[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29264-29270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14019]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23199; File No. 812-10978]


U.S. Global Leaders Variable Insurance Trust, et al.; Notice of 
Application

May 20, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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    Summary of Application: Applicants seek an order to permit shares 
of any current or future series of U.S. Global Leaders Variable 
Insurance Trust (the ``Fund'') and shares of any other investment 
company that is designed to fund variable insurance products for which 
Yeager, Wood & Marshall, Inc. (the ``Adviser'') or any of its 
affiliates, may now or in the future serve as manager, investment 
adviser, administrator, principal underwriter or sponsor (the Fund and 
such other investment companies, collectively, ``Insurance Products 
Funds'') to be sold to and held by: (1) Separate accounts funding 
variable annuity and variable life insurance contracts issued by both 
affiliated and unaffiliated life insurance companies (``Participating 
Insurance Companies''); (2) qualified pension and retirement plans 
outside of the separate account context (``Qualified Plans'' or 
``Plans''); and (3) the Adviser or any of its affiliates (representing 
seed money investments in the Insurance Products Funds).
    Applicants: U.S. Global Leaders Variable Insurance Trust and 
Yeager, Wood & Marshall, Inc.
    Filing Date: The application was filed on January 23, 1998, and 
amended on March 26, 1998.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request

[[Page 29265]]

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 15, 1998, and must 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 may request notification of the date of a hearing by 
writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, c/o Raymond A. O'Hara, III, Esq., Blazzard, Grodd & 
Hasenauer, P.C., 943 Post Road East, Westport, Connecticut 06881.

FOR FURTHER INFORMATION CONTACT:
Laura A. Novack, Senior 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 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549 (tel. (202) 942-8090).

Applicant's Representations

    1. The Fund is a Delaware business trust registered under the 1940 
Act as an open-end management investment company. The Fund, which was 
organized in October 1997, currently consists of one series.
    2. The Adviser, a Delaware corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940, and 
serves as the Fund's investment adviser.
    3. Applicants desire that the Insurance Products Funds have the 
flexibility to offer their shares to separate accounts of Participating 
Insurance Companies that fund 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 requirements under the federal securities laws. Each 
Participating Insurance company will enter into a fund participation 
agreement with the Insurance Products Fund in which the Participating 
Insurance company invests.
    5. Applicants state that shares of the Insurance Products Funds 
also may be offered directly to Qualified Plans outside the separate 
account context. The Plans may choose one or more of the Insurance 
Products Funds as the sole investment under the Plan or as one of 
several investments. Plan participants may or may not be given the 
right to select among the Insurance Products Funds, depending on the 
Plan. ``Plan participants'' include not only those participants of 
qualified pension or retirement plans as set forth in Treasury 
Regulation Sec. 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also 
include any other trust, account, contract or annuity that is 
determined to be within the scope of Treasury Regulations Sec. 1.817-
5(f)(3)(iii). Fund shares sold to Plans will be held, where applicable, 
by the trustees of such Plans as required by Section 403(a) of the 
Employee Retirement Income Security Act (``ERISA'').

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. The exemptions granted by Rule 6e-2(b) are available 
only where the management investment company offers its shares 
exclusively to the variable life insurance separate accounts of the 
life insurer or any affiliated life insurance company.
    2. 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 
two or more affiliated insurance companies) is referred to as ``mixed 
funding.'' The use of a common management company as the underlying 
investment medium for variable annuity and/or variable life insurance 
separate accounts of unaffiliated insurance companies is referred to as 
``shared funding.'' ``Mixed and shared funding'' denotes the use of a 
common management investment company to fund the variable annuity and 
variable life insurance separate accounts of affiliated and 
unaffiliated insurance companies. 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 other affiliated or unaffiliated life 
insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed and 
shared funding.
    3. In connection with the funding of 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) provides 
partial exemptions from Sections 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 
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) permits mixed funding with 
respect to a flexible-premium variable life insurance separate account, 
but precludes shared funding.
    4. Applicants assert that the use of the Insurance Products Funds 
as common investment media for the Variable Contracts would allow 
Participating Insurance Companies to benefit not only from the 
investment and administrative expertise of the Adviser, but also from 
the cost efficiencies and investment flexibility afforded by a larger 
pool of funds. Applicants also submit that mixed and shared funding 
would benefit Variable Contract owners by: (a) Eliminating a 
significant portion of the costs of establishing and administering 
separate funds; (b) permitting a greater amount of assets available for 
investment by the Insurance Products Funds, thereby promoting economies 
of scale, permitting greater diversification, and 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 the design and pricing of Variable 
Contracts, which can be expected to result in greater product variation 
and lower charges.
    5. Applicants assert that the relief granted by sub-paragraph 
(b)(15) of Ruled 6e-2 and 6e-3(T) will not be affected by the proposed 
sale of Insurance Products Fund shares to Plans. Applicants note, 
however, that because the relief under sub-paragraph

