios' shares to Qualified Plans, the Manager
or General Accounts to result in a prohibition against, or otherwise limit, a
Participating Insurance Company from relying on the relief provided by Rules
6e-2(b)(15) and 6e-3(T)(b)(15). However, because the relief under Rules
6e-2(b)(15) and 6e-3(T)(b)(15) is available only when shares are offered
exclusively to separate accounts, additional exemptive relief may be necessary
if the shares of the Portfolios are also to be sold to Qualified Plans, the
Manger or General Accounts. Applicants therefore request relief in order to
have the Participating Insurance Companies enjoy the benefits of the relief
granted in Rules 6e-2(b)(15) and 6e-3(T)(b)(15). Applicants note that if the
Portfolios' shares were to be sold only to Qualified Plans, the Manger,
General Accounts and/or separate accounts funding variable annuity contracts,
exemptive relief under Rule 6e-2 and Rule 6e-3(T) would be unnecessary. None
of the relief provided for in Rules 6e-2(b)(15) and 6e-3(T)(b)(15) relates to
Qualified Plans, the Manager or General Accounts, or to a registered
investment company's ability to sell its shares to such purchasers.
8. Applicants also note that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) preceded the issuance of the Treasury Regulations that made it
possible for shares of an investment company portfolio to be held by the
trustees of a Qualified Plan, the investment company's investment manager or
its affiliates or a General Account without adversely affecting the ability of
shares of the same investment company portfolio to also be held by the
separate accounts of insurance companies in connection with their variable
insurance contracts. Thus, the sale of shares of the same portfolio to
separate accounts through which variable insurance contracts are issued and to
Qualified Plans, the investment company's investment manager or its affiliates
or General Accounts was not contemplated at the time of the adoption of Rules
6e-2(b)(15) and 6e-3(T)(b)(15).
9. Consistent with the Commission's authority under Section 6(c) of the 1940
Act to grant exemptive orders to a class or classes of persons and
transactions, the Application requests relief for the class consisting of
insurers and Separate Accounts (and to the extent necessary, investment
advisers, principal underwriters, and depositors of such accounts) that will
invest in the Portfolios.
10. Section 9(a)(3) of the 1940 Act provides that it is unlawful for any
Page 23 of 33
company to serve as investment adviser or principal underwriter of any
registered open-end investment company if an affiliated person of that company
is subject to a disqualification enumerated in Sections 9(a)(1) or (2). Rules
6e-2(b)(15)(i) and (ii) and Rules 6e-3(T)(b)(15)(i) and (ii) under the 1940
Act provide exemptions from Section 9(a) under certain circumstances, subject
to the limitations discussed above on mixed and shared funding. These
exemptions limit the application of the eligibility restrictions to affiliated
individuals or companies that directly participate in management of the
underlying management investment company.
*6 11. The partial relief granted in Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
under the 1940 Act from the requirements of Section 9 of the 1940 Act, in
effect, limits the amount of monitoring of an insurance company'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. Those
1940 Act rules recognize that it is not necessary for the protection of
investors or the purposes fairly intended by the policy and provisions of the
1940 Act to apply the provisions of Section 9(a) to many individuals in a
large insurance complex, most of whom will have no involvement in matters
pertaining to investment companies in that organization. The Participating
Insurance Companies and Qualified Plans are not expected to play any role in
the management or administration of the Funds. Those individuals who
participate in the management of the Funds will remain the same regardless of
which Separate Accounts or Qualified Plans invest in the Funds. Therefore,
applying the monitoring requirements of Section 9(a) of the 1940 Act because
of investment by Separate Accounts of other Participating Insurance Companies
or Qualified Plans would be unjustified and would not serve any regulatory
purpose. Furthermore, the increased monitoring costs could reduce the net
rates of return realized by contract owners and Qualified Plan participants.
12. Moreover, the relief requested should not be affected by the sale of
shares of the Portfolios to Qualified Plans, the Manager or General Accounts.
