[Federal Register Volume 61, Number 44 (Tuesday, March 5, 1996)]
[Notices]
[Pages 8693-8698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5046]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21789; File No. 812-9746]


Tomorrow Funds Retirement Trust, et al.

February 27, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: Tomorrow Funds Retirement Trust (the ``Trust''), and Weiss, 
Peck & Greer, L.L.C. (the ``Adviser'').

RELEVANT 1940 ACT SECTIONS: Order requested under 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.

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of the Trust and beneficial interests and/or 
shares of any other investment company (or series thereof) that is 
designed to fund variable insurance products and for which the Adviser, 
or any of its affiliates, may serve now or in the future, as investment 
adviser, administrator, manager, principal underwriter or sponsor 
(collectively, ``Insurance Products Funds'') to be sold to and held by 
(a) variable annuity and variable life separate accounts of both 
affiliated and unaffiliated life insurance companies (``Participating 
Insurance Companies''), and (b) qualified pension and retirement plans 
(``Qualified Plans'').

FILING DATE: The application was filed on September 6, 1995, and 
amended on February 20, 1996.

HEARING AND NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission 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 March 25, 1996, and should be accompanied by proof of 
service on Applicants in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
requester's interest, the reason for the request and the issues 
contested. Persons may request notification of a hearing by writing to 
the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, Jay C. Nadel, Weiss, Peck & Greer, L.L.C., One New 
York Plaza, New York, New York 10004.

FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Patrice M. Pitts, Special Counsel, Office 
of Insurance Products, Division of Investment Management, at (202) 942-
0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the Commission.

Applicants' Representations

    1. The Trust is a series Delaware business trust which is 
registered under the 1940 Act as an open-end management investment 
company. The Trust consists of six diversified series mutual funds 
(collectively, the ``Funds''). The Trust's initial registration 
statement on Form N-1A was declared effective on November 21, 1995.\1\

    \1\ File Nos. 33-60841 and 811-7315.
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    2. Each Fund of the Trust is authorized to offer two classes of 
shares. The Adviser Class of shares may be purchased only by Qualified 
Plans. The Institutional Class of shares may be purchased by Qualified 
Plans or by separate accounts of Participating Insurance Companies to 
serve as investment vehicles for variable annuity and variable life 
insurance contracts.
    3. Various fees and charges are imposed by the Trust. The Tomorrow 
Post-Retirement Fund will pay the Adviser a monthly fee equal on an 
annual basis to 0.65% of its average daily net assets. The remaining 
Funds will each pay the Adviser a monthly fee equal on an annual basis 
to 0.75% of the Fund's average daily net assets. Pursuant to an 
administration agreement, the Adviser also will serve as administrator 
for each Fund for which the Adviser will receive a fee, computed daily 
and payable monthly, at an annual rate equal to 0.09% of each Fund's 
average daily net assets.
    4. Applicants state that the Trust, on behalf of each Fund, has 
adopted a service plan pursuant to which each Fund pays service fees at 
an aggregate annual rate of up to 0.25% of a Fund's average daily net 
assets attributable to the Institutional Class shares. The service fee 
is intended to be compensation for Qualified Plan fiduciaries for 
providing personal services and/or account maintenance services to the 
underlying beneficial owners of the Institution Class shares. The 
Trust, on behalf of the applicable Fund, will make monthly payments to 
Qualified Plan fiduciaries based on the average net asset value of the 
Institutional Class shares which are attributable to the applicable 
Qualified Plan.
    5. Shares of the Insurance Products Funds will be offered to 
separate accounts of other insurance companies, including insurance 
companies that are not affiliated with one another, to serve as the 
investment vehicle for various types of insurance products, which may 
include variable annuity contracts, single premium variable life 
insurance contracts, scheduled premium variable life insurance 
contracts and flexible premium variable life insurance contracts.
    6. Applicants state that upon commencement of operation, each Fund 
of the Trust will be managed and its shares will be distributed by the 
Adviser which will not be affiliated with any Participating Insurance 
Company whose variable contracts utilize the Trust as the underlying 
investment. The Adviser, a Delaware limited liability company, consists 
of 44 general principals, one of whom is a member of the New York Stock 
Exchange, and certain associate principals. The Adviser, together with 
its wholly-owned subsidiary, Weiss, Peck & Greer Advisers, Inc., acts 
as investment adviser for approximately $13 billion of institutional 
and private investment accounts.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act.\2\ The exemptions granted by Rule 6e-2(b)(15) are 
available only where a management investment company underlying a unit 
investment trust (``underlying fund'') offers its shares ``exclusively 
to variable life insurance separate accounts of the life insurer, or of 
any affiliated life 

