[Federal Register Volume 68, Number 31 (Friday, February 14, 2003)]
[Notices]
[Pages 7625-7632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3717]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25930; File No. 812-12865]


TCW Premier Funds, et al.

February 10, 2003.
AGENCY: The Securities and Exchange Commission (``SEC'' or 
``Commission'').

ACTION: Notice of Application for an Order of Exemption under Section 
6(c) of the Investment Company Act of 1940,

[[Page 7626]]

as amended (``1940 Act'') 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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Applicants: TCW Premier Funds (``Trust'') and TCW Investment Management 
Company (``TCW'') (collectively, ``Applicants'').

Summary of Application: Applicants seek an order to permit shares of 
the Trust and shares of any other existing or future investment company 
that is designed to fund insurance products and for which TCW, or any 
of its affiliates, may serve as investment manager, investment adviser, 
subadviser, administrator, manager, principal underwriter or sponsor 
(the Trust and such other investment companies being hereinafter 
referred to, collectively, as ``Insurance Trusts''), or permit shares 
of any current or future series of any Insurance Trust (``Insurance 
Fund''), 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; (2) qualified 
pension and retirement plans outside of the separate account context 
(``Qualified Plans'' or ``Plans''); (3) any investment manager to an 
Insurance Fund and affiliates thereof that is permitted to hold shares 
of an Insurance Fund consistent with the requirements of Treasury 
Regulation 1.817-5 (collectively, the ``Manager''); and (4) any 
insurance company that is permitted to hold shares of an Insurance Fund 
consistent with the requirements of Treasury Regulation 1.817-5 
(``General Accounts'').

Filing Date: The Application was filed on August 9, 2002 and was 
amended and restated on October 18, 2002.

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 the Application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the SEC by 
5:30 p.m. on March 6, 2003 and should 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 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of the date of the hearing 
by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0690. Applicants, c/o Philip K. Holl, Esq., Senior Vice President and 
Associate General Counsel, TCW Investment Management Company, 865 South 
Figueroa Street, Suite 1800, Los Angeles, California 90017.

FOR FURTHER INFORMATION CONTACT: Leland B. Erickson, Attorney, or 
Zandra Y. Bailes, 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 
20549-0102 (202-942-8090).

Applicants' Representations

    1. The Trust is a Delaware business trust organized on July 16, 
2002 and is registered as an open-end management investment company 
under the 1940 Act. The initial series of the Trust are TCW Premier 
Opportunity Fund and TCW Premier Value Opportunities Fund (the 
``Funds''). Additional series of the Trust and classes of the Funds and 
additional Insurance Funds may be established in the future.
    2. TCW serves as the Trust's investment adviser. TCW was organized 
in 1987 as a wholly-owned subsidiary of The TCW Group, Inc. 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale Asset Management, S.A. may 
be deemed to be a control person of TCW by reason of its ownership of 
more than 25% of the outstanding voting stock of the TCW Group, Inc. 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale Asset Management, S.A., is 
a wholly-owned subsidiary of Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale, S.A.
    3. The Insurance Trusts intend to offer shares of the Insurance 
Funds to (a) separate accounts of affiliated and unaffiliated insurance 
companies in order to fund variable annuity contracts and variable life 
insurance contracts (collectively, ``Separate Accounts''); (b) 
Qualified Plans; (c) any investment manager to an Insurance Fund and 
affiliates thereof that is permitted to hold shares of an Insurance 
Fund consistent with the requirements of Treasury Regulation 1.817-5 
(collectively, the ``Manager''); and (d) any insurance company that is 
permitted to hold shares of an Insurance Fund consistent with the 
requirements of Treasury Regulation 1.817-5 (``General Accounts'').
    4. Insurance companies whose Separate Account(s) may now or in the 
future own shares of the Insurance Funds are referred to herein as 
``Participating Insurance Companies.'' The Participating Insurance 
Companies will establish their own separate accounts and design their 
own contracts. Each Participating Insurance Company will have the legal 
obligation to satisfy all applicable requirements under both state and 
federal law. It is anticipated that Participating Insurance Companies 
will rely on Rules 6e-2 and 6e-3(T), although some Participating 
Insurance Companies, in connection with variable life insurance 
contracts, may rely on individual exemptive orders as well.
    5. The Insurance Trusts intend to offer shares of the Insurance 
Funds directly to Qualified Plans outside of the separate account 
context. Qualified Plans may choose any of the Insurance Funds that are 
offered as the sole investment under the Plan or as one of several 
investments. Plan participants may or may not be given an investment 
choice depending on the terms of the Plan itself. Shares of any of the 
Insurance Funds sold to such Qualified Plans would be held or deemed to 
be held by the trustee(s) of said Plans. Certain Qualified Plans, 
including section 403(b)(7) Plans and section 408(a) Plans, may vest 
voting rights in Plan participants instead of Plan trustees. Exercise 
of voting rights by participants in any such Qualified Plans, as 
opposed to the trustees of such Plans, cannot be mandated by the 
Applicants. Each Plan must be administered in accordance with the terms 
of the Plan and as determined by its trustee or trustees.
    6. Shares of each Insurance Fund also may be offered to the Manager 
or to General Accounts, in reliance on regulations issued by the 
Treasury Department (Treas. Reg. 1.817-5) that established 
diversification requirements for variable annuity and variable life 
insurance contracts (``Treasury Regulations''). Treasury Regulation 
1.817-5(f)(3)(ii) permits such sales as long as the return on shares 
held by the Manager or General Accounts is computed in the same manner 
as for shares held by the Separate Accounts, and the Manager or the 
General Accounts do not intend to sell to the public shares of the 
Insurance Trust that they hold. An additional restriction is imposed by 
the Treasury Regulations on sales to the Manager, who may hold shares 
only in connection with the creation or management of the Insurance 
Trust. Applicants anticipate that sales in reliance on these provisions 
of the Treasury Regulations generally will be made to the Manager for 
the purpose of providing necessary capital required by section 14(a) of 
the 1940 Act.