[[Page 29266]]

(b)(15) of Rules 6e-2 and 6e-3(T) is available only where shares are 
offered exclusively to separate accounts of life insurance companies, 
additional exemptive relief is necessary if shares of the Insurance 
Products Funds also are to be sold to Plans.
    6. Applicants state that current tax law permits the Insurance 
Products Funds to increase their asset base through the sale of fund 
shares to 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 annuity 
contracts and variable life insurance contracts held by the portfolios 
of the Insurance Products Funds. 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. The 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. Treas. Reg. Sec. 1.817-5(1989). The 
regulations do, however, contain certain exceptions to this 
requirement, 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).
    7. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the 1940 Act preceded the issuance of these Treasury regulations, 
and that 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).
    8. Applicants therefore request an Order of the Commission 
exempting variable life insurance and variable annuity separate 
accounts of Participating Insurance Companies (and, to the extent 
necessary, any investment adviser, principal underwriter and depositor 
of such an account) and Applicants from Sections 9(a), 13(a), 15(a) and 
15(b) of the 1940 Act, and sub-paragraph (b)(15) of Rules 6e-2 and 6e-
3(T) thereunder, when shares of the Insurance Products Funds are 
offered and sold to, and held by, such separate accounts in the mixed 
and shared funding context, regardless of whether shares of the 
Insurance Products Funds also are offered and sold directly to Plans.
    9. Section 9(a) of the 1940 Act provides that it 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 a disqualification 
enumerated in Section 9(a)(1) or (2).
    10. Rules 6e-2 and 6e-3(T) provide partial exemptions from Section 
9(a) under certain circumstances, subject to the limitations on mixed 
and shared funding. The relief provided by sub-paragraph (b)(15(i) of 
Rules 6e-2 and 6e-3(T) permits a person disqualified under Section 9(a) 
to serve as an officer, director, or employee of an insurance company 
or any of its affiliates, so long as that person does not participate 
directly in the management or administration of the underlying 
investment company. The relief provided by sub-paragraph (b)(15)(ii) of 
Rules 6e-2 and 6e-3(T) 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.
    11. Applicants state that the partial relief from Section 9(a) 
found in sub-paragraph (b)(15) of Rules 6e-2 and 6e-3(T), 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 that Section. Applicants state that those rules recognize 
that it is not necessary to apply the provisions of Section 9(a) to the 
many individuals who may be involved in an insurance company complex, 
but who have no connection with the investment company funding the 
separate accounts. 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 
assert that applying the restrictions of Section 9(a) serves no 
regulatory purpose. Applicants state that the relief requested should 
not be affected by the proposed sale of Insurance Products Funds to 
Qualified Plans, because the insulation of the Insurance Products Funds 
from those individuals who are disqualified under the 1940 Act remains 
in place. Moreover, since the Plans are not investment companies and 
will not be deemed affiliated solely by virtue of their shareholdings, 
no additional relief is necessary.
    12. Sections 13(a), 15(a) and 15(b) of the 1940 Act require ``pass-
through'' voting with respect to underlying investment company shares 
held by a separate account. Subparagraph (b)(15)(iii) of Rules 6e-2 and 
6e-3(T) under the 1940 Act provides partial exemptions from the pass-
through voting requirements in limited circumstances.
    13. For example subparagraph (b)(15)(iii)(B) of Rules 6e-2 and 6e-
3(T) provide that the insurance company may disregard the voting 
instructions of its contract owners if the contract owners initiate any 
change in the investment company's investment policies, principal 
underwriter, or investment adviser. Under the rules, voting 
instructions with respect to a change in investment policies may be 
disregarded only if the insurance company makes a good faith 
determination that such changes would: (a) Violate state law; (b) 
result in investments that were not consistent with the investment 
objectives of the separate account; or (c) result in investments that 
would vary from the general quality and nature of investments and 
investment techniques used by other separate accounts of the company or 
of an affiliated life insurance company with similar investment 
objectives.
    14. 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 of insurance. 
Applicants maintain, therefore, that in adopting Rule 6e-2, the 
Commission expressly recognized 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 reasonable could be expected to increase the risks 
undertaken by the life insurer. Flexible premium variable life 
insurance contracts and variable annuity contracts are subject to 
substantially the same state insurance regulatory authority, and 
therefore, corresponding provisions of Rule 6e-3(T) presumably were 
adopted in recognition of the same considerations the Commission 
applied in adopting Rule 6e-2. Applicants submit that these 
considerations are no less important or necessary when an insurance 
company funds its separate accounts in connection with mixed and shared 
funding, and that such funding does not compromise the goals of the

