[Federal Register Volume 62, Number 70 (Friday, April 11, 1997)]
[Notices]
[Pages 17888-17894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9344]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22602; File No. 812-10476]


EQ Advisors Trust, et al.

April 4, 1997.
AGENCY: The Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an exemption pursuant to the 
Investment Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: EQ Advisors Trust (``Trust''), The Equitable Life Assurance 
Society of the United States (``Equitable''), Equitable Distributors, 
Inc. (``EDI''), EQ Financial Consultants, Inc. (``Manager'') and 
certain life insurance companies and their separate accounts investing 
now or in the future in the Trust.

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of 
the 1940 Act for 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.

SUMMARY OF APPLICATION: Appliants seek exemptive relief to the extent 
necessary to permit shares of the Trust and any other investment 
company that is designed to fund variable insurance products and for 
which Equitable, EDI, the Manager of any of their affiliates may serve 
as investment adviser, manager, administrator, principal underwriter, 
or depositor (collectively ``Insurance Products Funds'') to be sold to 
and held by separate accounts funding variable annuity and variable 
life insurance contracts issued by affiliated or unaffiliated life 
insurance companies (``Participating Insurance Companies'') or 
qualified pension and retirement plans outside of the separate account 
context (``Plans'').

FILING DATE: The application was filed on December 31, 1996, and 
amended on April 1, 1997.

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 must be received by the 
Commission by 5:30 p.m. on April 29, 1997, and must 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 writer'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, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Jane A. Kanter, 
Esq., Katten Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East 
Lobby, Suite 700, Washington, D.C. 20007-5201.

FOR FURTHER INFORMATION CONTACT: Michael B. Koffler, Staff 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.

Applicants' Representations

    1. The Trust is a Delaware business trust which is registered 
pursuant to the 1940 Act as an open-end, management investment company. 
The Trust consists of multiple separately managed investment portfolios 
(``Portfolios'') and may in the future issue shares of additional 
portfolios.
    2. The Trust has adopted a plan pursuant to Rule 18f-3 of the 1940 
Act in order to offer multiple classes of shares of each of its 
Portfolios. Two such classes are currently contemplated and have been 
preliminarily designated

[[Page 17889]]

