[Federal Register Volume 64, Number 159 (Wednesday, August 18, 1999)]
[Notices]
[Pages 44971-44976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21359]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23944; File No. 812-11604]


Parkstone Advantage Fund et al.; Notice of Application

August 11, 1999.
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 (the ``1940 Act'') granting 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.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants seek an order to permit shares of 
any current or future series of the Parkstone Advantage Fund (the 
``Fund'') and shares of any other investment company that is designed 
to fund variable insurance products and for which the National City 
Investment Management Company (the ``Adviser''), or any of its 
affiliates, may serve now or in the future, as investment adviser, (the 
Fund, together with such other investment companies, the ``Insurance 
Products Funds'') to be offered and sold to, and held by variable 
annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies (``Participating 
Insurance Companies'') and qualified pension and retirement plans 
outside of the separate account context (``Qualified Plans'' or 
``Plans'').

APPLICANTS: Parkstone Advantage Fund and National City Investment 
Management Company.

FILING DATE: The application was filed on May 3, 1999, and amended and 
restated on July 19, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the Commission and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on September 7, 1999, 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 requester's interest, the reason for the request and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
Applicants, c/o Audrey C. Talley, Esq., Drinker Biddle & Reath LLP, 
1345 Chestnut Street, Suite 1100, Philadelphia, PA 19107-3496.

FOR FURTHER INFORMATION CONTACT: Lorna MacLeod, Attorney, or Kevin 
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 SEC, 450 Fifth Street, NW, Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representation

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

Applicants' Legal Analysis

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

[[Page 44972]]

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

Disqualification

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

Pass-Through Voting

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

[[Page 44973]]

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

Conflicts of Interest

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

[[Page 44974]]

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

Applicants' Conditions

    Applicants have consented to the following conditions.
    1. A majority of each Insurance Products Fund's Board of Trustees 
or Directors (each a ``Board'') shall consist of persons who are not 
``interested persons'' thereof, as defined by Section 2(a)(19) of the 
1940 Act and the rules thereunder and as modified by any applicable 
orders of the Commission, except that if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
Board member 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 shareholders is required to fill the vacancy or vacancies, 
or (c) for such longer period as the Commission may prescribe by other 
upon application.
    2. Each Insurance Products Fund's Board will monitor their 
respective Insurance Products Fund for the existence of any material 
irreconcilable conflict among the interests of the Variable Contract 
owners of all separate accounts investing in the Insurance Products 
Funds and of the Plan participants and Qualified Plans investing in the 
Insurance Products 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 
Products Funds are being managed; (e) a difference in voting 
instructions given by variable annuity contract owners, variable life 
insurance contract owners and trustees of the Plans; (f) a decision by 
a Participating Insurance Company to disregard the voting instructions 
of Variable Contract owners; or (g) if applicable, a decision by a 
Qualified Plan to disregard the voting instructions of Plan 
participants.
    3. The Adviser (or any other investment adviser of an Insurance 
Products Fund), any Participating Insurance Company and any Qualified 
Plan that executes a fund participation agreement upon becoming an 
owner of 10% or more of the assets of an Insurance Products Fund 
(collectively, ``Participants''), will report any potential or existing 
conflicts to the Board of any relevant Insurance Products Fund. 
Participants will be 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 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

[[Page 44975]]