Since the Qualified Plans, the Manager and General Accounts are not themselves
investment companies, and therefore are not subject to Section 9 of the 1940
Act and will not be deemed affiliates solely by virtue of their shareholdings,
no additional relief is necessary.
13. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 Act
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
under the 1940 Act 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 such fund and its investment adviser,
when required to do so by an insurance regulatory authority (subject to the
provision of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of such rules). Rules
6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) under the 1940 Act provide
that the insurance company may disregard the voting instructions of its
contract owners if the contract owners initiate any change in an underlying
portfolio's investment policies, principal underwriter, or any investment
adviser (provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(5)(ii), (b)(7)(ii)(B), and
(b)(7)(ii)(C), respectively, of Rules 6e-2 and 6e-3(T) under the 1940 Act).
*7 14. Rule 6e-2 under the 1940 Act recognizes that a variable life
insurance contract, as an insurance contract, has important elements unique to
insurance contracts and is subject to extensive state regulation of insurance.
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. The Commission also expressly
recognized that state insurance regulators have authority to require an
insurance company to draw from its general account to cover costs imposed upon
the insurer by a change approved by contract owners over the insurance
Page 24 of 33
company's objection. The Commission, therefore, deemed such exemptions
necessary "to assure 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." In this respect, flexible
premium variable life insurance contracts are identical to scheduled premium
variable life insurance contracts. Therefore, the corresponding provisions of
Rule 6e-3(T) under the 1940 Act undoubtedly were adopted in recognition of the
same factors.
15. Applicants state that the sale of Portfolio shares to Qualified Plans,
the Manager and General Accounts will not have any impact on the relief
requested herein. With respect to Qualified Plans, which are not registered as
investment companies under the 1940 Act, there is no requirement to pass
through voting rights to Qualified Plan participants. Indeed, to the contrary,
applicable law expressly reserves voting rights associated with Qualified Plan
assets to certain specified persons. Under Section 403(a) of ERISA, shares of
a portfolio of a fund sold to a Qualified Plan must be held by the trustees of
the Qualified Plan. Section 403(a) also provides that the trustees 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
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 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 above two exceptions stated in
Section 403(a) applies, a Qualified Plan trustees have the exclusive authority
and responsibility for voting proxies.
16. Where a named fiduciary to a Qualified Plan appoints an investment
manager, the investment manager has the responsibility to vote the shares held
unless the right to vote such shares is reserved to the trustee or the named
fiduciary. The Qualified Plans may have their trustees or other fiduciaries
exercise voting rights attributable to investment securities held by the
Qualified Plans in their discretion. Some of the Qualified Plans, however, may
provide for the trustees, an investment adviser (or advisers), or another
named fiduciary to exercise voting rights in accordance with instructions from
participants. Similarly, the Manager and General Accounts are not subject to
any pass-through voting requirements. Accordingly, unlike the case with
insurance company separate accounts, the issue of resolution of material
irreconcilable conflicts with respect to voting is not present with Qualified
Plans, the Manager or General Accounts.
*8 17. Where a Qualified Plan does not provide participants with the right
to give voting instructions, the trustee or named fiduciary has responsibility
to vote the shares held by the Qualified Plan. In this circumstance, the
trustee has a fiduciary duty to vote the shares in the best interest of the
Qualified Plan participants. Accordingly, even if the Manager were to serve in
the capacity of trustee or named fiduciary with voting responsibilities, the
Manager would have a fiduciary duty to vote those shares in the best interest
of the Qualified Plan participants.
18. In addition, even if a Qualified Plan were to hold a controlling
interest in a Portfolio, Applicants do not believe that such control would
disadvantage other investors in such Portfolio to any greater extent than is
the case when any institutional shareholder holds a majority of the voting
securities of any open-end management investment company. In this regard,
Applicants submit that investment in a Portfolio by a Qualified Plan will not
create any of the voting complications occasioned by MIXED funding or SHARED
funding. Unlike MIXED funding or SHARED funding, Qualified Plan investor
voting rights cannot be frustrated by veto rights of insurers or state
regulators.