Class IA and Class IB. In addition, the Trust has adopted a plan 
pursuant to Rule 12b-1 of the 1940 Act to permit one or more of its 
classes of shares to pay for the distribution of its shares.
    3. The Manager, the investment manager for the Trust, is a 
corporation organized pursuant to the laws of Delaware and is 
registered as an investment adviser pursuant to the Investment Advisers 
Act of 1940. The Manager is responsible for providing investment 
management and administrative services to the Trust. In the exercise of 
its responsibility, the Manager selects other registered investment 
advisers (``Advisers'') for the Trust's portfolios and monitors the 
Advisers' investment programs and results, reviews brokerage matters, 
oversees compliance matters and supervises the provision of services by 
third parties such as the Trust's custodian. The Manager has entered 
into or will enter into investment advisory agreements with the 
Advisers that will be primarily responsible for the day-to-day 
investment program of each Portfolio. The Manager also serves as the 
principal underwriter for the Trust's Class IA shares. The Manager is 
an indirect, wholly-owned subsidiary of Equitable.
    4. Shares of each Portfolio may be offered to insurance company 
separate accounts, which are both registered and unregistered under the 
federal securities laws, that fund variable annuity contracts or 
variable life insurance policies (``Contracts''). The Trust initially 
intends to offer its shares to variable annuity and variable life 
insurance separate accounts established by Equitable.
    5. Following the grant by the Commission of the exemptive order 
requested by the application to which this notice relates, shares of 
each Portfolio may be offered to variable annuity and variable life 
insurance separate accounts established by other affiliated and 
unaffiliated insurance companies.
    6. The Participating Insurance Companies will establish their own 
separate accounts and design their own 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, so far as the federal securities laws are 
concerned, will be limited to that of offering their shares to separate 
accounts of the Participating Insurance Companies and the Plans and of 
fulfilling the conditions imposed by the Commission provided in the 
application to which this notice relates.
    7. Shares of each Portfolio may also be offered to Plans. The Plans 
may choose any of the Insurance Products Funds as the sole investment 
under the Plan or as one of several investment options. Participants in 
Plans may or may not be given an investment choice depending upon the 
Plan itself.
    8. The Manager and Advisers will not act as an investment manager 
or investment adviser to any of the Plans that purchase shares of any 
of the Insurance Products Funds, unless permitted by applicable law.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act exempting them 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 ``mixed'' and ``shared'' 
funding, as defined below.
    2. 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.
    3. 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) under 
the 1940 Act provides partial exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act. The relief provided by the rule also 
extends to the investment adviser, principal underwriter, and sponsor 
or depositor of a separate account.
    4. The exemptions granted by Rule 6e-2(b)(15) are available only 
where all of the assets of the separate account consist of 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 of 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 or unaffiliated life insurance company. The use of a 
common investment company as the underlying investment vehicle for both 
variable annuity contracts and scheduled or flexible premium variable 
life insurance contracts is referred to herein as ``mixed funding.'' 
Also, 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 company that also offers its shares to 
Plans.
    5. In addition, 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 separate accounts funding variable contracts 
of one or more unaffiliated life insurance companies. The use of a 
common investment company as the underlying investment vehicle for 
separate accounts of unaffiliated insurance companies is referred to 
herein as ``shared funding.'' Moreover, because the relief granted by 
Rule 6e-2(b)(15) is available only where shares are offered exclusively 
to separate accounts of insurance companies, additional relief is 
necessary if the shares of the Insurance Products Funds are also to be 
sold to Plans.
    6. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a unit investment trust, Rule 6e-3(T)(b)(15) under the 1940 Act 
provides partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) 
of the 1940 Act. The exemptions granted by Rule 6e-3(T)(b)(15) 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. Thus, Rule 6e-3(T)(b)(15) grants 
an exemption if the underlying management investment company engages in 
mixed funding, but not if it engages in shared funding. Moreover, 
because the relief granted by 6e-3(T)(b)(15) is available only where 
shares are offered exclusively to separate accounts of insurance 
companies, additional relief is necessary if shares of the Insurance 
Products Funds are also to be sold to Plans.
    7. The current tax law permits the Insurance Products Funds to 
increase their asset base through the sale of their shares to Plans. 
Section 817(h) of the Internal Revenue Code (``Code'') imposes certain 
diversification

[[Page 17890]]

requirements on the underlying assets of the Contracts invested in the 
Insurance Products Funds. The Code provides that such Contracts shall 
not be treated as an annuity contract or life insurance policy for any 
period in which the underlying assets are not adequately diversified, 
as prescribed by Treasury regulations. 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. Treas. Reg. Sec. 1.817-5. 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 
Contracts. Treas. Reg. Sec. 1-817-5(f)(3)(iii).
    8. The promulgation of Rules 6e-2 and 6e-3(T) preceded the issuance 
of these treasury regulations. Given the then-current tax law, the sale 
of shares of the same investment company to both separate accounts and 
Plans could not have been envisioned at the time of the adoption of 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    9. Applicants assert that if the Insurance Products Funds were to 
sell their shares only to Plans, no exemptive relief would be 
necessary. Applicants state that none of the relief provided for Rules 
6e-2(b)(15) and 6e-3(T)(b)(15) relates to Plans or to a registered 
investment company's ability to sell its shares to Plans. It is only 
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 to Plans, that Applicants are applying for the 
requested relief.

Disqualification

    10. Section 9(a)(3) of the 1940 Act provides that it is unlawful 
for any company to serve as investment adviser or principal underwriter 
of any registered open-end investment company if an affiliated person 
of that company is subject to a disqualification enumerated in Section 
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 discussed above on mixed and 
shared funding. These rules provide: (a) that the eligibility 
restrictions of Section 9(a) shall not apply to persons who are 
officers, director or employees of the life insurer or its affiliates 
who do not participate directly in the management or administration of 
the underlying fund; and (b) that an insurer shall be ineligible to 
serve as an investment adviser or principal underwriter of the 
underlying fund only if an affiliated person of the life insurer who is 
disqualified by Section 9(a) participates in the management or 
administration of the underlying fund.
    11. Applicants assert that applying the restrictions of Section 
9(a) to many individuals in a typical insurance company complex, most 
of whom will have no involvement in matters pertaining to underlying 
investment companies funding the separate accounts of the Participating 
Insurance Companies, would serve no regulatory purpose.
    12. Applicants submit that there is no regulatory purpose in 
denying the partial exemptions because of mixed and shared funding and 
sales to Plans. Applicants submit that sales to those entities do not 
change the fact that the purposes of the 1940 act are not advanced by 
applying the prohibitions of Section 9(a) to persons in a life 
insurance complex who have no involvement in the underlying fund.

