[Federal Register Volume 63, Number 109 (Monday, June 8, 1998)]
[Notices]
[Pages 31238-31243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15077]



[[Page 31238]]

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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23233; File No. 812-11100]


Investors Mark Series Fund, Inc., et al.; Notice of Application

June 1, 1998.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of Application for an order pursuant to Section 6(c) of 
the Investment Company Act of 1940 (``1940 Act'').

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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section 
6(c) of the 1940 Act for exemptions from the provisions of Sections 
9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) thereunder to the extent necessary to permit shares of 
any current or future series of the Investors Mark Series Fund, Inc. 
(the ``Fund'') and shares of any other investment company that is 
designed to fund variable insurance products and for which Investors 
Mark Advisors, LLC (the ``Adviser''), or any of its affiliates, may 
serve now or in the future, as investment adviser, administrator, 
manager, principal underwriter or sponsor (the Fund and such other 
investment companies referred to collectively as the ``Insurance 
Products Funds'') to be offered and sold to, and held by variable 
annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies (``Participating 
Insurance Companies''), qualified pension and retirement plans outside 
of the separate account context (``Qualified Plans'' or ``Plans''), and 
the Adviser or any of its affiliates.

APPLICANTS: Investors Mark Series Fund, Inc. and Investors Mark 
Advisors, LLC.

FILING DATE: The application was filed on April 3, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the Commission and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on June 26, 1998, 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 requester's interest, the reason for the request and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESS: Secretary, U.S. Securities and Exchange Commission: 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Blazzard, Grodd & 
Hasenauer, P.C., 943 Post Road East, Westport, Connecticut 06880, 
Attention: Raymond A. O'Hara III, Esq.

FOR FURTHER INFORMATION CONTACT: Susan M. Olson, Attorney, or Kevin M. 
Kirchoff, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 450 Fifth Street, N.W., 
Washington, D.C. 20549 (202-942-8090).

Applicants' Representations

    1. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940 and 
serves as the investment adviser for the Fund.
    2. The Fund, an open-end management investment company, is a 
Maryland corporation. The Fund consists of ten series, nine of which 
are currently offered. The Fund may in the future issue shares of 
additional series.
    3. Shares of the Fund are offered to separate accounts of 
Participating Insurance Companies to serve as investment vehicles for 
variable annuity and variable life insurance contracts (including 
single premium, scheduled premium, modified single premium and flexible 
premium contracts) (collectively, ``Variable Contracts''). These 
separate accounts either will be registered as investment companies 
under the 1940 Act or will be exempt from such registration.
    4. The Participating Insurance Companies will establish their own 
separate accounts and design their own Variable Contracts. Each 
Participating Insurance Company will have the legal obligation of 
satisfying all applicable requirements under the federal securities 
laws. The role of the Insurance Products Funds will be limited to that 
of offering their shares to separate accounts of Participating 
Insurance Companies and to Qualified Plans and fulfilling the 
conditions set forth in the application and described later in this 
notice. Each Participating Insurance Company will enter into a fund 
participation agreement with the Insurance Products Fund in which the 
Participating Insurance Company invests.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act granting exemptions from Sections 9(a), 
13(a), 15(a) and 15(b) thereof and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder, to the extent necessary to permit shares of the Insurance 
Products Funds to be offered and sold to, and held by: (a) variable 
annuity and variable life insurance separate accounts of the same life 
insurance company or of any affiliated life insurance company (``mixed 
funding''); (b) separate accounts of unaffiliated life insurance 
companies (including both variable annuity and variable life separate 
accounts) (``shared funding''); (c) qualified pension and retirement 
plans outside the separate account context; and (d) the Adviser or any 
of its affiliates (representing seed money investments in the Insurance 
Products Funds).
    2. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 
provides partial exemptions from Section 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act. These exemptions are available only where all of the 
assets of the separate account consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to variable life insurance separate accounts of the life 
insurer or any affiliated life insurance company. Therefore, the relief 
granted by Rule 6e-2(b)(15) is not available if the scheduled premium 
variable life insurance separate account owns shares of a management 
investment company that also offers its shares to a variable annuity 
separate account of the same insurance company or an affiliated 
insurance company. The relief granted by Rule 6e-2(b)(15) is not 
available if the scheduled premium variable life insurance separate 
account owns shares of an underlying management investment company that 
also offers its shares to a variable annuity account of the same 
insurance company or an affiliated insurance company or to separate 
accounts funding variable contracts of one or more unaffiliated life 
insurance companies. The relief granted by Rule 6e-2(b)(15) also is not 
available if the shares of the Insurance Products Funds also are sold 
to Qualified Plans.
    3. In connection with the funding of flexible premium variable life 
insurance