Page 25 of 33
19. Where a Qualified Plan provides participants with the right to give
voting instructions, Applicants see no reason to believe that participants in
Qualified Plans generally or those in a particular Qualified Plan, either as a
single group or in combination with participants in other Qualified Plans,
would vote in a manner that would disadvantage Variable Contract holders. The
purchase of SHARES of Portfolios by Qualified Plans that provide voting rights
does not present any complications not otherwise occasioned by MIXED or SHARED
funding.
20. The prohibitions on MIXED and SHARED funding might reflect concern
regarding possible different investment motivations among investors. When Rule
6e-2 under the 1940 Act was first adopted, variable annuity separate could
invest in mutual funds whose SHARES were also offered to the general public.
Therefore, the Commission staff contemplated underlying funds with public
shareholders, as well as with variable life insurance separate account
shareholders. The Commission staff may have been concerned with the
potentially different investment motivations of public shareholders and
variable life insurance contract owners. There also may have been some concern
with respect to the problems of permitting a state insurance regulatory
authority to affect the operations of a publicly available mutual fund and to
affect the investment decisions of public shareholders.
21. For reasons unrelated to the 1940 Act, however, Internal Revenue Service
------------------------
Revenue Ruling 81-225 (1981-2 C.B. 12) (as clarified in Revenue Ruling 82-55,
-------------------------------------- --------------------
1982-1 C.B. 12) effectively deprived variable annuities funded by publicly
---------------
available mutual funds of their tax-benefited status. The Tax Reform Act of
1984 codified the prohibition against the use of publicly available mutual
funds as an investment vehicle for variable contracts (including variable life
contracts). Section 817(h) of the Internal Revenue Code of 1986 (the "Code"),
---------------------------------------------------
as amended, in effect requires that the investments made by variable annuity
and variable life insurance separate accounts be "adequately diversified." If
a separate account is organized as a UIT that invests in a single fund or
series, the diversification test will be applied at the underlying fund level,
rather than at the separate account level, but only if "all of the beneficial
interests" in the underlying fund "are held by one or more insurance companies
(or affiliated companies) in their general account or in segregated asset
accounts ...." Accordingly, a UIT separate account that invests solely in a
publicly available mutual fund will not be adequately diversified. In
addition, any underlying mutual fund, including any Portfolio, that sells
shares to separate accounts, in effect, would be precluded from also selling
its shares to the public. Consequently, there will be no public Shareholders
in any Portfolio.
*9 22. Shared funding by unaffiliated insurance companies does not present
any issues that do not already exist where a single insurance company is
licensed to do business in several or all states. A particular state insurance
regulatory body could require action that is inconsistent with the
requirements of other states in which the insurance company offers its
policies. The fact that different Participating Insurance Companies may be
domiciled in different states does not create a significantly different or
enlarged problem.
23. Shared funding by unaffiliated Participating Insurance Companies, in
this respect, is no different than the use of the same investment company as
the funding vehicle for affiliated Participating Insurance Companies, which
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act permit under various
circumstances. Affiliated Participating Insurance Companies may be domiciled
in different states and be subject to differing state law requirements.
Affiliation does not reduce the potential, if any exists, for differences in
state regulatory requirements. In any event, the conditions set forth below
are designed to safeguard against, and provide procedures for resolving, any
adverse effects that differences among state regulatory requirements may
produce. If a particular state insurance regulator's decision conflicts with
the majority of other state regulators, then the affected Participating
Page 26 of 33
Insurance Company will be required to withdraw its Separate Account
investments in the affected 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 relevant Portfolio.
24. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act give an
insurance company the right to disregard contract owners' voting instructions.