Pass-Through Voting

    13. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) assume the 
existence of a pass-through voting requirement with respect to 
management investment company shares held by a separate account. 
Applicants state that pass-through voting privileges will be provided 
by the Participating Insurance Companies so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
Contract owners.
    14. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial 
exemptions form Sections 13(a), 15(a), and 15(b) of the 1940 Act to the 
extent these 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 
circumstances. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(15)(b)(iii)(A) 
provide that an insurance company may disregard the voting instructions 
of its Contract owners with respect to the investments 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. Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(B) provide that the insurance company may disregard 
the voting instructions of its Contract owners if the Contract owners 
initiate any change in the underlying investment company's investment 
objectives, principal underwriter, or investment adviser, provided that 
disregarding such voting instructions is reasonable and complies with 
the other provisions of Rules 6e-2 and 6e-3(T).
    15. Rule 6e-2 recognizes that a variable life insurance contract 
has important elements unique to insurance contracts, and is subject to 
extensive state regulation. Applicants assert that in adopting Rule 6e-
2(b)(15)(iii), the Commission expressly recognizes that exemptions from 
pass-through voting requirements were 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. Applicants state that, in this 
respect, flexible premium variable life insurance contracts are subject 
to substantially the same state insurance regulatory authority; 
therefore, the corresponding provisions of Rule 6e-3(T) were adopted in 
recognition of the same factors.
    16. Applicants further represent that the offer and sale of the 
Insurance Products Funds' shares to Plans will not have any impact on 
the relief requested in this regard. Shares of the Insurance Products 
Funds sold to Plans will be held by the trustee(s) (or custodian(s)) of 
the Plans as required by Section 403(a) of the Employee Retirement 
Income Security Act of 1974, as amended (``ERISA''). Section 403(a) 
also provides that the trustee(s) must have exclusive authority and 
discretion to manage and control Plan investments with two exceptions: 
(a) when the Plan expressly provides that the Fund Trustee(s) is (are) 
subject to the direction of a named fiduciary who is not a trustee, in 
which case the Trustee(s) is (are) subject to proper directions made in 
accordance with the terms of the Plan and not contrary to ERISA; and 
(b) 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, 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

[[Page 17891]]

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 the Plans. Accordingly, 
Applicants note that unlike the case with separate accounts of 
Participating Insurance Companies, the issue of the resolution of 
material irreconcilable conflicts with respect to voting is not present 
with respect to the Plans.

