[Federal Register Volume 63, Number 186 (Friday, September 25, 1998)]
[Notices]
[Pages 51388-51393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25733]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23440; File No. 812-11070]


The White Elk Funds, et al.

September 21, 1998.
Agency: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

Action: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940 (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.

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Summary: Applicants seek an order to permit shares of certain series of 
The White Elk Funds that are designed to fund insurance products (the 
``Funds'') and shares of any other investment company that is designed 
to fund insurance products and for which White Elk Asset Management, 
Inc. or any of its affiliates may serve as investment advisor, 
administrator, manager, principal underwriter, or sponsor (collectively 
with the Funds, the ``Insurance Product Funds'') to be sold to and held 
by: (1) Separate accounts funding variable annuity and variable life 
insurance contracts (``Separate Accounts'') of both affiliated and 
unaffiliated life insurance companies (``Participating Insurance 
Companies''); and (2) qualified pension or retirement plans 
(``Plans'').

Applicants: The White Elk Funds (the ``Company'') and White Elk Asset 
Management, Inc. (the ``Advisor'').

Filing Date: The application was filed on March 13, 1998, and amended 
and restated on July 14, 1998.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the SEC 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 October 16, 1998, and 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 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 Joseph J. McBrien, Esq., State Street Bank and Trust 
Company, 1776 Heritage Drive, AFB4, North Quincy, MA 02171-2197.

For Further Information Contact: Zandra Y. Bailes, Senior Counsel, or 
Mark C. Amorosi, Branch Chief, Division of Investment Management, 
Office of Insurance Products, 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 SEC, 450 Fifth Street, NW., Washington, DC 
20549 (tel. (202) 942-8090).

Applicant's Representations

    1. The Company is a Massachusetts business trust and is registered 
under the 1940 Act as an open-end diversified management investment 
company. The Company currently consists of eleven separate Funds, each 
of which has its own investment objective and policies. The Company may 
in the future issue shares of additional Funds and/or multiple classes 
of shares of each Fund.
    2. The Advisor, an investment manager newly registered under the 
Investment Advisers Act of 1940, is the investment adviser to each of 
the Funds and is responsible for the overall administration of the 
Company. The Advisor has entered into a contract with William D. 
Witter, Inc. (``Witter''), whereby Witter will serve as sub-portfolio 
manager to various of the Funds.
    3. Shares of each Fund may be offered to Separate Accounts, which 
are either registered or unregistered under the federal securities 
laws, that fund variable annuity contracts or variable life insurance 
policies (``Contracts''). Shares of the Funds may also be offered to 
Plans.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to conditionally or unconditionally exempt any 
person, security or transaction, or any class or classes of persons, 
securities or transactions from any provisions of the 1940 Act or the 
rules promulgated thereunder, if and to the extent that such 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.
    2. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 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-
2(b)(15) are available, however, only where all of the assets of the 
separate account consist of the shares of one or more registered 
management investment companies which offer their shares ``exclusively 
to variable life insurance separate accounts of the life insurer, or of 
any affiliated life insurance company'' (emphasis added).\1\ 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 a management company that also offers its shares to variable 
annuity and variable life insurance separate accounts of the same 
insurance company or any other insurance company or to trustees of a 
Plan. The use of a common management investment company as the 
underlying investment medium for a variable annuity or a variable life 
insurance separate account of the same insurance company or of any 
affiliated life insurance company is referred to herein as ``mixed 
funding.'' 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 any underlying

[[Page 51389]]

