

[Federal Register: June 28, 2006 (Volume 71, Number 124)]
[Notices]               
[Page 36834-36840]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jn06-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27416; File No. 812-13180]

 
Cohen & Steers VIF Realty Fund, Inc. et al.; Notice of 
Application

June 22, 2006.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of Application for Exemption pursuant to Section 6(c) of 
the Investment Company Act of 1940, as amended (the ``1940 Act''), for 
an exemption from the provisions of Sections 9(a), 13(a), 15(a) and 
15(b) of the Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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Applicants: Cohen & Steers VIF Realty Fund, Inc. (the ``Fund'') and 
Cohen & Steers Capital Management, Inc. (the ``Investment Adviser'') 
(collectively the ``Applicants'').

Summary of Application: Applicants request an order pursuant to Section 
6(c) of the 1940 Act exempting certain life insurance companies and 
their separate accounts that currently invest in or may hereafter 
invest in the Fund from the provisions of Sections 9(a), 13(a), 15(a) 
and 15(b) of the Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder, to the extent necessary to permit shares of the Fund (the 
``Shares''), and shares of any existing or future investment company 
that is designed to fund insurance products and for which the 
Investment Adviser or any of its affiliates, may serve as investment 
adviser, investment manager, subadviser, administrator, principal 
underwriter or sponsor (collectively the ``Insurance Funds'') to be 
sold to and held by: (a) Separate accounts funding variable annuity 
contracts and variable life insurance policies (collectively ``Variable 
Contracts'') issued by both affiliated life insurance companies and 
unaffiliated life insurance companies; (b) trustees of qualified group 
pension and group retirement plans outside of the separate account 
context, (``Qualified Plans''); (c) separate accounts that are not 
registered as investment companies under the 1940 Act pursuant to 
exemptions from registration under Section 3(c) of the 1940 Act; (d) 
the Investment Adviser or any successor in interest to the Investment 
Adviser (``Adviser'') for the purpose of providing seed capital to an 
Insurance Fund; and (e) any other account of a Participating Insurance 
Company permitted to hold shares of an Insurance Fund (``General 
Accounts'').

Filing Date: The Application was filed on March 28, 2005 and amended 
and restated on October 3, 2005 and June 16, 2006.

Hearing or Notification of Hearing: If no hearing is ordered, the 
requested exemption will be granted. Any interested person may request 
a hearing on this Application, or ask to be notified if a hearing is 
ordered. Any requests must be received by the Commission by 5:30 p.m. 
on July 19, 2006. Request a hearing in writing, giving the nature of 
your interest, the reason for the request, and the issues you contest. 
Serve the Applicants with the request, either personally or by mail, 
and also send it to the Secretary of the Commission, along with proof 
of service by affidavit, or in the case of any attorney-at-law by 
certificate. Request notification of the date of a hearing by writing 
to the Secretary of the Commission.

ADDRESSES: The Commission: Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicants: 
C/O Lawrence B. Stoller, Esq., 280 Park Avenue, New York, NY 10017.

FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel, 
or Joyce M. Pickholz, Branch Chief, Office of Insurance Products, 
Division of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application. The complete Application is available for a fee from the 
Commission's Public Reference Branch, SEC's Public Reference Branch, 
100 F Street, NE., Room 1580, Washington, DC 20549 (telephone (202) 
551-8090).

Applicant's Representations

    1. Each Insurance Funds is, or will be, registered under the 1940 
Act as an open-end management investment company. The Fund (1940 Act 
Registration No. 811-21669) was incorporated under Maryland law on 
November 10, 2004 and is registered under the 1940 Act as a non-
diversified management investment company. The Fund's registration 
statement became effective on January 27, 2005. The Fund's Shares are 
not sold to the general public, but are currently offered to separate 
accounts funding variable annuity contracts issued by Merrill Lynch 
Life Insurance Company, ML Life Insurance Company of New York and 
affiliated entities.
    2. The Investment Adviser was organized in 1986, under the laws of 
the State of New York, and registered with the Commission under the 
Investment Advisers Act of 1940. The Investment

[[Page 36835]]