Conflicts of Interest

    17. Applicants state that no increased conflicts of interest would 
be presented by the granting of the requested relief. Applicants assert 
that 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 states. For example, 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 insurance 
regulators in one or more other states in which other Participating 
Insurance Companies are domiciled. Applicants assert that this 
possibility is no different and no greater than exists when a single 
issuer and its affiliates offer their insurance products in several 
states, as currently is permitted.
    18. Applicants submit that affiliations do not reduce the potential 
for differences in state regulatory requirements. Affiliated insurers 
may be domiciled in different states and be subject to differing state 
law requirements. In any event, the conditions proposed below (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 regulatory decision conflicts with the majority of other 
state regulators, then the affected insurer will be required to 
withdraw its separate account's investment in the relevant Insurance 
Products Fund.
    19. Similarly, affiliation does not eliminate the potential for 
divergent judgments as to when a Participating Insurance Company could 
disregard Contract owner voting instructions. The potential for 
disagreement is limited by the requirement in Rules 6e-2 and 6e-3(T) 
that the insurance company's disregard of voting instructions be 
reasonable and based on specific 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, then 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 Product Fund, and no charge or penalty 
will be imposed as a result of such withdrawal.
    20. Applicants submit that there is no reason why the investment 
policies of an Insurance Product Fund with mixed funding would or 
should be materially different from what they would or should be if 
such investment company or portfolio thereof funded only variable 
annuity contracts or only variable life insurance policies. Hence, 
there is no reason to believe that conflicts of interest would result 
from mixed funding. Moreover, the Insurance Product Fund will not be 
managed to favor or disfavor any particular insurer, type of Contract 
or Plan.
    21. Applicants note that no one investment strategy can be 
identified as appropriate to a particular insurance product. Each pool 
of variable annuity and variable life insurance Contract owners is 
composed of individuals of diverse financial status, age, insurance, 
and investment goals. An investment company supporting even one type of 
insurance product must accommodate these diverse factors.
    22. 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, such as those held in each separate 
portfolio of the Insurance Product Funds. Treasury Regulation 1.817-
5(f)(3)(iii), which established diversification requirements for such 
portfolios, specifically permits ``qualified pension or retirement 
plans'' and insurance company separate accounts to share the same 
underlying investment company. Applicants assert that, therefore, 
neither the Code, nor the Treasury Regulations, nor the revenue rulings 
thereunder recognize any inherent conflicts of interests if Plans, 
variable annuity separate accounts, and variable life insurance 
separate accounts all invest in the same underlying management 
investment company.
    23. Applicants state that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, the tax consequences do 
not raise any conflicts of interest. When distributions are to be made, 
and the separate accounts or the Plans cannot net purchase payments to 
make the distributions, the separate accounts or the Plans will redeem 
shares of the Insurance Products Funds at their net asset value. The 
Plans will then make distributions in accordance with the terms of the 
Plans and each Participating Insurance Company will make distributions 
in accordance with the terms of its Contract.
    24. Applicants state that it is possible to provide an equitable 
means of giving voting rights to Contract owners. Applicants represent 
that the Insurance Products Funds will inform each Participating 
Insurance Company of its respective share of ownership in each separate 
account and will also inform the trustees of the Plans of their 
respective share in the Insurance Products Funds. The Participating 
Insurance Companies will then solicit voting instructions in accordance 
with Rules 6e-2 and 6e-3(T).
    25. Applicants submit that the ability of the Funds to sell their 
respective shares directly to Plans does not create a ``senior 
security'' as defined under Section 18(g) of the 1940 Act, with respect 
to any Contract owner as opposed to a participant under a Plan. 
Regardless of the rights and benefits of participants under the Plans, 
or Contract owners under Contracts, the Plans and the separate accounts 
have rights only with respect to their respective shares of the 
Insurance Products Funds. They can redeem such shares only 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 payment of dividends.
    26. Applicants assert that there are no conflicts between the 
Contract owners of the separate accounts and the participants under the 
Plans with respect to the 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. 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. Time-
consuming, complex transactions must be undertaken to accomplish such 
redemptions and transfers. On the other hand, trustees of Plans or 
participants in participant-directed Plans can make such a decision 
quickly and implement the redemption of their shares from an Insurance 
Products Fund and reinvest in another funding vehicle without the same 
regulatory impediments or, as is

[[Page 17892]]

the case with most Plans, even hold cash pending suitable investment. 
Based on the foregoing, Applicants maintain that even if there should 
arise issues where the interests of Contract owners and the interests 
of Plans or 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 an Insurance Products Fund.
    27. Applicants assert that various factors have kept more insurance 
companies from offering Contracts than currently do so. These factors 
include the costs of organizing and operating a fund medium, the lack 
of expertise with respect to investment management and the lack of 
public name recognition as investment experts. Smaller life insurance 
companies may not find it economically feasible, or within their 
investment or administrative expertise, to enter the variable contract 
business on their own.
    28. Applicants assert that use of the Insurance Products Funds as 
common investment media for the Contracts would ameliorate these 
concerns. Participating Insurance Companies would benefit not only from 
the investment management and advisory expertise of the Manager and 
Advisers, but also from the cost efficiencies and investment 
flexibility afforded by a large pool of assets. Therefore, making the 
Insurance Products Funds available for mixed and shared funding will 
encourage more insurance companies to offer Contracts. This should 
result in increased competition with respect to both Contract design 
and pricing, which can be expected to result in more product variation 
and lower changes. Contract owners would benefit because mixed and 
shared funding should eliminate a significant portion of the costs of 
establishing and administering separate funds. Moreover, Applicants 
assert that the sale of shares of Insurance Products Funds to Plans 
should result in an increased amount of assets available for investment 
by such Insurance Products Funds. This, in turn, should inure to the 
benefit of Contract owners by promoting economies of scale, by 
permitting increased safety through greater diversification, and by 
making the addition of new Portfolios to the Trust or to each of the 
Insurance Products Funds more feasible.
    29. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding.