[[Page 8694]]
insurance company.'' Therefore, the relief granted by Rule 6e-2(b)(15) 
is not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an underlying fund that 
also offers its shares to a variable annuity separate account of the 
same company or of any affiliated or unaffiliated life insurance 
company. The use of a common management investment company as the 
underlying investment medium for both variable annuity and variable 
life insurance separate accounts of a single insurance company or of 
any affiliated insurance company is referred to herein as ``mixed 
funding.''

    \2\ The relief provided by Rule 6e-2 is available to a separate 
account's investment adviser, principal underwriter, and sponsor or 
depositor.
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    2. In addition, the relief granted by Rule 6e-2(b)(15) is not 
available with respect to a scheduled premium variable life insurance 
separate account that owns shares of an underlying fund that also 
offers its shares to separate accounts funding variable contracts of 
one or more unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment medium for 
variable life insurance separate accounts of one insurance company and 
separate accounts funding variable contracts of one or more 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. In connection with the funding of flexible premium variable life 
insurance contracts issued through a unit investment trust, Rule 6e-
3(T)(b)(15) provides partial exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act.\3\ The exemptions granted by Rule 6e-
3(T) are available only where a unit investment trust's underlying fund 
offers its shares ``exclusively to separate accounts of the life 
insurer, or of any affiliated life insurance company, offering either 
scheduled contracts or flexible contracts, or both; or which also offer 
their shares to variable annuity separate accounts of the life insurer 
or of an affiliated life insurance company * * *.'' Therefore, Rule 6e-
3(T) permits mixed funding for flexible premium variable life 
insurance. However, Rule 6e-3(T) does not permit shared funding because 
the relief granted by Rule 6e-3(T)(b)(15) is not available with respect 
to a flexible permium variable life insurance separate account that 
owns shares of an underlying fund that also offers its shares to 
separate accounts (including flexible premium variable life insurance 
separate accounts) of unaffiliated life insurance companies.