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 management company as the underlying 
investment medium for separate accounts of unaffiliated life insurance 
companies is referred to herein as ``shared funding.'' Furthermore, 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.
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    \1\ The relief provided by Rule 6e-2 is also available to a 
separate account's investment adviser, principal underwriter, and 
sponsor or depositor.
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    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act, 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. These 
exemptions, however, 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 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'' (emphasis added). Therefore, Rule 6e-3(T) grants 
the exemptions if the underlying fund engages in mixed funding, subject 
to certain conditions, but not if it engages in shared funding or sells 
its shares to Plans.
    4. Applicants state that the current federal tax law permits the 
Insurance Product Funds to increase their asset base through the sale 
of shares to Plans. Section 817(h) of the Internal Revenue Code of 
1986, as amended (the ``Code''), imposes certain diversification 
requirements on the assets underlying Contracts invested in the 
Insurance Products Funds. The Code provides that such Contracts will 
not be treated as annuity contracts or life insurance contracts for any 
period in which the underlying assets are not, in accordance with 
regulations issued by the Treasury Department (the ``Regulations''), 
adequately diversified. 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 life insurance companies. 
The Treasury Regulations do, however, contain certain exceptions to 
this requirement, one of which allows shares in an investment company 
to be held by trustees of a 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. 1.817-5(f)(3)(iii)).
    5. Applicants note that if the Insurance Product Funds were to sell 
their shares only to Plans, no exemptive relief would be necessary. The 
relief provided under Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15) does not 
relate to Plans or to a registered investment company's ability to sell 
its shares to Plans.
    6. Applicants also note that the promulgation of Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) preceded the issuance of the Regulations. Thus, the 
sale of shares of the same investment company to both separate accounts 
and Plans could not have been envisioned at the time Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) were promulgated, given the then-current tax law.
    7. 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 either 
Section 9(a)(1) or 9(a)(2) of the 1940 Act. Rules 6e-2(b)(15) (i) and 
(ii) and 6e-3(T)(b)(15) (i) and (ii) provide exemptions from Section 
9(a), subject to the limitations on mixed and shared funding. These 
exemptions limit the application of the eligibility restrictions to 
affiliated individuals or companies that directly participate in the 
management of the underlying fund.
    8. 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 of the 
1940 Act limits, in effect, the amount of monitoring necessary to 
ensure compliance with Section 9 to that which is appropriate in light 
of the policy and purposes of Section 9. Applicants state that those 
Rules recognize that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the 1940 Act to apply the provisions of Section 9(a) to the many 
individuals who may be involved in an insurance company complex, but 
who would have no involvement in matters pertaining to investment 
companies funding the separate accounts. Applicants, assert, therefore, 
that there is no regulatory purpose in denying the partial exemptions 
because of mixed and shared funding and sales to Plans.
    9. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) under the 1940 Act provide exemptions from the pass-
through voting requirement with respect to several significant matters, 
assuming the limitations on mixed and shared funding are observed. More 
specifically, Rules 6e-2(b)(15)(iii)(A) and 6e-2(b)(15)(iii)(A) provide 
that the insurance company may disregard the voting instructions of its 
contract with respect to the investment of an underlying investment 
company or any contract between an underlying investment company and 
its investment adviser, when required to do so by an insurance 
regulatory authority and subject to certain requirements. In addition, 
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii(A)(2) provide that the 
insurance company may disregard the voting instructions of contract 
owners if the contract owners initiate any change in an underlying 
investment company's investment policies, principal underwriter or any 
investment adviser (provided that disregarding such voting instruction 
is reasonable and subject to the other provisions of Rules 6e-2 and 6e-
3(T)).
    10. Applicants assert that the offer and sale of shares of 
Insurance Product Funds to Plans will not have an impact on the relief 
requested. Under Section 403(a) of the Employee Retirement Income 
Security Act (``ERISA''), shares of the Insurance Product Funds sold to 
Plans would be held by the trustees of the Plan. Section 403(a) also 
provides that the trustee(s) must have exclusive authority and 
discretion to manage and control the Plan investments with two 
exceptions: (a) When the Plan expressly provides that the 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 of such fiduciary 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)93) of ERISA. Unless one 
of the above two exceptions stated in Section 403(a) applies, Plan 
trustees have the exclusive authority and responsibility for voting 
proxies.
    11. Where a named fiduciary to a Plan appoints an investment 
manager, the investment manager has the responsibility to vote the 
shares held unless the right to vote such shares is reserved to the 
trustee or the named fiduciary. In any event, Applicants assert that 
ERISA permits but does not require pass-through voting to participants 
in Plans. Some of the Plans, however, may provide participants with the 
right to give voting instructions.