[[Page 7627]]

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to section 6(c) of the 1940 Act granting 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 (including any comparable 
provisions of a permanent rule that replaces Rule 6e-3(T)), to the 
extent necessary to permit shares of each Insurance Trust to be offered 
and sold to, and held by: (1) Separate Accounts funding variable 
annuity contracts and scheduled premium and flexible premium variable 
life insurance contracts issued by both affiliated and unaffiliated 
life insurance companies; (2) Qualified Plans; (3) any Manager to an 
Insurance Fund; and (4) General Accounts.
    2. Section 6(c) authorizes the Commission to exempt any person, 
security, or transaction or any class or classes of persons, 
securities, or transactions from any provision or provisions of the 
1940 Act and/or of any rule 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.
    3. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account organized as 
a unit investment trust (``Trust Account''), 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 to a separate account by Rule 6e-
2(b)(15) are available only where each registered management investment 
company underlying the Trust Account (``underlying fund'') offers its 
shares ``exclusively to variable life insurance separate accounts of 
the life insurer or of any affiliated life insurance company * * *.'' 
(emphasis added). Therefore, the relief granted by Rule 6e-2(b)(15) is 
not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an underlying fund that 
also offers its shares to a variable annuity separate account of the 
same company or of any affiliated life insurance company. The use of a 
common underlying fund as the underlying investment medium for both 
variable annuity and variable life insurance separate accounts of the 
same life 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 with respect to a 
scheduled premium variable life insurance separate account that owns 
shares of an underlying fund that also offers its shares to separate 
accounts funding variable contracts of one or more unaffiliated life 
insurance companies. The use of a common underlying fund as the 
underlying investment medium for variable life insurance separate 
accounts of one insurance company and separate accounts funding 
variable contracts of one or more unaffiliated life insurance companies 
is referred to herein as ``shared funding.'' Moreover, because the 
relief under Rule 6e-2(b)(15) is available only where shares are 
offered exclusively to variable life insurance separate accounts, 
additional exemptive relief may be necessary if the shares of the 
Insurance Trusts are also to be sold to Qualified Plans, the Manager or 
General Accounts.
    4. In connection with the funding of flexible premium variable life 
insurance contracts issued through a Trust Account, Rule 6e-3(T)(b)(15) 
provides partial exemptions from sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act to the extent that those sections have been deemed by 
the Commission to require ``pass-through'' voting with respect to an 
underlying fund's shares. The exemptions granted to a separate account 
by Rule 6e-3(T)(b)(15) are available only where all of the assets of 
the separate account consist of the shares of one or more underlying 
funds 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) permits mixed funding with respect to a 
flexible premium variable life insurance separate account, subject to 
certain conditions. However, Rule 6e-3(T) does not permit shared 
funding because the relief granted by Rule 6e-3(T)(b)(15) is not 
available with respect to a flexible premium variable life insurance 
separate account that owns shares of an underlying fund that also 
offers its shares to separate accounts (including variable annuity and 
flexible premium and scheduled premium variable life insurance separate 
accounts) of unaffiliated life insurance companies. The relief provided 
by Rule 6e-3(T) is not relevant to the purchase of shares of the 
Insurance Trusts by Qualified Plans, the Manager or General Accounts. 
However, because the relief granted by Rule 6e-3(T)(b)(15) is available 
only where shares of the underlying fund are offered exclusively to 
separate accounts, or to life insurers in connection with the operation 
of a separate account, additional exemptive relief may be necessary if 
the shares of the Insurance Trusts are also to be sold to Qualified 
Plans, the Manager or General Accounts.
    5. The relief provided by Rule 6e-3(T) is not relevant to the 
purchase of shares of the Insurance Trusts by Qualified Plans, the 
Manager or General Accounts. However, because the relief granted by 
Rule 6e-3(T)(b)(15) is available only where shares of the underlying 
fund are offered exclusively to separate accounts, or to life insurers 
in connection with the operation of a separate account, additional 
exemptive relief may be necessary if the shares of the Insurance Trusts 
are also to be sold to Qualified Plans, the Manager or General 
Accounts. None of the relief provided for in Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) relates to Qualified Plans, the Manager or General 
Accounts, or to an underlying fund's ability to sell its shares to such 
purchasers. It is only because some of the Separate Accounts that may 
invest in the Insurance Trusts may themselves be investment companies 
that rely upon Rules 6e-2 and 6e-3(T) and wish to continue to rely upon 
the relief provided in those Rules, that the Applicants are applying 
for the requested relief. If and when a material irreconcilable 
conflict arises in the context of the Application between the Separate 
Accounts or between Separate Accounts on the one hand and Qualified 
Plans, the Manager or General Accounts on the other hand, the 
Participating Insurance Companies, Qualified Plans, the Manager and the 
General Accounts must take whatever steps are necessary to remedy or 
eliminate the conflict, including eliminating the Insurance Funds as an 
eligible investment option. Applicants have concluded that investment 
by the Manager or the inclusion of Qualified Plans and General Accounts 
as eligible shareholders should not increase the risk of material 
irreconcilable conflicts among shareholders. However, Applicants 
further assert that even if a material irreconcilable conflict 
involving the Qualified Plans or General Accounts arose, the Qualified 
Plans or General Accounts, unlike the Separate Accounts, can simply 
redeem their shares and make alternative investments. By contrast, 
insurance companies cannot simply redeem their separate accounts out of 
one fund and