    \3\ The relief provided by Rule 6e-3(T) is available to a 
separate account's investment adviser, principal underwriter, and 
sponsor or depositor.
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    4. Applicants state that the relief granted by Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) is not affected by the purchase of shares of an 
Insurance Products Fund by a Qualified Plan. Applicants note, however, 
that exemptive relief is requested with respect to the sale of shares 
to Qualified Plans because the separate accounts investing in the 
Insurance Products Funds are themselves investment companies seeking 
relief under Rules 6e-2 and 6e-3(T) and do not wish to be denied such 
relief if the Insurance Products Funds sell shares to Qualified Plans.
    5. Applicants state that in 1989, due to changes in the tax law, 
underlying funds such as the Trust were afforded the opportunity to 
increase their asset base through the sale of shares of the Insurance 
Products Funds to Qualified Plans. Applicants state that 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 annuity contracts or life insurance contracts for any period 
in which the investments are not, in accordance with regulations 
prescribed by the Department of the Treasury, adequately diversified. 
On March 2, 1989, the Department of the Treasury issued regulations 
which established diversification requirements for the investment 
portfolios underlying variable contracts. Treas. Reg. Sec. 1.817-5 
(1989). The regulations provide that, to meet the diversification 
requirements, all of the beneficial interests in the investment company 
must be held by the segregated asset accounts of one or more insurance 
companies. The regulations do, however, contain certain exceptions to 
this requirement, one of which allows shares in an investment company 
to be held by the trustee of a qualified pension or retirement plan 
without adversely affecting the ability of shares in the same 
investment company also to be held by the separate accounts of 
insurance companies in connection with their variable contracts. Treas. 
Reg. Sec. 1.817-5(f)(3)(iii).
    6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the 1940 Act preceded the issuance of these Treasury regulations. 
Applicants assert that, given the then current tax law, the sale of 
shares of the same investment company to both separate accounts and 
qualified pension and retirement plans could not have been envisioned 
at the time of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    7. Applicants therefore request that the Commission, under its 
authority in Section 6(c) of the 1940 Act, grant relief from Sections 
9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) thereunder to the extent necessary to permit mixed and 
shared funding.
    8. Section 9(a) of the 1940 Act provides that is unlawful for any 
company to serve as an investment adviser to, or principal underwriter 
for, any registered open-end investment company if an affiliated person 
of that company is subject to any disqualification specified in 
Sections 9(a)(1) or 9(a)(2). Rule 6e-2(b)(15) (i) and (ii) and Rule 6e-
3(T)(b)(15) (i) and (ii) provide exemptions from Section 9(a) under 
certain circumstances, subject to limitations on mixed and shared 
funding. The relief provided by Rules 6e-2(b)(15)(i) and 6e-
3(T)(b)(15)(i) permits a person disqualified under Section 9(a) to 
serve as an officer, director, or employee of the life insurer, or any 
of its affiliates, so long as that person does not participate directly 
in the management or administration of the underlying fund. The relief 
provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the 
life insurer to serve as the underlying fund's investment adviser or 
principal underwriter, provided that none of the insurer's personnel 
who are ineligible pursuant to Section 9(a) participate in the 
management or administration of the fund.
    9. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9(a), in 
effect, limits the monitoring of an insurer's personnel that would 
otherwise be necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of Section 9. 
Applicants state that Rules 6e-2 and 6e-3(T) recognize that it is not 
necessary for the protection of investors or for the purposes fairly 
intended by the policy and provisions of the 1940 Act to apply the 
provisions of Section 9(a) to the many individuals employed by the 
Participating Insurance Companies, most of whom will have no 
involvement in matters pertaining to an investment company within that 
organization. Applicants note that the Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Insurance Products Funds. Therefore, Applicants 
submit that there is no regulatory reason to apply the provisions of 
section 9(a) to the many individuals in various 