[[Page 29267]]

insurance regulatory authorities or of the Commission.
    15. Applicants further state that the sales of shares of the 
Insurance Products Funds to Plans does not affect the relief requested 
in this regard. As previously noted, shares of the Insurance Products 
Funds will be held, where applicable, by the trustees of such Plans as 
required by Section 403(a) of ERISA. Section 403(a) 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 
name 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.
    16. Applicants submit that there is no contractual or other 
relationship between the Participant Insurance Companies and any Plans 
which would affect the solvency of the life insurer, would affect the 
performance of the life insurer's contractual obligations, or would be 
expected to increase the risks undertaken by the life insurer. 
Accordingly, Applicants submit that where Plans provide participants 
with the right to give voting instructions, the purchase of shares by 
Plans does not present any complications not otherwise occasioned by 
mixed or shared funding.
    17. 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 states. Applicants note that where 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 which the requirements of other insurance 
regulators in one or more other states in which other Participating 
Insurance Companies are domiciled. Applicants submit that this 
possibility is no different or greater than exists where a single 
insurer and its affiliates offer their insurance products in several 
states.
    18. Applicants further submit that affiliation does not reduce the 
potential for differences in state regulatory requirements. In any 
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15)) discussed below are designed to safeguard against any 
adverse effects that these differences 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.
    19. Applicants also argue 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. Potential disagreement is limited by the 
requirements that the Participating Insurance Company's decision to 
disregard voting instructions be both reasonable and based on specified 
good faith determinations. However, if a 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. No charge or penalty will be imposed 
upon the Variable Contract owners as a result of such a withdrawal.
    20. 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. Moreover, 
Applicants represent that the Insurance Products Funds will not be 
managed to favor or disfavor any particular insurer or type of 
insurance product.
    21. 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, 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.
    22. Applicants note that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, these tax consequences do 
not raise any conflicts of interest. When distributions are to be made, 
and the separate account or Qualified Plan is unable to net purchase 
payments to make the distributions, the separate account or the 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. The Participating Insurance 
Company will make distributions in accordance with the terms of the 
Variable Contract.
    23. Applicants state that they do not see any greater potential for 
irreconcilable material conflicts arising between the interests of 
participants under the Plans and owners of the Variable Contracts 
issued by the separate accounts of Participating Insurance Companies 
from possible future changes in the federal tax laws than that which 
already exists between variable annuity contract owners and variable 
life insurance contract owners.
    24. 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 owners as 
opposed to a participant under a Qualified Plan. Regardless of the 
rights and benefits of participants under the Qualified Plans, or 
Variable Contract owners under their Variable Contracts, the Plans and 
the separate accounts have rights only with respect to their respective 
shares of the Insurance Products Funds. 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.
    25. Applicants state 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 state insurance commissioners have been given the veto power to 
prevent, among other things, insurance companies from indiscriminately 
redeeming their separate accounts out of one fund and investing in 
another. To accomplish such redemptions and transfers,

[[Page 29268]]

complex and time consuming transactions must be undertaken. Conversely, 
trustees of Plans or the participants in participant-directed Plans can 
make the decision quickly and implement redemption of shares from an 
Insurance Products Fund and reinvest the moneys in another funding 
vehicle without the same regulatory impediments, or, as is the case 
with most Plans, even hold cash pending a suitable alternative 
investment. Based on the foregoing, Applicants represent that even 
should the interests of Variable Contract owners and the interests Plan 
participants conflict the conflicts can be resolved almost immediately 
in that trustees of the Plans can, independently, redeem shares out of 
the Insurance Products Funds.
    26. Applicants state that, regardless of the types of Insurance 
Products Fund shareholders, 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 assert that the Adviser does so, and thus, 
would manage the Insurance Products Funds in the same manner as any 
other mutual fund.

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% of 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 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 reasonably 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 ore 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.

[[Page 29269]]

    5. 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.
    6. Participants will be informed promptly in writing of a Board's 
determination of the existence of an irreconcilable material conflict 
and its implications.
    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 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 proportion 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.
    8. As long as the Commission continues to interpret the 1940 Act as 
requiring pass-through voting privileges for Variable Contract owners, 
the Adviser (or any of its affiliates) will vote its 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.
    9. 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.
    10. Each Insurance Products Fund will notify all Participating 
Insurance Companies that separate account prospectus disclosure 
regarding potential risk 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; (c) the Board will monitor the Insurance 
Products Funds for any material conflicts and determine what action, if 
any, should be taken.
    11. Each Insurance Products Funds will comply with all provisions 
of the 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.
    12. 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.
    13. 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 Board. The obligations of the Participants to provide these 
reports, materials and data upon reasonable request of a Board shall be 
contractual obligation of all Participants under the agreements 
governing their participation in the Insurance Products Funs.
    14. If a Qualified Plan or Plan participant shareholder should 
become an 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.


[[Page 29270]]


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,


Deputy Secretary.

[FR Doc. 98-14019 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M