[[Page 31239]]

contracts issued through a separate account registered under the 1940 
Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides partial 
exemptions from Sections 9(a), 13(a), and 15(a) and 15(b) of the 1940 
Act. These exemptions are available only where all of the assets of the 
separate account consist of the shares of one or more registered 
management investment companies which offer their shares exclusively to 
separate accounts of the life insurer, or of any affiliated life 
insurance company, offering either scheduled premium variable life 
insurance contracts or flexible premium variable life insurance 
contracts, or both; or which also offer their shares to variable 
annuity separate accounts of the life insurer or of an affiliated life 
insurance company. Therefore, the exemptions provided by Rule 6e-
3(T)(b)(15) are available if the underlying fund is engaged in mixed 
funding, but are not available if the fund is engaged in shared funding 
or if the fund sell its shares to Qualified Plans.
    4. Applicants state that the current tax law permits the Insurance 
Products Funds to increase their asset base through the sale of shares 
to Plans. Section 817(h) of the Internal Revenue Code of 1986, as 
amended (the ``Code''), imposes certain diversification standards on 
the underlying assets of Variable Contracts. The Code provides that 
such contracts shall not be treated as an annuity contract or life 
insurance contract for any period (and any subsequent period) during 
which the investments are not adequately diversified in accordance with 
regulations prescribed by the Treasury Department. Treasury regulations 
provide that, to meet the diversification requirements, all of the 
beneficial interests in an investment company must be held by the 
segregated asset accounts of one or more insurance companies. The 
regulations do contain exceptions to this requirement, however, one of 
which permits shares of an investment company to be held by the trustee 
of a qualified pension or retirement plan without adversely affecting 
the ability of shares in the same investment company also to be held by 
the separate accounts of insurance companies in connection with their 
variable annuity and variable life contracts (Treas. Reg. Sec. 1.817.-
5(f)(3)(iii)).
    5. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
preceded the issuance of these Treasury regulations. Applicants assert 
that, given the then current tax law, the sale of shares of the same 
underlying fund to separate accounts and to Plans could not have been 
envisioned at the time of the adoption of Rules 6e-2(b)(15) and 6e-
3(T)(b)(15).
    6. Applicants request relief for a class or classes of persons and 
transactions consisting of Participating Insurance Companies and their 
scheduled premium variable life insurance separate accounts and 
flexible premium variable life insurance separate accounts (and, to the 
extent necessary, any investment adviser, principal underwriter and 
depositor of such separate accounts) investing in any of the Insurance 
Products Funds.
    7. Section 6(c) authorizes the Commission to grant exemptions from 
the provisions of the 1940 Act, and rules thereunder, if and to the 
extent that an exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act. 
Applicants assert that the requested exemptions are appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.

Disqualification

    8. Section 9(a)(3) of the 1940 Act provides that it is unlawful for 
any company to act as investment adviser to or principal underwriter of 
any registered open-end investment company if an affiliated person of 
that company is subject to a disqualification enumerated in Sections 
9(a) (1) or (2). Rules 6e-2(b)(15) (i) and (ii), and 6e-3(T)(b)(15) (i) 
and (ii) provide partial exemptions from Section 9(a) under certain 
circumstances, subject to the limitations on mixed and shared funding. 
These exemptions limit the application of eligibility restrictions to 
affiliated individuals or companies that directly participate in the 
management or administration of the underlying investment company.
    9. Applicants state that the relief from Section 9(a) provided by 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount of 
monitoring necessary to ensure compliance with Section 9 to that which 
is appropriate in light of the policy and purposes of Section 9. 
Applicants assert that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the 1940 Act to apply the provisions of Section 9(a) to the many 
individuals who do not directly participate in the administration or 
management of the Insurance Products Funds, who are employed by the 
various unaffiliated insurance companies (or affiliated companies of 
Participating Insurance Companies) that may utilize the Insurance 
Products Funds as the funding medium for Variable Contracts. Applicants 
do not expect the Participating Insurance Companies to play any role in 
the management or administration of the Insurance Products Funds. 
Applicants assert, therefore, that applying the restrictions of Section 
9(a) to individuals employed by Participating Insurance Companies 
serves no regulatory purpose.
    10. Applicants state that the relief requested should not be 
affected by the proposed sale of Insurance Products Funds to Qualified 
Plans because the Plans are not investment companies and will not be 
deemed affiliates solely by virtue of their shareholdings.