[[Page 7628]]

invest in another. Time consuming, complex transactions must be 
undertaken to accomplish such redemptions and transfers. Applicants 
thus argue that allowing the Manager, General Accounts or Qualified 
Plans to invest directly in the Insurance Trusts should not increase 
the opportunity for conflicts of interest.
    6. Applicants assert that the Treasury Regulations made it possible 
for shares of an investment company to be held by a Qualified Plan, the 
investment company's investment manager or its affiliates or General 
Accounts without adversely affecting the ability of shares in the same 
investment company to also be held by separate accounts of insurance 
companies in connection with their variable life insurance contracts. 
Section 817(h) of the Internal Revenue Code of 1986 (``Code'') imposes 
certain diversification standards on the underlying assets of separate 
accounts funding variable annuity contracts and variable life 
contracts. In particular, 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) for which the separate account 
investments are not, in accordance with regulations prescribed by the 
Treasury Department, adequately diversified. The Treasury Regulations 
provide that, in order to meet the diversification requirements, all of 
the beneficial interests in the investment company must be held by the 
segregated asset accounts of one or more insurance companies. However, 
the Treasury Regulations also contain certain exceptions to this 
requirement, one of which allows shares in an investment company to be 
held by the trustee of a qualified pension or retirement plan without 
adversely affecting the ability of shares in the same investment 
company to also 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 also assert that the Treasury Regulations contain 
another exception that permits the Insurance Funds to sell shares to 
General Accounts or the Manager subject to certain conditions (Treas. 
Reg. Sec.  1.817-5(f)(3)(i), (ii)).
    8. The promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
preceded the issuance of the Treasury Regulations which made it 
possible for shares of an investment company to be held by a Qualified 
Plan, the investment company's investment manager or its affiliates or 
General Accounts without adversely affecting the ability of shares in 
the same investment company to also be held by the separate accounts of 
insurance companies in connection with their variable life insurance 
contracts. Thus, the sale of shares of the same investment company to 
separate accounts through which variable life insurance contracts are 
issued, to Qualified Plans, to the investment company's investment 
manager and its affiliates or General Accounts (collectively, 
``eligible shareholders'') could not have been envisioned at the time 
of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15), given the 
then-current tax law.
    9. Paragraph (3) of section 9(a) provides, among other things, that 
it is unlawful for any company to serve as 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 sections 9(a)(1) or (a)(2). Rule 6e-2(b)(15)(i) and (ii) 
and Rule 6e-3(T)(b)(15)(i) and (ii) provide exemptions from section 
9(a) under certain circumstances, subject to the limitations discussed 
above 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 management investment company. The relief provided by Rules 
6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person disqualified 
under section 9(a) to serve as an officer, director, or employee of the 
life insurer, or any of its affiliates, so long as that person does not 
participate directly in the management or administration of the 
underlying fund. The relief provided by Rules 6e-2(b)(15)(ii) and 6e-
3(T)(b)(15)(ii) permits the life insurer to serve as the underlying 
fund's investment manager or principal underwriter, provided that none 
of the insurer's personnel who are ineligible pursuant to section 9(a) 
are participating in the management or administration of the fund. The 
partial relief granted in Rules 6e-2(b)(15) and 6e-3(T)(b)(15) from the 
requirements of section 9 limits, in effect, the amount of monitoring 
of an insurer's personnel that would otherwise be necessary to ensure 
compliance with section 9 to that which is appropriate in light of the 
policy and purposes of section 9. 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 in an insurance 
company complex, most of whom typically will have no involvement in 
matters pertaining to investment companies in that organization. 
Applicants assert that it is also unnecessary to apply section 9(a) of 
the 1940 Act to the many individuals in various unaffiliated insurance 
companies (or affiliated companies of Participating Insurance 
Companies) that may utilize the Insurance Funds as the funding medium 
for variable contracts. There is no regulatory purpose in extending the 
monitoring requirements to embrace a full application of section 9(a)'s 
eligibility restrictions because of mixed funding or shared funding and 
sales to Qualified Plans, the Manager or General Accounts. Those 
Participating Insurance Companies are not expected to play any role in 
the management or administration of the Insurance Funds. Those 
individuals who participate in the management or administration of the 
Insurance Funds will remain the same regardless of which separate 
accounts, insurance companies, Qualified Plans or General Accounts use 
the Insurance Funds. Therefore, applying the monitoring requirements of 
section 9(a) because of investment by separate accounts of other 
Participating Insurance Companies would not serve any regulatory 
purpose. Furthermore, the increased monitoring costs would reduce the 
net rates of return realized by contract owners and Plan participants. 
Moreover, the relief requested should not be affected by the sale of 
shares of the Insurance Trusts to Qualified Plans, the Manager or 
General Accounts. The insulation of the Insurance Trusts from those 
individuals who are disqualified under the 1940 Act remains in place. 
Because Qualified Plans, the Manager and General Accounts are not 
investment companies and will not be deemed affiliates solely by virtue 
of their shareholdings, no additional relief is necessary.
    10. Sections 13(a), 15(a), and 15(b) of the 1940 Act have been 
deemed by the Commission to require ``pass-through'' voting with 
respect to underlying fund shares held by a separate account. Rules 6e-
2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 Act provide 
partial exemptions from those sections to permit the insurance company 
to disregard the voting instructions of its contract owners in certain 
limited circumstances. Rules 6e-2(b)(15)(iii)(A) and 6e-
3(T)(b)(15)(iii)(A)(1) under the 1940 Act provide that the insurance 
company may disregard the voting instructions of its contract owners in 
connection with the voting of shares of an underlying fund if such 
instructions would require such shares to be voted

[[Page 7629]]