[[Page 8695]]
unaffiliated insurance companies (or affiliated companies of 
Participating Insurance Companies) that may utilize the Trust as the 
funding medium for variable contracts.
    10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial 
exemptions from Sections 13(a), 15(a), and 15(b) of the 1940 Act to the 
extent that those sections have been deemed by the Commission to 
require ``pass-through'' voting with respect to management investment 
company shares held by a separate account, to permit the insurance 
company to disregard the voting instructions of its contract owners in 
certain limited circumstances.
    11. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide 
that an insurance company may disregard voting instructions of its 
contract owners with respect to the investment of an underlying 
investment company or any contract between an investment company and 
its investment adviser when required to do so by an insurance 
regulatory authority.
    12. 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 if the contract owners initiate any change in such 
company's investment policies or any principal underwriter or 
investment adviser, provided that disregarding such voting instructions 
is reasonable and subject to other provisions of paragraphs (b)(5)(ii) 
and (b)(7)(ii) (B) and (C) of each Rule.
    13. Applicants state that Rule 6e-2 recognizes that variable life 
insurance contracts have important elements unique to insurance 
contracts and are subject to extensive state regulation. Applicants 
maintain, therefore, that, in adopting Rule 6e-2, the Commission 
expressly recognizes that exemptions from pass-through voting 
requirements were necessary ``to assure the solvency of the life 
insurer and the performance of its contractual obligations by enabling 
an insurance regulatory authority or the life insurer to act when 
certain proposals reasonably could be expected to increase the risks 
undertaken by the life insurer.'' Applicants state that flexible 
premium variable life insurance contracts and variable annuity 
contracts are subject to substantially the same state insurance 
regulatory authority, and therefore, the corresponding provisions of 
Rule 6e-3(T) presumably were adopted in recognition of the same 
considerations as the Commission applied in adopting Rule 6e-2. 
Applicants argue that these considerations are no less important or 
necessary when an insurance company funds its separate accounts on a 
mixed and shared funds basis and that such funding does not compromise 
the goals of the insurance regulatory authorities or of the Commission.
    14. Applicants assert that the sale of shares to Qualified Plans 
will not have any impact on the relief requested in this regard. Shares 
of the Insurance Products Funds sold to Qualified Plans will be held by 
the trustees of the Qualified Plans as mandated by Section 403(a) of 
the Employee Retirement Income Security Act of 1974 (``ERISA''). 
Section 403(a) also provides that the trustee must have exclusive 
authority and discretion to manage and control the plan with two 
exceptions: (1) when the plan expressly provides that the trustee is 
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 
(2) when the authority to manage, acquire, or dispose of assets of the 
plan is delegated to one or more investment managers pursuant to 
Section 402(c)(3) of ERISA. Unless one of the two exceptions stated in 
Section 403(a) applies, Qualified Plan trustees have the exclusive 
authority and responsibility for voting proxies. Where a named 
fiduciary appoints an investment manager, the investment manager has 
the responsibility to vote the shares held unless the right to vote 
such shares is reserved to the trustees or to the named fiduciary. In 
any event, there is no pass-through voting to the participants in 
Qualified Plans. Accordingly, Applicants note that, unlike the case 
with insurance company separate accounts, the issue of the resolution 
of material irreconcilable conflicts with respect to voting is not 
present with respect to Qualified Plans.
    15. Applicants state that no increased conflicts of interest would 
be presented by the granting of the requested relief. Applicants assert 
that shared funding does not present any issues that do not already 
exist where a single insurance company is licensed to do business in 
several or all states. Applicants note that where Participating 
Insurance Companies are domiciled in different states, it is possible 
that the state insurance regulatory body in a state in which one 
Participating Insurance Company is domiciled could require action that 
is inconsistent with the requirements of insurance regulators in one or 
more other states in which other Participating Insurance Companies are 
domiciled. Applicants state that the possibility, however, is no 
different and no greater than exists where a single insurer and its 
affiliates offer their insurance products in several states.
    16. Applicants argue that affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. In any event, the conditions (adapted from the conditions 
included in Rule 6e-3(T)(15)) discussed below are designed to safeguard 
against any adverse effects that different state regulatory 
requirements may produce. If a particular state insurance regulator's 
decision conflicts with the majority of other state regulators, the 
affected insurer may be required to withdraw its separate account's 
investment in the relevant Insurance Products Funds.
    17. Applicants also argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company properly may disregard voting 
instructions of contract owners. Potential disagreement is limited be 
the requirement that the decision by the Participating Insurance 
Company to disregard voting instructions be both reasonable and based 
on specified good faith determinations. However, if a Participating 
Insurance Company's decision to disregard contract owner voting 
instructions represents a minority position or would preclude a 
majority vote approving a particular change, such Participating 
Insurance Company may be required, at the election of the relevant 
Insurance Products Funds, to withdraw its investment in that fund and 
no charge or penalty will be imposed as a result of such withdrawal.
    18. Applicants state 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 investment company or series thereof funded only variable 
annuity or only variable life insurance contracts. Applicants therefore 
argue that there is no reason to believe that conflicts of interest 
would result from mixed funding. Moreover, Applicants state that, 
assuming it were possible, the Insurance Products Funds will not be 
managed to favor or disfavor any particular insurer or type of 
contract.
    19. Applicants note that no single investment strategy can be 
identified as appropriate to a particular insurance product. Each pool 
of variable annuity and variable life insurance contract owners is 
composed of individuals of diverse financial status, age, insurance and 
investment goals. An investment company supporting even one type of 