Applicant's Conditions

    To the extent required by the Commission, Applicants consent to the 
following conditions:
    1. A majority of the Board of Trustees or Board of Directors (the 
``Board'') 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(s) or director(s), 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. The Boards will monitor their respective Insurance Products 
Funds for the existence of any material irreconcilable conflict among 
the interests of the Contract owners of all the separate accounts 
investing in the Insurance Products Funds and the participants in Plans 
investing in the Insurance Products Funds. A material irreconcilable 
conflict may arise for a variety of reasons, including: (a) an action 
by any state insurance regulatory authority; (b) a change in applicable 
federal or state insurance, tax, or securities laws or regulations, or 
a public ruling, private letter ruling, no action or interpretative 
letter, or any similar action by insurance, tax, or securities 
regulatory authorities; (c) an administrative or judicial decision in 
any relevant proceeding; (d) the manner in which the investments of the 
Insurance Products Funds are being managed; (e) a difference in voting 
instructions given by variable annuity Contract owners and variable 
life insurance policy owners; (f) a decision by a Participating 
Insurance Company to disregard the voting instructions of Contract 
owners; or (g) if applicable, a decision by a Plan to disregard the 
voting instructions of its participants.
    3. Participating Insurance Companies, the Manager, the Advisers, 
and any Plan that executes a fund participation agreement upon becoming 
an owner of ten percent (10%) or more of the assets of an Insurance 
Products Fund (a ``Participating Qualified Plan'') we report any such 
potential or existing conflicts to the Board of any relevant Insurance 
Products Fund. Participating Insurance Companies, the Manager, the 
Advisers, and Participating Qualified Plans will be responsible for 
assisting 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 
includes, but is not limited to, an obligation by a Participating 
Insurance Company to inform the appropriate Board whenever voting 
instructions of Contract owners are disregarded, and, if pass-through 
voting is applicable, an obligation by each Participating Qualified 
Plan to inform the Board whenever it has determined to disregard the 
voting instructions of its participants. The responsibility to report 
such information and conflicts and to assist the Board will be 
contractual obligations of all Participating Qualified Plans, and such 
agreements shall provide that these responsibilities will be carried 
out with a view only to the interests of participants in such Plans.
    4. If it is determined by a majority of the Board of an Insurance 
Products Fund, or by a majority of its disinterested trustees or 
directors, that a material irreconcilable conflict exists, the relevant 
Participating Insurance Companies and Plans will, at their expense and 
to the extent reasonably practicable (as determined by a majority of 
the disinterested trustees or directors), 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 
portfolio thereof and reinvesting such assets in a different investment 
medium, which may include another portfolio of an Insurance Products 
Fund or another Insurance Products Fund; (b) submitting the question of 
whether such withdrawal should be implemented to a vote of all affected 
Contract owners and, as appropriate, withdrawing the assets of any 
appropriate group (i.e., variable annuity Contract owners or variable 
life insurance Contract owners of one of more Participating Insurance 
Companies) that votes in favor of such withdrawal, or offering to the 
affected Contract owners the option of making such a change; (c) 
withdrawing the assets allocable to some or all of the Plans from the 
Insurance Products Fund or any portfolio thereof and reinvesting such 
assets in a different investment medium, which may include another 
portfolio of an Insurance Products Fund or another Insurance Products 
Fund; and (d) establishing a new registered management investment 
company or managed separate account. If a material irreconcilable 
conflict arises because of a Participating Insurance Company's decision 
to disregard Contract owner voting instructions and that decision

[[Page 17893]]