to cause such underlying funds to make (or refrain from making) certain 
investments that would result in changes in the subclassification or 
investment objectives of such underlying funds or to approve or 
disapprove any contract between an underlying fund and its investment 
manager, when required to do so by an insurance regulatory authority 
(subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of 
such Rules). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
under the 1940 Act provide that the insurance company may disregard 
contract owners' voting instructions if the contract owners initiate 
any change in such underlying fund's investment policies, principal 
underwriter, or any investment manager (provided that disregarding such 
voting instructions is reasonable and subject to the other provisions 
of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of Rules 6e-2 and 
6e-3(T)).
    11. Rule 6e-2 recognizes that a variable life insurance contract is 
an insurance contract; it has important elements unique to insurance 
contracts; and it is subject to extensive state regulation of 
insurance. In adopting Rule 6e-2(b)(15)(iii), the Commission expressly 
recognized that state insurance regulators have authority, pursuant to 
state insurance laws or regulations, to disapprove or require changes 
in investment policies, investment advisers, or principal underwriters. 
The Commission also expressly recognized that state insurance 
regulators have authority to require an insurer to draw from its 
general account to cover costs imposed upon the insurer by a change 
approved by contract owners over the insurer's objection. The 
Commission therefore deemed such exemptions necessary ``to assure the 
solvency of the life insurer and performance of its contractual 
obligations by enabling an insurance regulatory authority or the life 
insurer to act when certain proposals reasonably could be expected to 
increase the risks undertaken by the life insurer.'' In this respect, 
flexible premium variable life insurance contracts are identical to 
scheduled premium variable life insurance contracts; therefore, Rule 
6e-3(T)'s corresponding provisions presumably were adopted in 
recognition of the same factors. State insurance regulators have much 
the same authority with respect to variable annuity separate accounts 
as they have with respect to variable life insurance separate accounts. 
Insurers generally assume both mortality and expense risks under 
variable annuity contracts. Therefore, variable annuity contracts pose 
some of the same kinds of risks to insurers as variable life insurance 
contracts. The Commission staff has not addressed the general issue of 
state insurance regulators' authority in the context of variable 
annuity contracts, and has not developed a single comprehensive 
exemptive rule for variable annuity contracts.
    12. The Insurance Trusts' sale of shares to Qualified Plans, the 
Manager or General Accounts will not have any impact on the relief 
requested herein in this regard. Shares of the Insurance Funds sold to 
Qualified Plans would be held by the trustees of such Plans. The 
exercise of voting rights by Qualified Plans, whether by the trustees, 
by participants, by beneficiaries, or by investment managers engaged by 
the Plans, does not present the type of issues respecting the disregard 
of voting rights that are presented by variable life separate accounts. 
With respect to the Qualified Plans, which are not registered as 
investment companies under the 1940 Act, there is no requirement to 
pass through voting rights to Plan participants. Similarly, the Manager 
and General Accounts are not subject to any pass-through voting 
requirements. Accordingly, 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 
Qualified Plans, the Manager or General Accounts.
    13. Applicants assert that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. A particular state insurance regulatory body could require 
action that is inconsistent with the requirements of other states in 
which the insurance company offers its policies. The fact that 
different Participating Insurance Companies may be domiciled in 
different states does not create a significantly different or enlarged 
problem.
    14. Applicants further assert that shared funding by unaffiliated 
Participating Insurance Companies is, in this respect, no different 
than the use of the same investment company as the funding vehicle for 
affiliated Participating Insurance Companies, which Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) permit under various circumstances. Affiliated 
Participating Insurance Companies 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, the conditions discussed below 
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 under Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) of an insurance company 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 specified items and under certain specified conditions. 
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-2 and 6e-3(T) that the insurance 
company's disregard of voting instructions be reasonable and based on 
specific good faith determinations. However, a particular Participating 
Insurance Company's disregard of voting instructions nevertheless could 
conflict with the majority of contract owner voting instructions. The 
Participating Insurance Company's action could arguably be different 
than the determination of all or some of the other Participating 
Insurance Companies (including affiliated insurers) that the contract 
owners' voting instructions should prevail, and could either preclude a 
majority vote approving the change or could represent a minority view. 
If the Participating Insurance Company's judgment represents a minority 
position or would preclude a majority vote, the Participating Insurance 
Company may be required, at an Insurance Trust's election, to withdraw 
its separate account's investment in that Insurance Trust, and no 
charge or penalty would be imposed as a result of such withdrawal.
    16. With respect to voting rights, it is possible to provide an 
equitable means of giving such voting rights to contract owners and to 
Qualified Plans, the Manager or General Accounts. The transfer agent(s) 
for the Insurance Trusts will inform each shareholder, including each 
separate account, each Qualified Plan, the Manager and each General 
Account, of its share ownership, in an Insurance Trust. Each 
Participating

[[Page 7630]]