[[Page 8696]]
insurance product must accommodate those diverse factors.
    20. A further note that Section 817 of the Code is the only section 
in the Code where separate accounts are discussed. Section 817(h) 
imposes certain diversification standards on the underlying assets of 
variable annuity contracts and variable life contracts held in the 
portfolios of management investment companies. Treasury Regulation 
1.817-5(f)(3)(iii), which established diversification requirements for 
such portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company. Therefore, neither the Code, 
the Treasury regulations nor the Revenue Rulings thereunder recognize 
any inherent conflicts of interest if Qualified Plans, variable 
separate accounts and variable life insurance separate accounts all 
invest in the same management investment company.
    21. While there are differences in the manner in which 
distributions are taxed for variable annuity contracts, variable life 
insurance contracts and Qualified Plans, Applicants state that the tax 
consequences do not raise any conflicts of interest. When distributions 
are to be made, and the separate account or the Qualified Plan is 
unable to net purchase payments to make the distributions, the separate 
account or the Qualified Plan will redeem shares of the affected Trust 
at their net asset value. The Qualified Plan will then make 
distributions in accordance with the terms of the Qualified Plan and 
the life insurance company will make distributions in accordance with 
the terms of the variable contract.
    22. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving such voting rights to 
contract owners and to Qualified Plans. Applicants state that the 
transfer agent for each Insurance Products Fund will inform each 
Participating Insurance Company of its share ownership in each separate 
account, as well as inform the trustees of the Qualified Plans of their 
holdings. Each Participating Insurance Company will then solicit voting 
instructions in accordance with Rules 6e-2 and 6e-3(T).
    23. Applicants argue that the ability of the Insurance Products 
Funds to sell their shares directly to Qualified Plans does not create 
a ``senior security,'' as such term is defined under Section 18(g) of 
the 1940 Act, with respect to any contract owner as compared to a 
participant under a Qualified Plan. Regardless of the rights and 
benefits of participants and contract owners under the respective 
Qualified Plans and contracts, the Qualified Plans and the separate 
accounts have rights only with respect to their respective shares of 
the Insurance Products Fund. Such shares may be redeemed only at net 
asset value. No shareholder of any Insurance Products Fund has any 
preference over any other shareholder with respect to distribution of 
assets or payment of dividends.
    24. Finally, Applicants assert that there are no conflicts between 
variable contract owners of the separate accounts and participants 
under the Qualified Plans with respect to the state insurance 
commissioners' veto powers (direct with respect to variable life 
insurance and indirect with respect to variable annuities) over 
investment objectives. The basic premise of shareholder voting is that 
not all shareholders may agree that there are any inherent conflicts of 
interest between shareholders. The state insurance commissioners have 
been given the veto power in recognition of the fact that insurance 
companies cannot simply redeem their separate accounts out of one fund 
and invest in another fund. To accomplish such redemptions and 
transfers, complex, time-consuming transactions must be undertaken. One 
the other hand, trustees of Qualified Plans can make the decision 
quickly and implement the redemption of shares from an Insurance 
Products Fund and reinvest in another funding vehicle without the same 
regulatory impediments or, as is the case with most Qualified Plans, 
hold cash pending suitable investment. Based on the foregoing, 
Applicants maintain that even should there arise issues where the 
interests of contract owners and the interests of Qualified Plans 
conflict, the issues can be resolved almost immediately because 
trustees of the Qualified Plans can, independently, redeem shares out 
of the Insurance Products Fund.
    25. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. These factors include the cost of organizing and 
operating an investment funding medium, the lack of expertise with 
respect to investment management and the lack of public name 
recognition of certain insurers as investment professionals. Applicants 
argue that use of the Insurance Products Funds as common investment 
media for variable contracts would ameliorate these concerns. 
Applicants submit that mixed and shared funding should benefit variable 
contract owners by: (a) eliminating a significant portion of the costs 
of establishing and administering separate funds; (b) allowing for a 
greater amount of assets available for investment by the Insurance 
Products Funds, thereby promoting economies of scale, permitting 
greater safety through greater diversification, and/or making the 
addition of new portfolios more feasible; and (c) encouraging more 
insurance companies to offer variable contracts, resulting in increased 
competition with respect to both variable contract design and pricing, 
which can be expected to result in more product variation and lower 
charges.