[[Page 51390]]

    12. Where a Plan provides participants with the right to give 
voting instructions, Applicants assert that there is no reason to 
believe that participants in Plans generally or those in a particular 
Plan, either as a single group or in combination with participants in 
other Plans, would vote in a manner that would disadvantage Contract 
owners. The purchase of shares of the Insurance Product Funds by Plans 
that provide voting rights to participants does not present any 
complications not otherwise occasioned by mixed and shared funding.
    13. Applicants also maintain that no increased conflicts of 
interest would be presented by the granting of the requested relief. In 
this regard, Applicants assert that shared funding does not prevent any 
issues that do not already exist where a single insurance company is 
licensed to do business in several or all states. A particular state 
insurance regulatory body could require action that is inconsistent 
with the requirements of insurance regulators of other states in which 
the insurance company offer its policies. The fact that different 
insurers may be domiciled in different states does not create a 
sigfificantly different or enlarged problem.
    14. Applicants submit that shared funding is, in this respect, no 
different that the use of the same investment company as the funding 
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) permit under various circumstances. Affiliated insurers may 
be domiciled in different states and be subject to differing state law 
requirements. Affiliation does not reduce the potential, if any exists, 
for differences in state regulatory requirements. In any event, 
Applicants submit that the conditions set forth in the application and 
included in this notice are designed to safeguard against, and provide 
procedures for, resolving any adverse effects that differences among 
state regulatory requirements may produce.
    15. Applicants assert that the right of an insurance company under 
Rules 6e-1(b)(15) and 6e-3(T)(b)(15) to disregard contract owners' 
voting instructions does not raise any issues different from those 
raised by the authority of state insurance administrators over separate 
accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can 
disregard contract owner voting instructions only with respect to 
certain specific items. Affiliation does not eliminate the potential, 
if any exists, for divergent judgments as to the advisability or 
legality of a change in investment policies, principal underwriter, or 
investment adviser initiated by contract owners. The potential for 
disagreement is limited by the requirements in Rules 6e-26 and 6e-3(T) 
that an insurance company's disregard of voting instructions be 
reasonable and based on specific good-faith determinations.
    16. A particular insurer's disregard of voting instructions 
nevertheless could conflict with the majority of Contract owner voting 
instructions. The insurer's action could be different from the 
determination of all or some of the other insurers (including 
affiliated insurers) that the contract owners' voting instructions 
should prevail, and either could preclude a majority vote approving the 
change or could represent a minority view. If the insurer's judgment 
represents a minority position or would preclude a majority vote, the 
insurer may be required, at the election of the relevant Insurance 
Product Fund to withdraw its Separate Account's investment in that 
Insurance Product Fund, and no charge or penalty would be imposed as a 
result of such withdrawal.
    17. Applicants submit that there is no reason why the investment 
policies of the Insurance Product Funds would or should be materially 
different from what those policies would or should be if the Insurance 
Product Funds funded only annuity contracts or only scheduled or 
flexible premium life contracts. In this regard, Applicants note that 
each type of insurance product is designed as a long-term investment 
program. In addition, Applicants represent that each Insurance Product 
Fund will be managed to attempt to achieve the investment objective of 
that Insurance Product Fund and not to favor or disfavor any particular 
insurer or type of insurance product.
    18. Furthermore, Applicants submit that no one investment strategy 
can be identified as appropriate to a particular insurance product or 
to a Plan. Each pool of variable annuity and variable life insurance 
contract owners is composed of individuals of diverse financial status, 
age, insurance and investment goals. A fund supporting even one type of 
insurance product must accommodate those factors in order to attract 
and retain purchasers.
    19. Applicants note that Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of variable annuity 
and variable life insurance contracts held in the portfolios of 
management investment companies. The Regulations specifically permit 
``qualified pension or retirement plans'' and insurance company 
separate accounts to share the same underlying investment company. For 
this reason, Applicants have concluded that neither the Code, nor the 
Treasury Regulations, nor the revenue rulings thereunder, present any 
inherent conflicts of interest if Plans, variable annuity separate 
accounts, and variable life insurance separate accounts all invest in 
the same management investment company.
    20. Applicants note that while there are differences in the manner 
in which distributions from variable annuity contracts, variable life 
insurance contracts and Plans are taxed, the tax consequences do not 
raise any conflicts of interest. When distributions are to be made, and 
a Separate Account or Plan is unable to net purchase payments to make 
the distributions, the Separate Account or the Plan will redeem shares 
of the Insurance Product Fund at their net asset value. A Plan will 
make distributions in accordance with the terms of the Plan, and the 
Participating Insurance Company will make distributions in accordance 
with the terms of the Contract.
    21. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving voting rights to 
Contract owners and to Plans. Applicants represent that the Insurance 
Product Funds will inform each shareholder, including each Separate 
Account and each Plan, of information necessary for the shareholder 
meeting, including its respective share of ownership in the respective 
Insurance Product Fund. Each Participating Insurance Company will then 
solicit voting instructions in accordance with the ``pass-through'' 
voting requirement.
    22. Applicants contend that the ability of the Insurance Product 
Funds to sell their respective shares directly to qualified plans does 
not create a ``senior security,'' as that term is defined in Section 
18(g) of the 1940 Act. Regardless of the rights and benefits of 
participants under the Plans or Contract owners under the Contracts, 
the Plans and the Separate Accounts have rights only with respect to 
their respective shares of the Insurance Product Funds. They can only 
redeem such shares at their net asset value. No shareholder of any of 
the Insurance Product Funds has any preference over any other 
shareholder with respect to distribution of assets or payments of 
dividends.
    23. Applicants submit that there are no conflicts between the 
Contract owners of the separate accounts and plan participants with 
respect to the state insurance commissioners' veto powers over 
investment objectives. State insurance commissioners have been given 
the veto power in recognition of