Insurance Company will then solicit voting instructions in accordance 
with the ``pass-through'' voting requirement. Investment by Qualified 
Plans or General Accounts in any Insurance Trust will similarly present 
no conflict. The likelihood that voting instructions of insurance 
company contract owners will ever be disregarded or the possible 
withdrawal referred to immediately above is extremely remote and this 
possibility will be known, through prospectus disclosure, to any 
Qualified Plan or General Account choosing to invest in an Insurance 
Fund. Moreover, even if a material irreconcilable conflict involving 
Qualified Plans or General Accounts arises, the Qualified Plans or 
General Accounts may simply redeem their shares and make alternative 
investments. Votes cast by the Qualified Plans or General Accounts, of 
course, cannot be disregarded but must be counted and given effect.
    17. Applicants assert that there is no reason why the investment 
policies of an Insurance Fund would or should be materially different 
from what they would or should be if such Insurance Fund funded only 
variable annuity contracts or variable life insurance policies, whether 
flexible premium or scheduled premium policies. Each type of insurance 
product is designed as a long-term investment program. Similarly, the 
investment strategy of Qualified Plans and General Accounts (i.e., 
long-term investment) coincides with that of variable contracts and 
should not increase the potential for conflicts. Each of the Insurance 
Funds will be managed to attempt to achieve its investment objective, 
and not to favor or disfavor any particular Participating Insurance 
Company or type of insurance product or other investor. There is no 
reason to believe that different features of various types of contracts 
will lead to different investment policies for different types of 
variable contracts. The sale and ultimate success of all variable 
insurance products depends, at least in part, on satisfactory 
investment performance, which provides an incentive for the 
Participating Insurance Company to seek optimal investment performance.
    18. Furthermore, Applicants assert that no one investment strategy 
can be identified as appropriate to a particular insurance product. 
Each pool of variable annuity and variable life insurance contract 
owners is composed of individuals of diverse financial status, age, 
insurance and investment goals. A fund supporting even one type of 
insurance product must accommodate these diverse factors in order to 
attract and retain purchasers. Permitting mixed and shared funding will 
provide economic justification for the growth of the Insurance Trust. 
In addition, permitting mixed and shared funding will facilitate the 
establishment of additional series serving diverse goals. The broader 
base of contract owners and shareholders can also be expected to 
provide economic justification for the creation of additional series of 
each Insurance Trust with a greater variety of investment objectives 
and policies.
    19. Applicants note that section 817(h) of the Code is the only 
section in the Code where separate accounts are discussed. Section 
817(h) imposes certain diversification standards on the underlying 
assets of variable annuity contracts and variable life contracts held 
in the portfolios of management investment companies. Treasury 
Regulation 1.817-5, which established diversification requirements for 
such portfolios, specifically permits, in paragraph (f)(3), among other 
things, ``qualified pension or retirement plans,'' ``the general 
account of a life insurance company,'' ``the manager * * * of an 
investment company'' and separate accounts to share the same underlying 
management investment company. Therefore, neither the Code nor the 
Treasury Regulations thereunder present any inherent conflicts of 
interest if Qualified Plans, Separate Accounts, the Manager and General 
Accounts all invest in the same underlying fund.
    20. Applicants assert that the ability of the Insurance Trusts to 