This right does not raise any issues different from those raised by the
authority of state insurance administrators over separate accounts. Under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can disregard contract owner
voting instructions only with respect to certain specified items. Affiliation
does not eliminate the potential, if any exists, for divergent judgments as to
the advisability or legality of a change in investment policies, principal
underwriter, or investment adviser initiated by contract owners. The potential
for disagreement is limited by the requirements in Rules 6e-2 and 6e-3(T)
under the 1940 Act that the insurance company's disregard of voting
instructions be reasonable and based on specific good faith determinations.
25. A particular Participating Insurance Company's disregard of voting
instructions, nevertheless, could conflict with the majority of contract
owners' voting instructions. The Participating Insurance Company's action
possibly could be different than the determination of all or some of the other
Participating Insurance Companies (including affiliated insurance companies)
that the voting instructions of contract owners should prevail, and either
could preclude a majority vote approving the change or could represent a
minority view. If the Participating Insurance Company's judgment represents a
minority position or would preclude a majority vote, then the Participating
Insurance Company may be required, at the affected Fund's election, to
withdraw its Separate Account's investment in such Portfolio. No charge or
penalty will be imposed as a result of such withdrawal. This requirement will
be provided for in the agreements entered into with respect to participation
by the Participating Insurance Companies in each Portfolio.
*10 26. Each Portfolio will be managed to attempt to achieve the investment
objective or objectives of such Portfolio, and not to favor or disfavor any
particular Participating Insurance Company or type of insurance product. There
is no reason to believe that different features of various types of contracts,
including the "minimum death benefit" guarantee under certain Variable
Contracts, will lead to different investment policies for different types of
Variable Contracts. To the extent that the degree of risk may differ as
between variable annuity contracts and variable life insurance policies,
differing insurance charges imposed may well, in effect, adjust any such
differences and serve to equalize the insurance company's exposure in either
case.
27. Applicants do not believe that the sale of the shares of the Portfolios
to Qualified Plans, the Manager or General Accounts will increase the
potential for material irreconcilable conflicts of interest between or among
different types of investors. In particular, Applicants see very little
potential for such conflicts beyond those that would otherwise exist between
variable annuity and variable life insurance contract owners. Moreover, in
considering the appropriateness of the requested relief, Applicants have
analyzed the following issues to assure themselves that there were either no
conflicts of interest or that there existed the ability by the affected
parties to resolve the issues without harm to the contract owners in the
Separate Accounts or to the participants under the Qualified Plans.
28. Applicants considered whether there are any issues raised under the
Code, or Treasury Regulations or Revenue Rulings thereunder, if Qualified
Plans, the Manager, General Accounts, variable annuity separate accounts
and/or variable life insurance separate accounts all invest in the same
underlying fund. As noted above, Section 817(h) of the Code imposes certain
--------------
diversification standards on the underlying assets of variable annuities and
variable life insurance contracts held in an underlying mutual fund. The Code
Page 27 of 33
provides that a variable contract will not be treated as an annuity contract
or as life insurance, as applicable, for any period (and any subsequent
period) for which the investments are not, in accordance with Treasury
Regulations, adequately diversified.
29. Treasury Regulations issued under Section 817(h) provide that, in order
--------------
to meet the statutory diversification requirements, all of the beneficial
interests in the investment company must be held by the segregated asset
accounts of one or more insurance companies. However, Treasury Regulation
-------------------
Section 1.817-5(f)(3) specifically permits, among other things, "qualified
---------------------
pension or retirement plans," "the general account of a life insurance
company," "the manager ... of an investment company" and separate accounts to
share the same underlying management investment company. For this reason,
Applicants have concluded that neither the Code, nor Treasury Regulations or
Revenue Rulings thereunder, present any inherent conflicts of interest if
Separate Accounts, Qualified Plans, the Manager and General Accounts all
invest in the same underlying fund.