Applicants' Conditions

    The Applicants have consented to the following conditions:
    1. A majority of the Board of Trustees or Directors (each, a 
``Board'' and referred to herein collectively as ``Boards'') of each 
Insurance Products Fund will consist of persons who are not 
``interested persons'' thereof, as defined by Section 2(a)(19) of the 
1940 Act and the Rules thereunder and as modified by any applicable 
orders of the Commission, except that, if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
trustee or director, then the operation of this condition shall be 
suspended: (i) for a period of 45 days if the vacancy or vacancies may 
be filled by the Board; (ii) for a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (iii) for 
such longer period as the Commission may prescribe by order upon 
application.
    2. The Boards will monitor their respective Insurance Products 
Funds for the existence of any material irreconcilable conflict between 
the interests of the variable contract owners of all separate accounts 
investing in the Insurance Products Funds. A material irreconcilable 
conflict may arise for a variety of reasons, including: (a) state 
insurance regulatory authority action; (b) a change in applicable 
federal or state insurance, tax, or securities laws or regulations, or 
a public ruling, private letter ruling, or any similar action by 
insurance, tax, or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Insurance Products Funds are 
being managed; (e) a difference in voting instructions given by 
variable annuity and variable life insurance contract owners; (f) a 
decision by a Participating Insurance Company to disregard contract 
owner voting instructions; and (g) if applicable, a decision by a 
Qualified Plan to 

[[Page 8697]]
disregard the voting instructions of Qualified Plan participants.
    3. Any Participating Insurance Company, the Adviser (or any other 
investment adviser of the Insurance Products Funds), 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 will 
report any potential or existing conflicts, of which they become aware, 
to the Board and 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 and 
the Adviser to inform the Board whenever it has determined to disregard 
contract owner voting instructions and, if pass-through voting is 
applicable, an obligation by the Adviser and a 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 Boards will be contractual 
obligations of the Adviser and all Participating Insurance Companies 
and Qualified Plans investing in Insurance Products Funds under their 
agreements governing participation therein, and such agreements shall 
provide that these responsibilities will be carried out with a view 
only to the interests of the contract owners, and if applicable, 
Qualified Plan participants.
    4. If a majority of the Board of an Insurance Products Fund, or a 
majority of the disinterested members of such Board, determines that a 
material irreconcilable conflict exists, the Adviser and the relevant 
Participating Insurance Companies and Qualified Plans will, at their 
expense and to the extent reasonably practicable (as determined by a 
majority of disinterested trustees or directors), take whatever steps 
are necessary to remedy or eliminate the irreconcilable material 
conflict. Such steps could include: (a) withdrawing the assets 
allocable to some or all of the separate accounts from an Insurance 
Products Fund or any series thereof 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) 
submitting the question of whether such segregation should be 
implemented to a vote of all affected variable contract owners and, as 
appropriate, segregating the assets of any appropriate groups (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 variable 
contract owners the option of making such a change; and (c) 
establishing a new registered management investment company (or series 
thereof) or managed separate account. If a material irreconcilable 
conflict arises because of a Participating Insurance Company's decision 
to disregard contract owner voting instructions, and that decision 
represents a minority position or would preclude a majority vote, the 
Participating Insurance Company may be required, at the election of the 
relevant Insurance Products Fund, to withdraw its separate account's 
investment therein, 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 the Insurance 
Products Fund to withdraw its investment in such Insurance Products 
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 an irreconcilable material conflict and to 
bear the cost of such remedial action shall be a contractual obligation 
of the Adviser and all Participating Insurance Companies and Qualified 
Plans under their agreements governing participation in the Insurance 
Products Funds and these responsibilities will be carried out with a 
view only to the interests of the contract owners, and, if appropriate, 
Qualified Plan participants.
    5. For purposes of condition 4, a majority of disinterested members 
of the applicable Board will determine whether any proposed action 
adequately remedies any irreconcilable material conflict, but in no 
event will the relevant Insurance Products Fund or the Adviser (or any 
other investment adviser of the Insurance Products Fund) 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 an offer to 
do so has been declined by a vote of a majority of contract owners 
materially and adversely affected by the irreconcilable material 
conflict.
    6. The determination by any Board of the existence of an 
irreconcilable material conflict and its implications shall be made 
known promptly in writing to the Adviser, all Participating Insurance 
Companies and Qualified Plans.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners so long as the 
Commission continues to interpret the 1940 Act to require pass-through 
voting privileges for variable contract owners. Accordingly, the 
Participating Insurance Companies will vote shares of an Insurance 
Products Fund 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 of their separate accounts that participates in the Insurance 
Products Funds calculates voting privileges in a manner consistent with 
other Participating Insurance Companies. The obligation to 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 their participation in the Insurance Products 
Fund. Each Participating Insurance Companies will vote shares for which 
it has not received timely voting instructions as well as shares 
attributable to it 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.
    8. All reports received by the Board of potential or existing 
conflicts, and all Board action with regard to determining the 
existence of a conflict of interest, notifying the Adviser, 
Participating Insurance Companies and Qualified Plans of a conflict, 
and determining whether any proposed action adequately remedies a 
conflict, will be properly recorded in the minutes of the appropriate 
Board or other appropriate records, and 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 will disclose in its 
prospectus that: (a) shares of the Insurance Products Fund may be 
offered to insurance company separate accounts which fund both annuity 
and life 