sell their respective shares directly to Qualified Plans, the Manager 
or General Accounts does not create a ``senior security,'' as such term 
is defined under section 18(g) of the 1940 Act, with respect to any 
contract owner as opposed to a participant under a Qualified Plan, the 
Manager or a General Account. As noted above, regardless of the rights 
and benefits of contract owners or Plan participants, the Separate 
Accounts, Qualified Plans, the Manager and the General Accounts have 
rights only with respect to their respective shares of the Insurance 
Trusts. They can only redeem such shares at net asset value. No 
shareholder of any of the Insurance Trusts has any preference over any 
other shareholder with respect to distribution of assets or payment of 
dividends.
    21. Applicants assert that permitting an Insurance Trust to sell 
its shares to the Manager in compliance with Treas. Reg. 1.817-5 will 
enhance Insurance Trust management without raising significant concerns 
regarding material irreconcilable conflicts. Applicants assert that, 
unlike the circumstances of many investment companies that serve as 
underlying investment media for variable insurance products, the 
Insurance Trusts may be deemed to lack an insurance company 
``promoter'' for purposes of Rule 14a-2 under the Act. It is 
anticipated that many other Insurance Trusts may lack an insurance 
company promoter. Accordingly, Applicants assert that such Insurance 
Trusts will be subject to the requirements of section 14(a) of the 1940 
Act, which generally requires that an investment company have a net 
worth of $100,000 upon making a public offering of its shares.
    22. Applicants assert that given the conditions of Treas. Reg. 
1.817-5(i)(3) and the harmony of interest between an Insurance Trust, 
on the one hand, and its Manager or a Participating Insurance Company, 
on the other, little incentive for overreaching exists. Applicants 
assert that such investments should not implicate the concerns 
discussed above regarding the creation of material irreconcilable 
conflicts. Instead, Applicants assert that permitting investment by the 
Manager will permit the orderly and efficient creation and operation of 
Insurance Trusts, and reduce the expense and uncertainty of using 
outside parties at the early stages of Insurance Trust operations.
    23. Applicants assert that various factors have limited the number 
of insurance companies that offer variable 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 Participating Insurance 
Companies 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. Use of the Insurance Trusts as a common 
investment medium for variable contracts, Qualified Plans and General 
Accounts would help alleviate these concerns, because Participating 
Insurance Companies, Qualified Plans and General Accounts will benefit 
not only from the investment and administrative expertise of TCW, or 
any other investment manager to an Insurance Fund, but also from the 
cost efficiencies and investment flexibility afforded by a large pool 
of funds. Therefore, making the Insurance Trusts available for mixed 
and shared funding and permitting the purchase of Insurance Trust 
shares by Qualified Plans and General Accounts may encourage more 
insurance companies to offer variable contracts, and this should

[[Page 7631]]

result in increased competition with respect to both variable contract 
design and pricing, which can be expected to result in more product 
variation. Mixed and shared funding also may benefit variable contract 
owners by eliminating a significant portion of the costs of 
establishing and administering separate funds. Furthermore, granting 
the requested relief should result in an increased amount of assets 
available for investment by the Insurance Trusts. This may benefit 
variable contract owners by promoting economies of scale, by reducing 
risk through greater diversification due to increased money in the 
Insurance Trusts, or by making the addition of new Insurance Funds more 
feasible.