*11 30. Applicants note that, while there are differences in the manner in
which distributions from Variable Contracts and Qualified Plans are taxed,
these differences will have no impact on the Funds. When distributions are to
be made, and a Separate Account or Qualified Plan is unable to net purchase
payments to make distributions, the Separate Account or Qualified Plan will
redeem shares of the relevant Portfolio at their respective net asset values
in conformity with Rule 22c-1 under the 1940 Act (without the imposition of
any sales charge) to provide proceeds to meet distribution needs. A
Participating Insurance Company then will make distributions in accordance
with the terms of its Variable Contract, and a Qualified Plan then will make
distributions in accordance with the terms of the Qualified Plan.
31. In connection with any meeting of shareholders, the soliciting Fund will
inform each shareholder, including each Separate Account, Qualified Plan,
Manager and General Account, of information necessary for the meeting,
including their respective share of ownership in the relevant Portfolio. Each
Participating Insurance Company then will solicit voting instructions in
accordance with Rules 6e-2 and 6e-3(T), as applicable, and its agreement with
the Portfolio concerning participation in the relevant Portfolio. Shares of a
Portfolio that are held by the Manager and any General Account will be voted
in the same proportion as all Variable Contract owners having voting rights
with respect to that Portfolio. However, the Manager and any General Account
will vote their shares in such a manner as the Commission may require. Shares
held by Qualified Plans will be voted in accordance with applicable law. The
voting rights provided to Qualified Plans with respect to shares of a
Portfolio would be no different from the voting rights that are provided to
Qualified Plans with respect to shares of funds sold to the general public.
Furthermore, if a material irreconcilable conflict arises because of a
Qualified Plan's decision to disregard Qualified Plan participant voting
instructions, if applicable, and that decision represents a minority position
or would preclude a majority vote, the Qualified Plan may be required, at the
election of the affected Fund, to withdraw its investment in such Portfolio,
and no charge or penalty will be imposed as a result of such withdrawal.
32. Applicants reviewed whether a "senior security," as such term is defined
under Section 18(g) of the 1940 Act, is created with respect to any Variable
Contract owner as opposed to a participant under a Qualified Plan, the Manger
or a General Account. Applicants concluded that the ability of the Funds to
sell their Portfolios directly to Qualified Plans, the Manager or General
Accounts does not create a "senior security." "Senior security" is defined
under Section 18(g) of the 1940 Act to include "any stock of a class having
priority over any other class as to distribution of assets or payment of
dividends." As noted above, regardless of the rights and benefits of
participants under Qualified Plans or contract owners under Variable
Contracts, Qualified Plans, the Manager, General Accounts and the Separate
Accounts only have rights with respect to their respective shares of the
Page 28 of 33
Portfolio. They only can redeem such shares at net asset value. No shareholder
of a Portfolio has any preference over any other shareholder with respect to
distribution of assets or payment of dividends.
*12 33. Applicants also considered whether there are any conflicts between
contract owners of the Separate Accounts and the participants under the
Qualified Plans, the Manager and the General Accounts with respect to the
state insurance commissioners' veto powers over investment objectives.
Although the interests and opinions of shareholders may differ, this does not
mean that inherent conflicts of interest exist between or among such
shareholders. State insurance commissioners have been given certain veto
powers in recognition of the fact that insurance companies usually cannot
simply redeem their separate accounts out of one fund and invest in another.
Generally, time-consuming, complex transactions must be undertaken to
accomplish such redemptions or transfers. Conversely, the trustees of
Qualified Plans or the participants in participant-directed Qualified Plans,
the Manager and General Accounts can make decisions quickly, redeem their
interests in the Portfolios and reinvest in another funding vehicle without
the same regulatory impediments faced by the Separate Accounts or, as in the
case with most Qualified Plans, even hold cash pending suitable investments.
Based on the foregoing, issues where the interests of contract owners and the
interests of Qualified Plans, the Manager and General Accounts are in conflict
can be almost immediately resolved since the trustees (or participants in) the
Qualified Plans, the Manager and the General Accounts can, on their own,
redeem shares out of the Portfolios.