[[Page 8698]]
insurance contracts, and to Qualified Plans; (b) because of differences 
of tax treatment and other considerations, the interests of various 
contract owners participating in the Insurance Products Funds and the 
interests of Qualified Plans investing in the Insurance Products Funds 
may conflict; and (c) the Board will monitor its respective Insurance 
Products Fund for any material conflicts of interest and determine what 
action, if any, should be taken.
    10. Each Insurance Products Fund will comply with all provisions of 
the 1940 Act requiring voting by shareholders (which, for these 
purposes, shall be the persons having a voting interest in the shares 
of the Insurance Products Fund), and, in particular, each such 
Insurance Products Fund will either provide for annual meetings (except 
to the extent that 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), as well as with Sections 16(a) and, if 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 directors (or 
trustees) and with whatever rules the Commission may promulgate with 
respect thereto.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended (or 
if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive relief 
from any provisions of the 1940 Act or the rules thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Insurance Products Funds and/or the Participating 
Insurance Companies, 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 extend such rules are applicable.
    12. No less than annually, the Adviser, the Participating Insurance 
Companies and Qualified Plans shall submit to the Boards such reports, 
materials or data as the Boards may reasonably request so that the 
Boards may carry out fully the obligations imposed upon them by these 
stated conditions. Such reports, materials, and data shall be submitted 
more frequently if deemed appropriate by the applicable Boards. The 
obligations of the Adviser, the Participating Insurance Companies and 
Qualified Plans to provide these reports, materials, and data to the 
Boards when it so reasonably requests, shall be a contractual 
obligation of the Adviser, the Participating Insurance Companies and 
Qualified Plans under the agreements governing their participation in 
the Insurance Products Funds.
    13. If a Qualified Plan becomes an owner of 10% or more of the 
assets of an Insurance Products Fund, such Qualified Plan will execute 
a fund participation agreement with the applicable Insurance Products 
Fund including the conditions set forth herein to the extent 
applicable. A Qualified Plan will execute an application containing an 
acknowledgment of this condition upon such Qualified Plan's initial 
purchase of the shares of the Insurance Products Fund.

Conclusion

    For the reasons stated above, Applicants state that the requested 
exemptions, in accordance with the standards of Section 6(c), 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. 96-5046 Filed 3-4-96; 8:45 am]
BILLING CODE 8010-01-M