Adviser is a wholly owned subsidiary of Cohen & Steers, Inc., a 
publicly traded company whose common stock is listed on the New York 
Stock Exchange under the symbol ``CNS.''
    3. Applicants represent that the Fund intends to, and other 
Insurance Funds may in the future, offer Shares to separate accounts of 
affiliated and unaffiliated insurance companies in order to fund 
various types of insurance products. Applicants represent that these 
products may include, but are not limited to, variable annuity 
contracts, scheduled premium variable life insurance policies, single 
premium variable life insurance policies and flexible premium variable 
life insurance polices. Applicants further represent that these 
separate accounts are, or will be, registered as investment companies 
under the 1940 Act or will be exempt from such registration 
(individually a ``Separate Account'' and collectively the ``Separate 
Accounts''). Insurance companies whose Separate Account(s) may now or 
in the future own Shares are referred to herein as ``Participating 
Insurance Companies.''
    4. Applicants represent that the Participating Insurance Companies 
have established, or will establish, their own Separate Accounts and 
design their own Variable Contracts. Each Participating Insurance 
Company has, or will have, the legal obligation to satisfy all 
applicable requirements under both state and federal law. Each 
Participating Insurance Company may rely on Rule 6e-2 or Rule 6e-3(T) 
under the 1940 Act, although in connection with the establishment and 
maintenance of Separate Accounts funding variable life insurance 
polices some Participating Insurance Companies may rely on individual 
exemptive orders as well.
    5. Applicants state that each Participating Insurance Company on 
behalf of its Separate Accounts has entered, or will enter, into a 
participating agreement with each Insurance Fund in which it invests 
which will govern participation by the Participating Insurance Company 
in such Insurance Fund (a ``Participating Agreement''). The role of the 
Insurance Fund under this arrangement, insofar as federal securities 
laws are applicable, will consist of offering Shares to the Separate 
Accounts and fulfilling any conditions that the Commission may impose 
upon granting the order requesting herein.
    6. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares to Qualified Plans administered by a Trustee. 
Section 817(h) of the Internal Revenue Code of 1986, as amended (the 
``Code''), imposes certain diversification standards on the underlying 
assets of Separate Accounts funding Variable Contracts. In particular, 
the Code provides that Variable Contracts shall not be treated as an 
annuity contract or life insurance policy for any period (and any 
subsequent period) for which the underlying assets are not, in 
accordance with regulations prescribed by the Treasury Department, 
adequately diversified. On March 2, 1989, the Treasury Department 
issued regulations (individually a ``Treasury Regulation'' and 
collectively the ``Treasury Regulations''), specifically Treasury 
Regulation Section 1.817-5, that established diversification 
requirements for Variable Contracts, which require the Separate 
Accounts upon which these contracts or policies are based to be 
diversified as provided in the Treasury Regulations. In the case of 
Separate Accounts that invest in underlying investment companies, the 
Treasury Regulations provide a ``look through'' rule that permits the 
Separate Account to look to the underlying investment company for 
purposes of meeting the diversification requirements, provided that the 
beneficial interests in the investment company are held only 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 Separate Accounts funding Variable Contracts 
(Treas. Reg. Section 1.817-5(f)(3)(iii)). Another exception allows the 
investment manager of the investment company and certain companies 
related to the investment manager to hold shares of the investment 
company, an exception that is often used to provide the capital 
required by Section 14(a) of the 1940 Act.
    7. Qualified Plans may choose the Shares offered as the sole 
investment under the Qualified Plan or as one of several investments. 
Qualified Plan participants may or may not be given an investment 
choice depending on the terms of the Qualified Plan itself. Exercise of 
voting rights by participants in any such Qualified Plans as opposed to 
the trustees of such Qualified Plans, as opposed to the trustees of 
such Qualified Plans, cannot be mandated by the Applicants. Each 
Qualified Plan must be administered in accordance with the terms of the 
Qualified Plan and as determined by its trustee or trustees. To the 
extent permitted under applicable law, an Adviser or an affiliated 
person of the Adviser may act as investment adviser or trustee to 
Qualified Plans that purchase Shares.
    8. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares to an Adviser. The Treasury Regulations permit 
such sales as long as the return on Shares held by the Adviser is 
computed in he same manner as for Shares held by the Separate Accounts, 
and the Adviser does not intend to sell the shares to the Public. The 
Treasury Regulations impose an additional restriction on sales to an 
Adviser, who may hold Shares only in connection with the creation of an 
Insurance Fund. Applicants anticipate that sales will be made to an 
Adviser for the purpose of providing necessary capital required by 
Section 14(a) of the 1940 Act. Any Shares purchased by an Adviser will 
automatically be redeemed if and when the Adviser's investment advisory 
agreement terminates.
    9. Applicants proposed that the Insurance Funds also be permitted 
to offer and/or sell Shares to General Accounts. The Treasury 
Regulations permit sales to General Accounts as long as the return on 
Shares held by General Accounts is computed in the same manner as for 
Shares held by a Separate Account, and the General Accounts do not 
intend to sell the Shares to the Public. Applicants anticipate that 
sales may be made to General Accounts for purposes of creation of the 
Insurance Funds.