[[Page 51391]]

the fact that insurance companies usually cannot simply redeem their 
separate accounts out of one fund and invest in another. Generally, 
time-consuming complex transactions must be undertaken to accomplish 
such redemptions and transfers. Conversely, trustees of Plans can make 
the decision quickly and redeem their interest in an Insurance Product 
Fund and reinvest in another funding vehicle without the same 
regulatory impediments faced by separate accounts or, as is the case 
with most Plans, even hold cash pending suitable investment. Based on 
the foregoing, Applicants have concluded that even if there should 
arise issues where the interests of Contract owners and the interests 
of participants in Plans are in conflict, the issues can be resolved 
almost immediately because the trustees of Plans can, on their own, 
redeem the shares out of the Insurance Product Fund.
    24. Applicants assert that various factors have limited the number 
of insurance companies that offer variable annuities and variable life 
insurance contracts. These factors include the costs of organizing and 
operating a funding medium, the lack of expertise with respect to 
investment management (principally with respect to stock and money 
market investments), and the lack of name recognition by the public of 
certain insurers as investment experts. In particular, some 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.
    25. Applicants contend that the use of the Insurance Product Funds 
as common investment vehicles for variable contracts would reduce or 
alleviate these concerns. Mixed and shared funding should provide 
several benefits to variable contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate funds. Participating Insurance Companies will benefit not only 
from the investment and administrative expertise of the Advisor, but 
also from the cost efficiencies and investment flexibility afforded by 
a larger pool of assets. Therefore, making the Insurance Product Funds 
available for mixed and shares funding will encourage more insurance 
companies to offer variable contracts, and accordingly should result in 
increased competition with respect to both variable contract design and 
pricing, which can be expected to result in more product variation and 
lower charges. Applicants also assert that the sale of shares of the 
Insurance Product Funds to Plans can also be expected to increase the 
amount of assets available for investment by the Insurance Product 
Funds and thus promote economies of scale and diversification.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Board of each Insurance Product Fund 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 or Members, 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 remaining Board 
Members; (b) for a period of 60 days if a vote of shareholder 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 Board will monitor their respective Insurance Product Funds 
for the existence of any material irreconcilable conflict among the 
interests of the Contract owners of all Separate Accounts investing in 
the Insurance Product Funds and of the Plan participants investing in 
the Insurance Product Funds. The Board will determine what action, if 
any, shall 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 Insurance Product Funds are being managed; (e) a 
difference in voting instructions given by variable annuity Contract 
owners, variable life insurance Contract owners, and trustees of Plans; 
(f) a decision by an insurer to disregard the voting instructions of 
Contract owners; or (g) if applicable, a decision by a Plan to 
disregard the voting instructions of Plan participants.
    3. Participating Insurance Companies, the Advisor or any primary 
investment advisor of the Insurance Product Funds, and any Plan that 
executes a fund participation agreement upon becoming an owner of 10 
percent or more of the assets of an Insurance Product Fund (a 
``Participating Plan''), will report any potential or existing 
conflicts of which it becomes aware to the Board of any relevant 
Insurance Product Fund. Participating Insurance Companies, the Advisor 
and the Participating 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 
responsibility includes, but is not limited to, an obligation by each 
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 
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 Board, will be contractual 
obligations of all Participating Insurance Companies investing in the 
Insurance Product Funds under their agreements governing participation 
in the Insurance Product Funds, and such agreements shall provide that 
these responsibilities will be carried out with a view only to the 
interests of the Contract owners. The responsibility to report such 
information and conflicts, and to assist the Board, will be contractual 
obligations of all Participating Plans under their agreements governing 
participation in the Insurance Product Funds, and such agreements will 
provide that their responsibilities will be carried out with a view 
only to the interests of Plan participants.
    4. If it is determined by a majority of the Board of an Insurance 
Product Fund, or by a majority of the disinterested Board Members, that 
a material irreconcilable conflict exists, the relevant Participating 
Insurance Companies and Participating Plans will, at their own expense 
and to the extent reasonably practicable as determined by a majority of 
the disinterested Board Members, take whatever steps are necessary to 
remedy or eliminate the material irreconcilable conflict, which steps 
could include: (a) In the case of Participating Insurance Companies, 
withdrawing the assets allocable to some or all of the Separate 
Accounts from the Insurance Product Fund or any portfolio thereof and 
reinvesting such assets in a different investment medium, including 
another portfolio of an Insurance Product Fund or another Insurance 
Product Fund, or submitting the question as to whether such segregation 
should be implemented to a