34. Applicants do not see any greater potential for material irreconcilable
conflicts arising between the interests of participants in Qualified Plans,
General Accounts and contract owners of the Separate Accounts from future
changes in the federal tax laws than that which already exists between
variable annuity contract owners and variable life insurance contract owners.
35. Applicants assert that permitting a Portfolio to sell its shares to the
Manager in compliance with Treasury Regulation Section 1.817-5 will enhance
-----------------------------------
Portfolio management without raising significant concerns regarding material
irreconcilable conflicts. Unlike the circumstances of many investment
companies that serve as underlying investment media for variable insurance
products, the Funds may be deemed to lack an insurance company "promoter" for
purposes of Rule 14a-2 under the 1940 Act. Accordingly the Funds and any
Portfolios thereunder that are established as new registrants may be subject
to the requirements of Section 14(a) of the 1940 Act, which generally requires
that an investment company have a net worth of $100,000 upon making a public
offering of its shares. A potential source of the requisite initial capital is
a Portfolio's Manager or a Participating Insurance Company. Given the
conditions of Treasury Regulation Section 1.817-5(f)(3) and the harmony of
-----------------------------------------
interest between a Portfolio, on the one hand, and its Manager or a
Participating Insurance Company on the other, Applicants assert that little
incentive for overreaching exists. Furthermore, permitting investments by the
Manager or Participating Insurance Companies' General Accounts will permit the
orderly and efficient creation and operation of the Funds or Portfolios
thereof, and reduce the expense and uncertainty of using outside parties at
the early stages of Portfolio operations.
*13 36. Various factors have limited the number of insurance companies that
offer variable annuity and variable life insurance contracts. Use of a
Portfolio as a common investment vehicle for Variable Contracts, Qualified
Plans and General Accounts would help reduce or eliminate these factors
because Participating Insurance Companies, Qualified Plans and General
Accounts will benefit not only from the investment and administrative
expertise of AEFC, or any other investment manager to a Portfolio, but also
from the cost efficiencies and investment flexibility afforded by a large pool
of funds. Therefore, making the Funds available for MIXED and SHARED funding
and permitting the purchase of Portfolio SHARES by Qualified Plans and General
Accounts may encourage more insurance companies to offer variable contracts.
Page 29 of 33
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. Mixed and shared funding also may benefit
Variable Contract owners by eliminating a significant portion of the costs of
establishing and administering separate funds. Furthermore, granting the
requested relief should result in an increased amount of assets available for
investment by the Funds. This may benefit Variable Contract owners by
promoting economies of scale, by reducing risk through greater diversification
due to increased money in the Fund, or by making the addition of new
Portfolios more feasible.
Applicant's Conditions:
Applicants agree that the order granting the requested relief will be
subject to the following conditions, which will apply to the AXP VP Funds as
well as any Future Fund that relies on the requested order:
1. A majority of the Board of Trustees or Board of Directors (the "Board")
of each Fund will consist of persons who are not "interested persons" of the
Fund, 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
("Independent Board Members"), except that if this condition is not met by
reason of the death, disqualification, or bona-fide resignation of any trustee
or director, then the operation of this condition will be suspended: (a) for a
period of 90 days if the vacancy or vacancies may be filled by the Board; (b)
for a period of 150 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 or by future rule.
2. Each Board will monitor each Fund for the existence of any material
irreconcilable conflict among and between the interests of the contract owners
of all Separate Accounts and participants of all Qualified Plans investing in
such 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, 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 Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract owners, variable life insurance contract owners and trustees
of the 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 Qualified Plan to disregard the voting instructions of Qualified
Plan participants.