Applicant's Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance policies issued through a Separate Account registered as 
a unit investment trust (``UIT'') under the 1940 Act, Rule 6e-2(B)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) 
of the 1940 act. Section (a)(2) of the 1940 Act makes it unlawful for 
any company to serve as an investment adviser or principal underwriter 
of any UIT, if an affiliated person of that company is subject to 
disqualification enumerated in Section 9(a)(1) or (2) of the 1940 Act. 
Sections 13(a), 15(a) and 15(b) of the 1940 Act has been deemed by the 
Commission to require ``pass-thorugh'' voting with respect to an 
underlying investment company's shares. Rule 6e-2(b)(15) provides these 
exemptions apply only where all of the assets of the UIT are shares of 
management investment companies ``which offer their shares

[[Page 36836]]

exclusively to variable life insurance separate accounts of the life 
insurer or of any affiliated life insurance company.'' Therefore, the 
relief granted by Rule 6e-2(b)(15) is not available with respect to a 
scheduled premium life insurance Separate Account that owns shares of 
an underlying fund that also offers its shares to a variable annuity 
Separate Account or a flexible premium variable annuity Separate 
Account or a flexible premium variable life insurance Separate Account 
of the same company or any other affiliated company. The use of a 
common management investment company as the underlying investment 
vehicle 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.''
    2. The relief granted by rule 6e-2(b)(15) also is not available 
with respect to a scheduled premium variable life insurance Separate 
Accounts that owns shares of an underlying fund that also offers its 
shares to Separate Accounts funding Variable Contracts issued by one or 
more unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment vehicle for 
Separate Accounts funding Variable Contracts issued by one or more 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. Moreover, because the relief under Rule 6e-2(b)(15) is available 
only where shares are offered exclusively to variable life insurance 
Separate Accounts of a life insurer or any affiliated life insurance 
company, additional exemptive relief is necessary if the Shares are 
also to be sold to Qualified Plans, an Adviser and General Accounts 
(collectively, ``Eligible Purchasers''). Applicants note that if the 
Shares were sole only to Separate Accounts funding variable annunity 
contracts and/or Eligible Purchasers, exemptive relief under Rule 6e-
2(b)(15) would not be necessary. The relief provided for under this 
section does not relate to Eligible Purchasers or to a registered 
investment company's ability to sell its shares to Eligible Purchasers. 
The use of a common management investment company as the underlying 
investment vehicle for Separate Accounts funding Variable Contracts 
issued by affiliated and unaffiliated insurance companies, and for 
Eligible Purchasers, is referred to herein as ``extended mixed and 
shared funding.''
    4. In connection with flexible premium variable life insurance 
contracts issued through a Separate Account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from 
Sections 9(a), 13(a), 15(a) and 15(b ) of the 1940 Act. The exemptions 
granted by Rule 6e-3(T)(b)(15) are available only where all the assets 
of the Separate Account consist of the shares of one or more registered 
management investment companies that offer to sell their shares 
``exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance companies, 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 or which offer their shares to any 
such life insurance company in consideration solely for advances made 
by the life insurer in connection with the operation of the separate 
account.'' Therefore, Rule 6e-3(T)(b)(15) permits mixed funding but 
does not permit shared funding.
    5. Moreover, because the relief under Rule 6e-3(T)(b)(15) is 
available only where Shares are offered exclusively to Separate 
Accounts funding Variable Contracts issued by a life insurer or any 
affiliated life insurance company, additional exemptive relief is 
necessary if the Shares are also to be sold to Eligible Purchasers, as 
described above. Applicants noted that if the Shares were sold only to 
Separate Accounts funding variable annuity contracts and/or Eligible 
Purchasers, exemptive relief under Rule 6e-3(T)(b)(15) would not be 
necessary. The relief provided for under this section does not relate 
to Eligible Purchasers or to a registered investment company's ability 
to sell its shares to Eligible Purchasers.
    6. Applicants maintain, as discussed below, that there is no policy 
reason for the sale of the Shares to Eligible Purchasers to result in a 
prohibition against, or otherwise limit a Participating Insurance 
Company from relying on the relief provided by Rules 6e-3(T)(b)(15) and 
6e-3(T)(b)(15). However, because the relief under Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) is available only when shares are offered exclusively to 
certain Separate Accounts, additional exemptive relief may be necessary 
if the Shares are also to be sold to Eligible Purchasers. Applicants 
therefore request relief in order to have the Participating Insurance 
Companies enjoy the benefits of the relief granted in Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) even where Eligible Purchasers are investing in the 
relevant Insurance Fund. Applicants note that if the Shares were to be 
sold only to Eligible Purchasers, and/or Separate Accounts funding 
variable annuity contracts, exemptive relief under Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) would be unnecessary. The relief provided for under 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not relate to Eligible 
Purchasers, or to a registered investment company's ability to sell its 
shares to Eligible Purchasers.
    7. Consistent with the Commission's authority under Section 6(c) of 
the 1940 Act to grant exemptive orders to a class or classes of persons 
and transactions, this Application requests relief for the class 
consisting of Participating Insurance Companies and their Separate 
Accounts (and to the extent necessary, investment advisers, principal 
underwriters and depositors of such Separate Accounts).
    8. In effect, the partial relief granted in Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) under the 1940 Act from the requirements of Section 9 of 
the 1940 Act 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. 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 individuals in a large insurance complex, 
most of whom 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 investment vehicles for Variable Contracts. 
Applicants argue that 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, an Adviser or General Accounts. Applicants 
represent that the Participating Insurance Companies and Qualified 
Plans are not expected to play any role in the management of the 
Insurance Funds. Applicants further represent that those individuals 
who participate in the management of the Insurance Funds will remain 
the same regardless of which Separate Accounts or Qualified Plans 
invest in the Insurance Funds. Applicants argue that applying the 
monitoring requirements of Section 9(a) of the 1940 Act because of 
investment by Separate Accounts of Participating Insurance Companies or 
Qualified Plans would be unjustified, would not serve any regulatory 
purpose