Pass-Through Voting

    11. Applicants submit that rule 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) assume the existence of a ``pass-through voting'' 
requirement with respect to management investment company shares held 
by a separate account. Applicants state that Rule 6e-2(b)(15)(iii) and 
Rule 6e-3(T)(b)(15)(iii) provide exemptions from the pass-through 
voting requirements is limited situations, assuming the limitations on 
mixed and shared funding imposed by the 1940 Act and the rules 
thereunder are observed. More specifically, Rules 6e-2(b)(15)(iii)(A) 
and 6e-3(T)(b)(15)(iii)(A) provide that the insurance company may 
disregard the voting instructions of its contract owners in connection 
with the voting of shares of an underlying investment company if such 
instructions would require such shares to be voted to cause an 
underlying investment company to make, or refrain from making, certain 
investments which would result in changes in the sub classification or 
investment objectives of such company, or to approve or disapprove any 
contract between an investment company and its investment adviser, when 
required to do so by an insurance regulatory authority. In addition, 
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that an 
insurance company may disregard contract owners' voting instructions 
with regard to changes initiated by the contract owners in the 
investment company's investment policies, principal underwriter or 
investment adviser, provided that disregarding such voting instructions 
is based on specific good faith determinations.
    12. Shares of the Insurance Products Funds sold to Qualified Plans 
will be held by the trustees of such Plans as required by Section 
403(a) of the Employee Retirement Income Security Act of 1974 
(``ERISA''). Section 403(a)

[[Page 31240]]

also provides that the trustees must have exclusive authority and 
discretion to manage and control the Plan with two exceptions: (a) when 
the Qualified Plan expressly provides that the trustees are subject to 
the direction of a named fiduciary who is not a trustee, in which case 
the trustees are subject to proper directions made in accordance with 
the terms of the Plan and not contrary to ERISA; and (b) when the 
authority to manage, acquire or dispose of assets of the Qualified Plan 
is delegated to one or more investment managers pursuant to Section 
402(c)(3) of ERISA. Unless one of the two exceptions stated in Section 
403(a) applies, the Qualified Plan trustees have exclusive authority 
and responsibility for voting proxies. Where a named fiduciary appoints 
an investment manager, the investment manager has the responsibility to 
vote the shares held unless the right to vote such shares is reserved 
to the trustees or the named fiduciary. The Qualified Plans may have 
their trustees or other fiduciaries exercise voting rights attributable 
to investment securities held by the Qualified Plans in their 
discretion. Where a Qualified Plan does not provide Qualified Plan 
participants with the right to give voting instructions, Applicants 
state that they do not see any potential for irreconcilable material 
conflicts of interest between or among Variable Contract holders and 
Plan participants with respect to voting of the respective Insurance 
Products Fund's shares. Accordingly, Applicants note that, unlike the 
case with insurance company separate accounts, the issue of the 
resolution of material irreconcilable conflicts with respect to voting 
is not present with respect to Qualified Plans since the Plans are not 
entitled to pass-through voting privileges. Even if a Qualified Plan 
were to hold a controlling interest in an Insurance Products Fund, the 
Applicants do not believe that such control would disadvantage other 
investors in such Insurance Products Fund 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, the Applicants submit that investment in an Insurance 
Products Fund by a Qualified Plan will not create any of the voting 
complications occasioned by mixed funding or shared funding.
    13. Applicants state that some of the Qualified Plans may provide 
for the trustee(s), an investment adviser(s) or another named fiduciary 
to exercise voting rights in accordance with instructions from 
Qualified Plan participants. Applicants state that, in such cases, the 
purchase of shares by such Qualified Plans does not present any 
complications not otherwise occasioned by mixed or shared funding.