[[Page 51392]]

vote of all affected Contract owners and, as appropriate, segregating 
the assets of any appropriate group (i.e., variable annuity Contract 
owners or variable life insurance Contract owners of one or more 
Participating Insurance Companies) that votes in favor of such 
segregation, or offering to the affected Contract owners the option of 
making such a change; (b) in the case of Participating Plans, 
withdrawing the assets allocable to some or all of the Plans from the 
Insurance Product Fund and reinvesting such assets in a different 
investment medium; 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 Contract owner voting instructions, and 
that decision represents a minority position or would preclude a 
majority vote, then the insurer may be required, at the Insurance 
Product Fund's election, to withdraw the insurer's Separate Account 
investment in such Insurance Product Fund, and no charge or penalty 
will be imposed as a result of such withdrawal. If a material 
irreconcilable conflict arises because of a Participating 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 Participating Plan may be required, at 
the Insurance Product Fund's election, to withdraw its investment in 
such Insurance Product 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 determination by a Board of a material 
irreconcilable conflict and to bear the cost of such remedial action 
will be a contractual obligation of all participating Insurance 
Companies and Participating Plans under their agreements governing 
participation in the Insurance Product Funds, and these 
responsibilities will be carried out with a view only to the interest 
of Contract owners and Plan participants.
    5. For purposes of Condition 4, a majority of the disinterested 
Board 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 Product Fund or 
the Advisor be required to establish a new funding medium for any 
Contract. No Participating Insurance Company shall be required by 
Condition 4 to establish a new funding medium for any Contract if any 
offer to do so has been declined by vote of a majority of the Contract 
owners materially and adversely affected by the material irreconcilable 
conflict. Further, no Participating Plan shall be required by Condition 
4 to establish a new funding medium for any Participating Plan if (a) A 
majority of Plan 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 
Participating Plan makes such decision without a Plan participant vote.
    6. The determination of any Board of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participating Insurance Companies and 
Participating Plans.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to Contract owners who invest in registered Separate 
Accounts so long as and to the extent that the Commission continues to 
interpret the 1940 Act as requiring pass-through voting privileges for 
Contract owners. As to Contracts issued by unregistered Separate 
Accounts, pass-through voting privileges will be extended to 
participants to the extent granted by issuing insurance companies. Each 
Participating Insurance Company will also vote shares of the Insurance 
Product Funds held in its Separate Accounts for which no voting 
instructions from Contract owners are timely received, as well as 
shares of the Insurance Product Funds which the Participating Insurance 
Company itself owns, in the same proportion as those shares of the 
Insurance Product Funds for which voting instructions from contract 
owners are timely received. Participating Insurance Companies will be 
responsible for assuring that each of their registered Separate 
Accounts participating in the Insurance Product 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 registered Separate Accounts investing in the 
Insurance Product Funds will be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
their participation in the Insurance Product Funds. Each Participating 
Plan will vote as required by applicable law and governing Plan 
documents.
    8. All reports of potential or existing conflicts received by the 