[[Page 36837]]

and could reduce the net rates of return realized by contract owners 
and Qualified Plan holders due to the increased monitoring costs.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from pass-through voting requirements with 
respect to several significant matters, assuming the limitations on 
mixed and shared funding are observed. 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 with respect to the 
investments of an underlying fund, or any contract between such a fund 
and its investment adviser, when required to so by an insurance 
regulatory authority (subject to the provisions of Rules 6e-2(b)(5)(i), 
6e-2(b)(7)(ii)(A), 6e-3(T)(b)(5)(i) and 6e-3(T)(b)(7)(ii)(A) under the 
1940 Act). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
provide that an insurance company may disregard the voting instructions 
of its contract owners if the contract owners initiate any change in an 
underlying fund's investment policies, principal underwriter or any 
investment adviser (provided that disregarding such voting instructions 
is reasonable and subject to the other provisions of Rules 6e-
2(b)(5)(ii), 6e-2(b)(7)(ii)(B), 6e-2(b)(7)(ii)(C), 6e-3(T)(b)(5)(ii), 
6e-3(T)(b)(7)(ii)(B), and 6e-3(T)(b)(7)(ii)(C) under the 1940 Act).
    10. Rule 6e-2 under the 1940 Act recognizes that a variable 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and is subject to extensive state 
regulation. 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. Applicants, 
therefore, assert that the corresponding provisions of Rule 6e-3(T) 
under the 1940 Act undoubtedly were adopted in recognition of the same 
factors.
    11. Applicants also assert that the sale of Shares to Qualified 
Plans, an Adviser and General Accounts will not have any impact on the 
relief requested. With respect to Qualified Plans, which are not 
registered as investment companies under the 1940 Act, shares of a 
portfolio of an investment company sold to a Qualified Plan must be 
held by the trustee(s) of the Qualified Plan pursuant to Section 403(a) 
of the Employee Retirement Income Security Act (``ERISA''). Applicants 
note that (1) Section 403(a) of ERISA endows Qualified Plan trustees 
with the exclusive authority and responsibility for voting proxies 
provided neither of two enumerated exceptions to that provision 
applies; (2) some of the Qualified Plans may provide for the 
trustee(s), an investment adviser (or advisers), or another named 
fiduciary to exercise voting rights in accordance with instructions 
from participants; and (3) there is no requirement to pass through 
voting rights to Qualified Plan participants.
    12. Applicants argue that an Adviser and General Accounts are 
similar in that they are not subject to any pass-through voting 
requirements. Applicants, therefore, conclude that unlike the case with 
insurance company Separate Accounts, the issue of resolution of 
material irreconcilable conflicts with respect to voting is not present 
with Eligible Purchasers.
    13. Applicants represent that where a Qualified Plan does not 
provide participants with the right to give voting instructions, the 
trustee or named fiduciary has fiduciary responsibility to vote the 
shares held by the Qualified Plan in the best interest of the Qualified 
Plan participants. Accordingly, Applicants argue that even if an 
Adviser or an affiliate of an Adviser were to serve in the capacity of 
trustee or named fiduciary with voting responsibilities, an Adviser or 
its affiliates would have a fiduciary duty to vote relevant Shares in 
the best interest of the Qualified Plan participants.
    14. Further, Applicants assert that even if a Qualified Plan were 
to hold a controlling interest in an Insurance Fund, Applicants do not 
believe such control would disadvantage other investors in such 
Insurance 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, Applicants 
submit that investment in an Insurance Fund by a Qualified Plan will 
not create any of the voting complications occasioned by mixed funding 
or shared funding. Unlike mixed funding or shared funding, Applicants 
argue that Qualified Plan investor voting rights cannot be frustrated 
by veto rights of insurers or state regulators.
    15. Where a Qualified Plan provides participants with the right to 
give voting instructions, Applicants see no reason to believe that 
participants in Qualified Plans generally or those in a particular 
Qualified Plan, either as a single group or in combination with 
participants in other Qualified Plans, would vote in a manner that 
would disadvantage Variable Contract holders. Applicants assert that 
the purchase of Shares by Qualified Plans that provide voting rights 
does not present any complications not otherwise occasioned by mixed or 
shared funding.
    16. Applicants do not believe that the sale of the Shares to 
Qualified Plans will increase the potential for material irreconcilable 
conflicts of interest between or among different types of investors. In 
particular, Applicants see very little potential for such conflicts 
beyond those that would otherwise exist between Variable Contract 
owners.
    17. Applicants assert that permitting an Insurance Fund to sell its 
shares to an Adviser or to the General Account of a Participating 
Insurance Company will enhance management of each Insurance Fund 
without raising significant concerns regarding material irreconcilable 
conflicts. Unlike the circumstances of many investment companies that 
serve as underlying investment media for variable insurance products, 
an Insurance Fund may be deemed to lack an insurance company 
``promoter'' for purposes of Rule 14a-2 under the 1940 Act. 
Accordingly, any Insurance Funds that are established as new 
registrants may 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. 
Insurance Funds also will require more limited amounts of initial 
capital in connection with the creation of any new series of Shares and 
the voting of initial Shares of such series on matters requiring the 
approval of Shareholders. A potential source of the requisite initial 
capital is an Insurance Fund's investment adviser or a Participating 
Insurance Company. Either of these parties may have an interest in 
making the requisite capital and in participating with an Insurance 
Fund in its organization. However, provision of