Conflicts of Interest

    14. Applicants state that no increased conflict of interest would 
be presented by the granting of the requested relief. Applicants submit 
that share funding does not present any issues that do not already 
exist where a single insurance company is licensed to do business in 
several states. In this regard, Applicants note that when different 
Participating Insurance Companies are domiciled in different states, it 
is possible that the state insurance regulatory body in a state in 
which one Participating Insurance Company is domiciled could require 
action that is inconsistent with the requirements of other insurance 
regulators in one or more other states in which other Participating 
Insurance Companies are domiciled. The possibility, however, is no 
different or greater than exists when a single insurer and its 
affiliates offer their insurance products in several states, as is 
currently permitted.
    15. Applicants state that affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. In any event, the conditions set forth in the application 
and later in this notice (which are adapted from the conditions 
included in Rule 6e-3(T)(b)(15)) are designed to safeguard against any 
adverse effects that differences among state regulatory requirements 
may produce. If a particular state insurance regulator's decision 
conflicts with the majority of other state regulators, the affected 
insurer may be required to withdraw its separate account's investment 
in the relevant Insurance Products Funds.
    16. Applicants also assert that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company could disregard Variable Contract owner 
voting instructions. The potential for disagreement is limited by the 
requirements that disregarding voting instructions be reasonable and 
based on specified good faith determinations. However, if the 
Participating Insurance Company's decision to disregard Variable 
Contract owner voting instructions represents a minority position or 
would preclude a majority vote approving a particular change, such 
Participating Insurance Company may be required, at the election of the 
relevant Insurance Products Fund, to withdraw its separate account's 
investment in that Insurance Products Fund and no charge or penalty 
will be imposed upon the Variable Contract owners as a result of such 
withdrawal.
    17. Applicants submit that there is no reason why the investment 
policies of an Insurance Products Fund with mixed funding would or 
should be materially different from what those policies would or should 
be if such Insurance Products Fund or series thereof funded only 
variable annuity or variable life insurance contracts. In this regard, 
Applicants note that a fund's adviser is legally obligated to manage 
the fund in accordance with the fund's investment objectives, policies 
and restrictions as well as any guidelines established by the fund's 
Board. Applicants submit that no one investment strategy can be 
identified as appropriate to a particular insurance product or to a 
Plan. Each pool of variable annuity and variable life insurance 
contract owners is composed of individuals of diverse financial status, 
age, insurance and investment goals. A fund supporting even one type of 
insurance product must accommodate these diverse factors in order to 
attract and retain purchasers. Applicants submit that permitting mixed 
and shared funding will provide economic support for the continuation 
of the Insurance Products Funds. In addition, permitting mixed and 
shared funding also will facilitate the establishment of additional 
series of Insurance Products Funds serving diverse goals.
    18. As noted above, Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of variable annuity 
contracts and variable life insurance contracts held in the portfolios 
of management investment companies. Treasury Regulation Sec. 1.817-
5(f)(3)(iii), which established diversification requirements for such 
portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans'' and insurance company separate accounts 
to share the same underlying investment company. Therefore, Applicants 
assert that neither the Code, nor the Treasury regulations, nor the 
revenue rulings thereunder present any inherent conflicts of interest 
if the Qualified Plans, variable annuity separate accounts, and 
variable life insurance separate accounts all invest in the same 
management investment company.
    19. While there are differences in the manner in which 
distributions are taxed for variable annuity contracts, variable life 
insurance contracts and Plans, Applicants state that the tax 
consequences do not raise any conflicts

[[Page 31241]]