*14 3. Participating Insurance Companies (on their own behalf, as well as by
virtue of any investment of general account assets in a Portfolio), the
Manager and any Qualified Plan that executes a participation agreement upon
becoming an owner of 10 percent or more of the assets of any Portfolio
(collectively, the "Participants") will report any potential or existing
conflicts to the Board. The Participants will be responsible for assisting the
Board in carrying out the Board's responsibilities under these conditions by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This 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 Qualified Plan to
inform the Board whenever it has determined to disregard Qualified Plan
participant voting instructions. The responsibility to report such information
and conflicts, and to assist the Board, will be a contractual obligation of
all Participating Insurance Companies under their participation agreements
with the Funds, and these responsibilities will be carried out with a view
only to
Page 30 of 33
the interests of the contract owners. The responsibility to report
such information and conflicts, and to assist the Board, also will be
contractual obligations of all Qualified Plans with participation agreements,
and such agreements will provide that these responsibilities will be carried
out with a view only to the interests of Qualified Plan participants.
4. If it is determined by a majority of the Board, or a majority of the
Independent Board Members, that a material irreconcilable conflict exists,
then the relevant Participant will, at its expense and to the extent
reasonably practicable (as determined by a majority of the Independent Board
Members), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, up to and including: (a) withdrawing the
assets allocable to some or all of the Separate Accounts from the relevant
Portfolio and reinvesting such assets in a different investment vehicle
including another Portfolio, if any or, in the case of Participating Insurance
Company Participants, submitting the question as to whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners 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 (b) establishing a new registered management investment
company or managed separate account. If a material irreconcilable conflict
arises because of a decision by a Participating Insurance Company to disregard
contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, then the Participating Insurance
Company may be required, at the election of a Fund, to withdraw such
Participating Insurance Company's Separate Account's investment in the Fund,
and no charge or penalty will be imposed as a result of such withdrawal. If a
material irreconcilable conflict arises because of a Qualified Plan's decision
to disregard Qualified Plan participant voting instructions, if applicable,
and that decision represents a minority position or would preclude a majority
vote, the Qualified Plan may be required, at the election of a Fund, to
withdraw its 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 will be a contractual obligation of
all Participants under their agreements governing participation in the Funds,
and these responsibilities will be carried out, with a view only to the
interests of contract owners and, as applicable, Qualified Plan participants.
*15 For purposes of this Condition 4, a majority of the Independent Board
Members will determine whether or not any proposed action adequately remedies
any material irreconcilable conflict, but, in no event, will a Fund or the
Manager, as relevant, be required to establish a new funding vehicle for any
Variable Contract. No Participating Insurance Company will be required by this
Condition 4 to establish a new funding vehicle for any Variable Contract if
any offer to do so has been declined by vote of a majority of the contract
owners materially and adversely affected by the material irreconcilable
conflict. Further, no Qualified Plan will be required by this Condition 4 to
establish a new funding vehicle for the Qualified Plan if: (a) a majority of
the Qualified Plan participants materially or adversely affected by the
irreconcilable material conflict vote to decline such offer, or (b) pursuant
to documents governing the Qualified Plan, the Qualified Plan makes such
decision without a Qualified Plan participant vote.
5. The Board's determination of the existence of a material irreconcilable
conflict and its implications will be made known in writing promptly to all
Participants.
6. As to Variable Contracts issued by Separate Accounts registered under the
1940 Act, Participating Insurance Companies will provide pass-through voting
privileges to all Variable Contract owners as required by the 1940 Act as
interpreted by the Commission. However, as to Variable Contracts issued by
Page 31 of 33
unregistered Separate Accounts, pass-through voting privileges will be
extended to contract owners to the extent granted by the issuing insurance
company. Accordingly, such Participants, where applicable, will vote shares of
the applicable Portfolio held in their Separate Accounts in a manner
consistent with voting instructions timely received from Variable Contract
owners. Participating Insurance Companies will be responsible for assuring
that each Separate Account investing in a Portfolio calculates voting
privileges in a manner consistent with other Participants.
The obligation to calculate voting privileges as provided in the Application
will be a contractual obligation of all Participating Insurance Companies
under their agreements with the Funds governing participation in a Portfolio.