Applicants' Conditions

    Applicants consent to the following conditions:
    1. A majority of the Board of Trustees or Board of Directors 
(``Board'') of each Insurance Trust shall consist of persons who are 
not ``interested persons'' of the Insurance Trust, as defined by 
section 2(a)(19) of the 1940 Act and the rules thereunder and as 
modified by any applicable orders of the Commission, except that if 
this condition is not met by reason of the death, disqualification, or 
bona fide resignation of any trustee or director, then the operation of 
this condition shall be suspended: (1) For a period of 90 days if the 
vacancy or vacancies may be filled by the Board; (2) for a period of 
150 days if a vote of shareholders is required to fill the vacancy or 
vacancies; or (3) for such longer period as the Commission may 
prescribe by order upon application.
    2. Each Board will monitor the respective Insurance Trust for the 
existence of any material irreconcilable conflict among and between the 
interests of the contract owners of all Separate Accounts, participants 
of Qualified Plans, the Manager or General Accounts investing in that 
Insurance Trust, 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: (1) An action by any state 
insurance regulatory authority; (2) a change in applicable federal or 
state insurance, tax, or securities laws or regulations, or a public 
ruling, private letter ruling, no-action or interpretative letter, or 
any similar action by insurance, tax, or securities regulatory 
authorities; (3) an administrative or judicial decision in any relevant 
proceeding; (4) the manner in which the investments of any Insurance 
Fund are being managed; (5) a difference in voting instructions given 
by variable annuity contract owners, variable life insurance contract 
owners, Plan trustees, or Plan participants; (6) a decision by a 
Participating Insurance Company to disregard the voting instructions of 
contract owners; or (7) if applicable, a decision by a Qualified Plan 
to disregard the voting instructions of Plan participants.
    3. Any Qualified Plan that executes a fund participation agreement 
upon becoming an owner of 10% or more of the assets of an Insurance 
Trust, any Participating Insurance Company (on their own behalf, as 
well as by virtue of any investment of general account assets in all 
Insurance Trusts), and the Manager (collectively, ``Participants'') 
will report any potential or existing conflicts to the Board. Each of 
the Participants will be responsible for assisting the Board in 
carrying out the Board's responsibilities under these conditions by 
providing the Board with all information reasonably necessary for the 
Board to consider any issues raised. This includes, but is not limited 
to, an obligation by each Participating Insurance Company to inform the 
Board whenever contract owner voting instructions are disregarded and, 
if pass-through voting is applicable, an obligation by each Qualified 
Plan that is a Participant 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 a contractual obligation of all Participating 
Insurance Companies and Qualified Plans investing in an Insurance Trust 
under their agreements governing participation in the Insurance Trust, 
and such agreements shall provide that such responsibilities will be 
carried out with a view only to the interests of the contract owners 
or, if applicable, Plan participants.
    4. If it is determined by a majority of the Board of an Insurance 
Trust, or a majority of its disinterested trustees or directors, that a 
material irreconcilable conflict exists, the relevant Participating 
Insurance Companies and Qualified Plans shall, at their expense or, at 
the discretion of a Manager to an Insurance Trust, at that Manager's 
expense, and to the extent reasonably practicable (as determined by a 
majority of the disinterested trustees or directors), take whatever 
steps are necessary to remedy or eliminate the material irreconcilable 
conflict, up to and including: (1) Withdrawing the assets allocable to 
some or all of the Separate Accounts from the relevant Insurance Trust 
or any series therein and reinvesting such assets in a different 
investment medium (including another Insurance Fund, if any); (2) in 
the case of Participating Insurance Companies, submitting the question 
of whether such segregation should be implemented to a 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; (3) withdrawing the assets allocable to some or all of the 
Qualified Plans from the affected Insurance Trust or any Insurance Fund 
and reinvesting those assets in a different investment medium; and (4) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a Participating Insurance Company's decision to disregard contract 
owner voting instructions and that decision represents a minority 
position or would preclude a majority vote, the Participating Insurance 
Company may be required, at the Insurance Trust's election, to withdraw 
its Separate Account's investment in the Insurance Trust, 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 Trust, to withdraw its investment in the 
Insurance Trust, 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 Trust, 
and these responsibilities will be carried out with a view only to the 
interests of the contract owners or, as applicable, Plan participants.
    For the purposes of this Condition (4), a majority of the 
disinterested members of the Board shall determine whether or not any 
proposed action adequately remedies any material irreconcilable 
conflict, but in no event will the Insurance Trust or its Manager(s) be 
required to establish a new funding medium for any variable contract. 
No