participation in the Insurance Products Fund, 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 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 shall, 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, including: 
(a) In the case of Qualified Plans, withdrawing the assets allocable to 
some or all of the Qualified Plans from the Insurance Products Fund and 
reinvesting such assets in a different investment medium; (b) 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 series thereof and reinvesting such assets in a 
different investment medium, including another series of an Insurance 
Product Fund or another Insurance Product Fund, or submitting the 
question as to whether such segregation should be implemented to a vote 
of all affected Variable Contract owners and, as appropriate, 
segregating the assets of any appropriate group (i.e., variable annuity 
or variable life insurance contract owners of one or more Participating 
Insurance Companies) that votes in favor of such segregation, or 
offering to the affected Variable Contract owners the option of making 
such a change; and (c) establishing a new registered management 
investment company or managed separate amount. If a material 
irreconcilable conflict arises because of a decision by a Participating 
Insurance Company to disregard Variable Contract owner voting 
instructions, and that decision represents a minority position or would 
preclude a majority vote then the Participating Insurance Company may 
be required, at the election of the Insurance Products Fund, to 
withdraw the insurer's separate account 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 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 Insurance Products Fund, and no charge or 
penalty will be imposed as a result of such withdrawal.
    The responsibility to take remedial action in the event of a Board 
determination of 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 Plan participants.
    5. For purposes of Condition 4, a majority of the disinterested 
Board members of the applicable Board shall determine whether or not 
any proposed action adequately remedies any material irreconcilable 
conflict, but in no event will the relevant 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 any offer to do so has been declined by vote of a majority of the 
Variable Contract owners materially and adversely affected by the 
material irreconcilable conflict. Further, no Qualified Plan shall be 
required by Condition 4 to establish a new funding medium for any 
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 a Plan Participant 
vote.
    6. The determination of the 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 Qualified 
Plans.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to Variable 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 Variable Contract owners. As to Variable 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 Products Fund held in its separate 
accounts for which no voting instructions from contract owners are 
timely received, as well as shares of the Insurance Products Funds 
which it owns, in the same proportion as those shares of the Insurance 
Products 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 Products Funds calculates voting 
privileges in a manner consistent with other Participating Insurance 
Companies. The obligation to calculate voting privileges in a manner 
consistent with all other registered separate accounts investing in the 
Insurance Products Fund will be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participating in the Insurance Products Funds. Each 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 Products Fund and all Board action with regard to 
determining the existence of a conflict, notifying Participants of a 
conflict, and determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of 
meetings of the appropriate Board or other appropriate records, and 
such minutes or other records shall be made available to the Commission 
upon request.
    9. Each Insurance Products Fund will notify all Participating 
Insurance Companies that separate disclosure in their respective 
separate account prospectuses may be appropriate to advise accounts 
regarding the potential risks of mixed and shared funding. Each 
Insurance Products Fund shall disclose in its prospectus that: (a) The 
Insurance Products 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 Variable Contract owners participating 
in the Insurance Products Fund and/or the interests of Qualified Plans 
investing in the Insurance Products Fund may at some time be in 
conflict; and (c) the Board will monitor events in order to identify 
any material conflicts and to determine what action, if any should be 
taken in response to any such conflict.

[[Page 44976]]

    10. Each Insurance Products Fund will comply with all provisions of 
the 1940 Act requiring voting by shareholders (for these purposes, 
shareholders will be the persons having a voting interest in the shares 
of the Insurance Products Funds), and in particular, the Insurance 
Products Funds 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, as well as with Section 16(a) of the 1940 Act and, if and 
when applicable, Section 16(b) of the 1940 Act. Further, each Insurance 
Products Fund will act in accordance with the Commission's 
interpretation of the requirements of Section 16(a) with respect to 
periodic elections of Board members and with whatever rules the 
Commission may promulgate with respect thereto.
    11. If and to the extent that Rules 6e-2 or 6e-3(T) under the 1940 
Act are 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 Rules 6e-2 or 6e-3(T), as amended, or 
proposed Rule 6e-3, as adopted, to the extent such Rules are 
applicable.
    12. The Participants and/or their Adviser, at least annually, shall 
submit to each Board such reports, materials or data as each 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 shall be submitted more frequently if 
deemed appropriate by the Board. The obligations of the Participants to 
provide these reports, materials and data to the Board when the Board 
so reasonably requests, shall be a contractual obligation of all 
Participants under their agreements governing participation in the 
Insurance Products Funds.
    13. If a Qualified Plan should ever become a holder of 10% or more 
of the assets of an Insurance Products Fund, such Plan will execute a 
participation agreement with the Insurance Products Fund that includes 
the conditions set forth herein to the extent applicable. A Qualified 
Plan will execute an application containing an acknowledgment of this 
condition upon such Plan's initial purchase of the shares of any 
Insurance Products Fund.

Conclusion

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

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21359 Filed 8-17-99; 8:45 am]
BILLING CODE 8010-01-M