Board of an Insurance Product Fund, and all action by such Board with 
regard to determining the existence of a conflict, notifying 
Participating Insurance Companies and participating Plans of a 
conflict, and determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
meeting of such Board or other appropriate records, and such minutes or 
other records shall be made available to the Commission upon request.
    9. Each Insurance Product Fund will notify all Participating 
Insurance Companies that separate disclosure in their respective 
Separate Account prospectuses may be appropriate to advise accounts 
regarding the potential risks of mixed and shared funding. Each 
Insurance Product Fund shall disclose in its prospectus that (a) the 
Insurance Product Fund is intended to be a funding vehicle for variable 
annuity and variable life insurance contracts offered by various 
insurance companies and for qualified pension and retirement plans; (b) 
due to differences of tax treatment and other considerations, the 
interests of various Contract owners participating in the Insurance 
Product Fund and/or the interests of Plans investing in the Insurance 
Product Fund may at some time be in conflict; and (c) the Board of such 
Insurance Product Fund will monitor events in order to identify the 
existence of any material irreconcilable conflicts and to determine 
what action, if any, should be taken in response to any such conflict.
    10. Each Insurance Product 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 Product Funds), and, in particular, the Insurance Product 
Funds will either 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 the Insurance Product Funds are not the type of trust 
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 Product Fund will act in accordance 
with the Commission's interpretation of the requirements of Section 
16(a) with respect to periodic elections of Board Members and with 
whatever rules the Commission may promulgate with respect thereto.
    11. If and to the extent Rule 6e-2 or 6e-3(T) under the 1940 Act is 
amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to 
provide exemptive relief from any provision of the 1940 Act or the 
rules promulgated thereunder, with respect to mixed or

[[Page 51393]]

shared funding on terms and conditions materially different from any 
exemptions granted in the order requested in the application, then the 
Insurance Product Funds and/or Participating Insurance Companies and 
Participating Plans, as appropriate, shall take such steps as may be 
necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or 
proposed Rule 6e-3(T), as adopted, to the extent that such Rules are 
applicable.
    12. The Participating Insurance Companies and Participating Plans 
and/or the Advisor, at least annually, will submit to each Board such 
reports, materials or data as the Board may reasonably request so that 
the Board may fully carry out obligations imposed upon it by the 
conditions contained in the application. Such reports, materials and 
data will be submitted more frequently if deemed appropriate by the 
applicable Board. The obligations of the Participating Insurance 
Companies and Participating Plans to provide these reports, materials 
and data to the Board, when the Board so reasonably requests, shall be 
a contractual obligation of all Participating Insurance Companies and 
Participating Plans under their agreements governing participation in 
the Insurance Product Funds.
    13. If a Plan should ever become a holder of ten percent or more of 
the assets of an Insurance Product Fund, such Plan will execute a 
participation agreement with the Insurance Product Fund that includes 
the conditions set forth herein to the extent applicable. A Plan will 
execute an application containing an acknowledgment of this condition 
upon such Plan's initial purchase of the shares of any Insurance 
Product Fund.

Conclusion

    For the reasons summarized above, Applicants submit that the 
exemptive relief requested is necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-25733 Filed 9-24-98; 8:45 am]
BILLING CODE 8010-01-M