[[Page 7632]]

Participating Insurance Company shall be required by this Condition (4) 
to establish a new funding medium for any variable contract if an offer 
to do so has been declined by vote of a majority of contract owners 
materially adversely affected by the material irreconcilable conflict. 
No Qualified Plan shall be required by this 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.
    5. The Board's determination of the existence of a material 
irreconcilable conflict and its implications shall be made known 
promptly in writing to all Participants.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners whose contracts are 
funded through a registered Separate Account for 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 will vote shares of each 
Insurance Fund held in their registered Separate Accounts in a manner 
consistent with voting instructions timely received from such contract 
owners. Each Participating Insurance Company will vote shares of each 
Insurance Fund held in its registered Separate Accounts for which no 
timely voting instructions are received, as well as shares held by its 
General Accounts, in the same proportion as those shares for which 
voting instructions are received. Participating Insurance Companies 
shall be responsible for assuring that each of their Separate Accounts 
investing in an Insurance Trust calculates voting privileges in a 
manner consistent with all other Participating Insurance Companies. The 
obligation to vote an Insurance Trust's shares and to calculate voting 
privileges in a manner consistent with all other registered Separate 
Accounts investing in an Insurance Trust shall be a contractual 
obligation of all Participating Insurance Companies under their 
agreements governing participation in the Insurance Trust. Each Plan 
will vote as required by applicable law and governing Plan documents.
    7. An Insurance Trust will notify all Participating Insurance 
Companies and Qualified Plans that disclosure regarding potential risks 
of mixed and shared funding may be appropriate in prospectuses for any 
of the Separate Accounts and in Plan documents. Each Insurance Trust 
shall disclose in its prospectus that: (1) Shares of the Insurance 
Trust are offered to insurance company separate accounts which fund 
both variable annuity and variable life insurance contracts, and to 
Qualified Plans and General Accounts; (2) due to differences of tax 
treatment or other considerations, the interests of various contract 
owners participating in the Insurance Trust and the interests of 
Qualified Plans or General Accounts investing in the Insurance Trust 
might at some time be in conflict; and (3) the Board will monitor the 
Insurance Trust for any material conflicts and determine what action, 
if any, should be taken.
    8. All reports received by the Board of potential or existing 
conflicts, and all Board action with regard to determining the 
existence of a conflict, notifying Participants of a conflict, and 
determining whether any proposed action adequately remedies a conflict, 
will be properly recorded in the minutes of the Board or other 
appropriate records, and such minutes or other records shall be made 
available to the Commission upon request.
    9. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the 1940 
Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief 
from any provision of the 1940 Act or the rules thereunder with respect 
to mixed or shared funding on terms and conditions materially different 
from any exemptions granted in the order requested in this Application, 
then each Insurance Trust and/or the Participating Insurance Companies, 
as appropriate, shall take such steps as may be necessary to comply 
with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, 
to the extent such rules are applicable.
    10. Each Insurance Trust will comply with all provisions of the 
1940 Act requiring voting by shareholders (which, for these purposes, 
shall be the persons having a voting interest in the shares of that 
Insurance Trust), and in particular each Insurance Trust will either 
provide for annual 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 Trust is not 
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 Trust will act 
in accordance with the Commission's interpretation of the requirements 
of section 16(a) of the 1940 Act with respect to periodic elections of 
directors (or trustees) and with whatever rules the Commission may 
promulgate with respect thereto.
    11. As long as the Commission continues to interpret the 1940 Act 
as requiring pass-through voting privileges for variable contract 
owners, the Manager will vote its shares in the same proportion as all 
contract owners having voting rights with respect to the relevant 
Insurance Trust; provided, however, that the Manager or any General 
Account shall vote their shares in such other manner as may be required 
by the Commission or its staff.
    12. The Participants shall at least annually submit to the Board of 
an Insurance Trust such reports, materials or data as the Board may 
reasonably request so that it may fully carry out the obligations 
imposed upon it by the conditions contained in the Application and said 
reports, materials and data shall be submitted more frequently, if 
deemed appropriate, by the Board. The obligations of Participating 
Insurance Companies and Participating Qualified Plans to provide these 
reports, materials and data to the Board of the Insurance Trust when it 
so reasonably requests, shall be a contractual obligation of the 
Participating Insurance Companies and Participating Qualified Plans 
under their agreements governing participation in each Insurance Trust.
    13. If a Qualified Plan should become an owner of 10% or more of 
the assets of an Insurance Trust, the Insurance Trust shall require 
such Plan to execute a participation agreement with such Insurance 
Trust which 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 Trust.

Conclusion

    For the reasons and upon the facts 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. 03-3717 Filed 2-13-03; 8:45 am]
BILLING CODE 8010-01-U