Each Participating Insurance Company will vote shares for which it has not
received timely voting instructions, as well as shares it owns through its
Separate Accounts, in the same proportion as it votes those shares for which
it has received voting instructions. Each Qualified Plan will vote as required
by applicable law and governing Qualified Plan documents.
7. As long as the 1940 Act requires pass-through voting privileges be
provided to Variable Contract owners, the Manager and any General Account will
vote its shares of any Portfolio in the same proportion as all Variable
Contract owners having voting rights with respect to that Portfolio; provided,
however, that the Manager or any insurance company General Account will vote
its shares in such other manner as may be required by the Commission or its
staff.
*16 8. The Funds 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 the shares of the respective Portfolios, and, in particular
the Funds 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) of the 1940 Act (although the AXP VP
Funds are not the type of funds 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, the Portfolios will act in accordance
with the Commission's interpretation of the requirements of Section 16(a) of
the 1940 Act with respect to periodic elections of directors or trustees and
with whatever rules the Commission may promulgate with respect thereto.
9. A Portfolio will make its shares available to the Separate Accounts and
Qualified Plans at or about the same time it accepts any seed capital from the
Manager or General Account of a Participating Insurance Company.
10. The Funds will notify all Participants that Separate Account prospectus
disclosure or Qualified Plan prospectuses or other Qualified Plan disclosure
documents regarding potential risks of MIXED and SHARED funding may be
appropriate. The Funds will disclose in their prospectuses that: (a) SHARES of
the Portfolios may be offered to Separate Accounts of Variable Contracts and,
if applicable, to Qualified Plans; (b) due to differences in tax treatment and
other considerations, the interests of various contract owners participating
in the Funds and the interests of Qualified Plans investing in the Funds, if
applicable, may conflict; and (c) the Board will monitor events in order to
identify the existence of any material irreconcilable conflicts and determine
what action, if any, should be taken in response to any such conflict.
11. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940 Act
are amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to provide
exemptive relief from any provision of the 1940 Act, or the rules promulgated
thereunder, with respect to mixed or shared funding, on terms and conditions
materially different from any exemptions granted in the order requested in the
Application, then Funds and/or Participating Insurance Companies, as
appropriate, will take such steps as may be necessary to comply with Rules
6e-2 and Rule 6e-3(T) or Rule 6e-3, as such rules are applicable.
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12. The Participants, at least annually, will submit to the Board such
reports, materials, or data as the Board reasonably may request so that the
directors or trustees of the Board may fully carry out the obligations imposed
upon the Board by the conditions contained in the Application. Such reports,
materials, and data will be submitted more frequently if deemed appropriate by
the Board. The obligations of the Participants to provide these reports,
materials, and data to the Board, when it so reasonably requests, will be a
contractual obligation of all Participants under their agreements governing
participation in the Portfolios.
*17 13. All reports of potential or existing conflicts received by the
Board, and all Board action with regard to determining the existence of a
conflict, notifying Participants of a conflict, and determining whether any
proposed action adequately remedies a conflict, will be properly recorded in
the minutes of the Board or other appropriate records, and such minutes or
other records will be made available to the Commission upon request.
14. A Fund will not accept a purchase order from a Qualified Plan if such
purchase would make the Qualified Plan shareholder an owner of 10 percent or
more of the assets of such Portfolio unless the Qualified Plan executes an
agreement with the Fund governing participation in such Portfolio that
includes the conditions set forth herein to the extent applicable. A Qualified
Plan or Qualified Plan Participant will execute an application containing an
acknowledgement of this condition at the time of its initial purchase of
shares of any Portfolio.
Conclusion:
Applicants submit, based on the grounds summarized above, that the requested
exemptions, in accordance with the standards of Section 6(c), are 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.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Xxxxxxxx X. XxXxxxxxx
Deputy Secretary
Release No. IC - 26468, 83 S.E.C. Docket 233, 2004 WL 1403151 (S.E.C.
Release No.)
END OF DOCUMENT
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