of interest. When distributions are to be made, and the separate 
account of the Participating Insurance Company or Qualified Plan cannot 
net purchase payments to make the distributions, the separate account 
or Qualified Plan will redeem shares of the Insurance Products Funds at 
their respective net asset values. The Qualified Plan will then make 
distributions in accordance with the terms of the Plan and the 
Participating Insurance Company will make distributions in accordance 
with the terms of the Variable Contract.
    20. Applicants submit that the ability of the Insurance Products 
Funds to sell their respective shares directly to Qualified Plans does 
not create a ``senior security,'' as such term is defined under Section 
18(g) of the 1940 Act, with respect to any Variable Contract owner as 
opposed to a participant under a Qualified Plan. As noted above, 
regardless of the rights and benefits of participants under the 
Qualified Plans, or Variable Contract owners under their Variable 
Contracts, the Qualified Plans and the separate accounts of 
Participating Insurance Companies have rights only with respect to 
their respective shares of the Insurance Products Funds. They can 
redeem such shares at their net asset value. No shareholder of any of 
the Insurance Products Funds has any preference over any other 
shareholder with respect to distribution of assets or payments of 
dividends.
    21. Applicants assert that there are no conflicts between the 
Variable Contract owners and the Plan participants with respect to 
state insurance commissioners' veto powers over investment objectives. 
The basic premise of shareholder voting is that not all shareholders 
may agree with a particular proposal. While time-consuming, complex 
transactions may be undertaken to accomplish redemptions and transfers 
by separate accounts, trustees of Qualified Plans can quickly redeem 
shares from Insurance Products Funds and reinvest in other funding 
vehicles without the same regulatory impediments or, as in the case 
with most Qualified Plans, even hold cash or other liquid assets 
pending suitable alternative investment. Applicants maintain that even 
if there should arise issues where the interests of Variable Contract 
owners and the interests of participants in Plans are in conflict, the 
issues can be almost immediately resolved because the trustees of the 
Plans can, on their own, redeem shares out of the Insurance Products 
Funds.
    22. Applicants submit that mixed and shared funding should provide 
benefits to Variable Contract owners by eliminating a significant 
portion of the costs of establishing and administering separate funds. 
Participating Insurance Companies will benefit not only from the 
investment and administrative expertise of the Adviser and the 
subadvisers, but also from the cost efficiencies and investment 
flexibility afforded by a larger pool of assets. Mixed and shared 
funding also would permit a greater amount of assets available for 
investment by the Insurance Products Funds, thereby promoting economies 
of scale, by permitting increased safety through greater 
diversification and by making the addition of new series more feasible. 
Therefore, making the Insurance Products Funds available for mixed and 
shared funding will encourage more insurance companies to offer 
Variable Contracts, and this should result in increased competition 
with respect to both Variable Contract design and pricing, which can be 
expected to result in more product variation and lower charges.
    23. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding. Separate accounts organized as 
unit investment trusts historically have been employed to accumulate 
shares of mutual funds which have not been affiliated with the 
depositor or sponsor of the separate account. Applicants do not believe 
that mixed and shared funding, and sales to Qualified Plans, will have 
any adverse federal income tax consequences.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of each Insurance Products Fund's Board of Trustees 
or Directors (each, a ``Board'') shall consist of persons who are not 
``interested persons'' thereof, as defined by Section 2(a)(19) of the 
1940 Act and the rules thereunder and as modified by any applicable 
orders of the Commission, except that if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
Board member, then the operation of this condition shall be suspended: 
(a) for a period of 45 days, if the vacancy or vacancies may be filled 
by the Board; (b) for a period of 60 days, if a vote of shareholders is 
required to fill the vacancy or vacancies; or (c) for such longer 
period as the Commission may prescribe by order upon application.
    2. Each Insurance Products Fund's Board will monitor the fund for 
the existence of any material irreconcilable conflict between and among 
the interests of the Variable Contract owners of all separate accounts 
and of Plan participants and Qualified Plans investing in the Insurance 
Products Funds, and determine what action, if any, should be taken in 
response to such conflicts. A material irreconcilable conflict may 
arise for a variety of reasons, including:
    (a) an action by any state insurance regulatory authority;
    (b) a change in applicable federal or state insurance, tax, or 
securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax, or securities regulatory authorities;
    (c) an administrative or judicial decision in any relevant 
proceeding;
    (d) the manner in which the investments of the funds are being 
managed;
    (e) a difference in voting instructions given by variable annuity 
contract owners, variable life insurance contract owners and trustees 
of the Plans;
    (f) a decision by a Participating Insurance Company to disregard 
the voting instructions of Variable Contract owners; or
    (g) if applicable, a decision by a Qualified Plan to disregard the 
voting instructions of Plan participants.
    3. The Adviser (or any other investment adviser of an Insurance 
Products Fund), any Participating Insurance Company and any Qualified 
Plan that executes a fund participation agreement upon becoming an 
owner of 10% or more of the assets of an Insurance Products Fund 
(collectively, ``Participants'') will report any potential or existing 
conflicts to the Board of any relevant Insurance Products Fund. 
Participants will be obligated to assist the appropriate Board in 
carrying out its responsibilities under these conditions by providing 
the Board with all information reasonably necessary for the Board to 
consider any issues raised. This responsibility includes, but is not 
limited to, an obligation by each Participating Insurance Company to 
inform the Board whenever Variable Contract owner voting instructions 
are disregarded and, if pass-through voting is applicable, an 
obligation by each Qualified Plan to inform the Board whenever it has 
determined to disregard Plan participant voting instructions.
    The responsibility to report such information and conflicts and to 
assist the Boards will be contractual obligations of all Participating 
Insurance Companies and Qualified Plans investing in the Insurance 
Products Funds under their respective agreements governing 
participation in

