The fact that retail funds may be sold in variable annuity sub-accounts in the form of funds of funds, has prompted some insurers to seek to include retail funds in other annuities.

In 1981, the IRS prohibited the use of retail mutual funds in annuities. But an IRS private letter ruling on Sept. 22, 1998 allowed an annuity provider to create a sub-account in a fund-of-funds format, said Joseph McKeever and John Adney of Davis & Harman, a Washington, D.C. law firm.

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