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 Insurance Products Fund, and no charge or penalty will be 
imposed as a result of such withdrawal. If a material irreconcilable 
conflict arises because of a Plan's decision to disregard its 
participants' voting instructions, if applicable, and that decision 
represent a minority position or would preclude a majority vote, the 
Plan may be required, at the election of the relevant Fund, to withdraw 
its investment in such Fund, and no charge or penalty will be imposed 
as a result of such withdrawal. To the extent permitted by applicable 
law, the responsibility of taking remedial action in the event of a 
Board determination of a material irreconcilable conflict and bearing 
the cost of such remedial action will be a contractual obligation of 
all Participating Insurance Companies and Participating Qualified Plans 
under their agreements governing their participation in the Insurance 
Products Funds, and these responsibilities will be carried out with a 
view only to the interests of Contract owners and participants in such 
Plans, as applicable. For purposes of this condition 4, a majority of 
the disinterested members of the applicable Board will determine 
whether or not any proposed action adequately remedies any material 
irreconcilable conflict, but in no event will the relevant Insurance 
Products Fund, the Manager or the Advisers be required to establish a 
new funding medium for any Contract. No Participating Insurance Company 
shall be required by this condition 4 to establish a new funding medium 
for any Contract if any offer to do so has been declined by vote or a 
majority of Contract owners materially and adversely affected by the 
material irreconcilable conflict. Further, no Plan shall be required by 
this condition 4 to establish a new funding medium for any Qualified 
Plan if: (a) a majority of its participants materially and adversely 
affected by the irreconcilable material conflict vote to decline such 
offer, or (b) pursuant to governing Plan documents and applicable law, 
the Qualified Plan makes such decision without a vote of its 
participants.
    5. Any Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known 
promptly and in writing to all Participating Insurance Companies and 
all Plans.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Contract owners so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
Contract owners. Accordingly, the Participating Insurance Companies 
will vote shares of the Insurance Products Funds held in their separate 
accounts in a manner consistent with voting instructions timely 
received from Contract owners. Participating Insurance Companies will 
be responsible for assuring that each of their separate accounts 
participating in an Insurance Products Fund 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 their agreements governing their 
participation in the Insurance Products Fund. Each Participating 
Insurance Company will also vote shares for which it has not received 
timely voting instructions from Contract owners as well as shares 
attributable to it in the same proportion as it votes shares for which 
it has received voting instructions from Contract owners. Each Plan 
will vote as required by applicable law and governing Plan documents.
    7. All reports of potential or existing conflicts received by a 
Board, and all Board actions with regard to determining the existence 
of a conflict of interest, notifying Participating Insurance Companies 
and 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.
    8. 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 are offered 
to insurance company separate accounts on a mixed and shared funding 
basis and to Plans; (b) material irreconcilable may arise between the 
interests of various Contract owners participating in the Insurance 
Products Fund and the interests of Plans investing in the Insurance 
Products Fund; and (c) the Board of such Insurance Products Fund will 
monitor events in order to identify the existence of any material 
irreconcilable conflict and to determine what action, if any, should be 
taken in response to such material irreconcilable conflict.
    9. Each Insurance Products Fund 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 Insurance Products Fund), and, in particular, each Insurance 
Products Fund will either provide for annual shareholder 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 Section 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 
trustees or directors and with whatever rules the Commission may 
promulgate with respect thereto.
    10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or in Rule 6e-3 under the 1940 Act is adopted) to provide exemptive 
relief from any provision of the 1940 Act or the rules thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the Order requested by the 
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 Rules 6e-2 and 6e-3(T), as amended, and Rule 
6e-3, as adopted, to the extend applicable.
    11. No less frequently than annually, the Participating Insurance 
Companies and Participating Qualified Plans, the Manager, and the 
Advisers, shall submit to each Board such reports, materials, or data 
as the Board may reasonably request so that the Board may carry out 
fully the obligations imposed upon it by the conditions contained in 
this Application. Such reports, materials, and data shall be submitted 
more frequently if deemed appropriate by the Board. The obligations of 
the Participating Insurance Companies and Participating Qualified Plans 
to provide these reports, materials, and data shall be a contractual 
obligation of all Participating Insurance Companies and Participating 
Qualified Plans under the agreements governing their participation in 
the Insurance Products Funds.
    12. If a Plan should ever become an owner of ten percent (10%) or 
more of the assets of an Insurance Products

[[Page 17894]]

Fund, such Plan will execute a fund participation agreement with such 
Insurance Products Fund including the conditions set forth herein to 
the extent applicable. A Plan will execute an investor application 
containing an acknowledgment of this condition at the time of its 
initial purchase 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. 97-9344 Filed 4-10-97; 8:45 am]
BILLING CODE 8010-01-M