[[Page 31242]]

the Insurance Products Funds, and such agreements shall provide that 
these responsibilities will be carried out with a view only to the 
interests of Variable Contract owners and, if applicable, Plan 
participants.
    4. If a majority of an Insurance Products Fund's Board members, or 
a majority of the disinterested Board members, determine that a 
material irreconcilable conflict exists, the relevant Participating 
Insurance Companies and Qualified Plans, at their expense and to the 
extent reasonable practicable (as determined by a majority of the 
disinterested Board members), shall take whatever steps are necessary 
to remedy or eliminate the material irreconcilable conflict. Such steps 
could include: (a) Withdrawing the assets allocable to some or all of 
the separate accounts from the Insurance Products Fund or any of its 
series and reinvesting such assets in a different investment medium, 
which may include another series of the Insurance Products Fund or 
another Insurance Products Fund; (b) in the case of Participating 
Insurance Companies, submitting the question as to whether such 
segregation should be implemented to a vote of all affected Variable 
Contract owners and, as appropriate, segregating the assets of any 
appropriate group (i.e., variable annuity or variable life insurance 
contract owners of one or more Participating Insurance Companies) that 
votes in favor of such segregation, or offering to the affected 
Variable Contract owners the option of making such a change; and (c) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a decision by a Participating Insurance Company to disregard 
Variable Contract owner voting instructions, and this decision 
represents a minority position or would preclude a majority vote, the 
Participating Insurance Company may be required, at the election of the 
Insurance Products Fund, to withdraw its separate account's investment 
in such fund, and no charge or penalty will be imposed as a result of 
such withdrawal. If a material irreconcilable conflict arises because 
of a Qualified Plan's decision to disregard Plan participant voting 
instructions, if applicable, and that decision represents a minority 
position or would preclude a majority vote, the Qualified Plan may be 
required, at the election of the Insurance Products Fund, to withdraw 
its investment in such fund, and no charge or penalty will be imposed 
as a result of such withdrawal. The responsibility to take remedial 
action in the event of a Board determination of a material 
irreconcilable conflict and to bear the cost of such remedial action 
shall be a contractual obligation of all Participating Insurance 
Companies and Qualified Plans under their agreements governing 
participation in the Insurance Products Funds and these 
responsibilities shall be carried out with a view only to the interests 
of the Variable Contract owners and, as applicable, Plan participants. 
For purposes of Condition 4, a majority of the disinterested members of 
the applicable Board shall determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but in no 
event will an Insurance Products Fund or the Adviser (or any other 
investment adviser of the Insurance Products Funds) be required to 
establish a new funding medium for any Variable Contract. No 
Participating Insurance Company shall be required by Condition 4 to 
establish a new funding medium for any Variable Contract if a majority 
of Variable Contract owners materially affected by the material 
irreconcilable conflict vote to decline such offer. No Qualified Plan 
shall be required by Condition 4 to establish a new funding medium for 
such Qualified Plan if: (a) A majority of Plan participants materially 
and adversely affected by the material irreconcilable conflict vote to 
decline such offer; or (b) pursuant to governing plan documents and 
applicable law, the Plan makes such decision without Plan participant 
vote.
    5. Participants will be informed promptly in writing of a Board's 
determination of the existence of an irreconcilable material conflict 
and its implications.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Variable Contract owners so long as the 
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for Variable Contract owners. Accordingly, 
such Participating Insurance Companies, where applicable, will vote 
shares of the Insurance Products Fund held in their separate accounts 
in a manner consistent with voting instructions timely received from 
Variable Contract owners. In addition, each Participating Insurance 
Company will vote shares of the Insurance Products Fund held in its 
separate accounts for which it has not received timely voting 
instructions from contract owners, as well as shares it owns, in the 
same proportions as those shares for which it has received voting 
instructions. Participating Insurance Companies will be responsible for 
assuring that each of their separate accounts investing in an Insurance 
Products Fund calculates voting privileges in a manner consistent with 
all other Participating Insurance Companies. The obligation to vote an 
Insurance Products Fund's shares and calculate voting privileges in a 
manner consistent with all other separate accounts investing in the 
Insurance Products Fund will be a contractual obligation of all 
Participating Insurance Companies under the agreements governing 
participation in the Insurance Products Fund. Each Plan will vote as 
required by applicable law and governing Plan documents.
    7. As long as the Commission continues to interpret the Act as 
requiring pass-through voting privileges for Variable Contract owners, 
the Adviser (or any of its affiliates) will vote is shares of any 
series of any Insurance Products Fund in the same proportion as all 
Variable Contract owners having voting rights with respect to that 
series; provided, however, that the Adviser (or any of its affiliates) 
shall vote its shares in such other manner as may be required by the 
Commission or its staff.
    8. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to: (a) determining the 
existence of a conflict; (b) notifying Participants of a conflict; and 
(c) determining whether any proposed action adequately remedies a 
conflict, will be properly recorded in the minutes of the meetings of 
the appropriate Board or other appropriate records. Such minutes or 
other records shall be made available to the Commission upon request.
    9. Each Insurance Products Fund will notify all Participating 
Insurance Companies that separate account prospectus disclosure 
regarding potential risks of mixed and shared funding may be 
appropriate. Each Insurance Products Fund shall disclose in its 
prospectus that: (a) its shares may be offered to insurance company 
separate accounts that fund both variable annuity and variable life 
insurance contracts, and to Qualified Plans; (b) differences in tax 
treatment or other considerations may cause the interests of various 
Variable Contract owners participating in the Insurance Products Fund 
and the interests of Qualified Plans investing in the Insurance 
Products Fund to conflict; and (c) the Board will monitor the Insurance 
Products Fund for any material conflicts and determine what action, if 
any, should be taken.
    10. Each Insurance Products Fund will comply with all provisions of 
the

[[Page 31243]]

1940 Act requiring voting by shareholders (for these purposes, the 
persons having a voting interest in the shares of the Insurance 
Products Funds). In particular, each such Insurance Products Fund 
either will provide for annual shareholder meetings (except insofar as 
the Commission may interpret Section 16 of the 1940 Act not to require 
such meetings) or comply with Section 16(c) of the 1940 Act (although 
none of the Insurance Products Funds shall be one of the trusts 
described in Section 16(c) of the 1940 Act), as well as with Section 
16(a) of the 1940 Act and, if and when applicable, Section 16(b) of the 
1940 Act. Further, each Insurance Products Fund will act in accordance 
with the Commission's interpretation of the requirements of Section 
16(a) with respect to periodic elections of Board members and with 
whatever rules the Commission may promulgate with respect thereto.
    11. If and to the extent that Rule 6e-2 or Rule 6e-3(T) under the 
1940 Act is amended, or Rule 6e-3 under the 1940 Act is adopted, to 
provide exemptive relief from any provision of the 1940 Act, or the 
rules promulgated thereunder, with respect to mixed or shared funding, 
on terms and conditions materially different from any exemptions 
granted in the order requested in the application, then the Insurance 
Products Funds and/or the Participants, as appropriate, shall take such 
steps as may be necessary to comply with Rule 6e-2 or Rule 6e-3(T), as 
amended, or proposed Rule 6e-3 as adopted, to the extent such Rules are 
applicable.
    12. The Participants, at least annually, shall submit to each Board 
such reports, materials or data as each Board may reasonably request so 
that such Boards may fully carry out the obligations imposed upon them 
by the conditions stated in the application. Such reports, materials 
and data shall be submitted more frequently if deemed appropriate by 
the Boards. The obligations of the Participants to provide these 
reports, materials and data upon reasonable request of a Board shall be 
a contractual obligation of all Participants under the agreements 
governing their participation in the Insurance Products Funds.
    13. If a Qualified Plan or Plan participant shareholder should 
become a owner of 10% or more of the assets of an Insurance Products 
Fund, such Plan will execute a participation agreement with such fund 
which includes the conditions set forth herein to the extent 
applicable. A Qualified Plan or Plan participant will execute an 
application containing an acknowledgment of this condition upon such 
Plan's initial purchase of the shares of any Insurance Products Fund.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15077 Filed 6-5-98; 8:45 am]
BILLING CODE 8010-01-M