[[Page 36838]]

seed capital or the purchase of shares in connection with the 
management of an Insurance Fund by its investment adviser or by a 
Participating Insurance Company may be deemed to violate the 
exclusivity requirement of Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(15).
    18. Given the conditions of Treas. Reg. Section 1.817-5(f)(3) and 
the harmony of interest between an Insurance Fund, on the one hand, and 
an Adviser or a Participating Insurance Company, on the other, 
Applicants assert that little incentive for overreaching exists. 
Applicants further assert that such investment should not implicate the 
concerns discussed above regarding the creation of material 
irreconcilable conflicts. Instead, Applicants argue that permitting 
investments by an Adviser, or by General Accounts, will permit the 
orderly and efficient creation of an Insurance Fund, and reduce the 
expense and uncertainty of using outside parties at the early stages of 
the Insurance Fund's operations.

Applicants' Conditions

    Applicants consent to the following conditions with respect to each 
Insurance Fund:
    1. A majority of the Board of each Insurance Fund will consist of 
persons who are not ``interested persons'' of the Insurance Fund, 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 death, disqualification or 
bona fide registration of any trustee or trustees, then the operation 
of this condition will be suspended: (a) For a period of 90 days if the 
vacancy or vacancies may be filled by the Board; (b) for a period of 
150 days if a vote of shareholders is required to fill the vacancy or 
vacancies; or (c) for such longer period as the Commission may 
prescribe by order upon application.
    2. The Board of each Insurance Fund will monitor the Insurance Fund 
for the existence of any material irreconcilable conflict between the 
interests of the contract owners of all Separate Accounts and 
participants of all Qualified Plans investing in the Insurance Fund, 
and determine what action, if any should be taken in response to such 
conflicts. A material irreconcilable conflict may arise for a variety 
of reasons, including: (a) An action by any state insurance regulatory 
authority; (b) a change in applicable federal or state insurance, tax, 
or securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Insurance Fund are being 
managed; (e) a difference in voting instructions given by variable 
annuity contract owners, variable life insurance contract owners, and 
trustees of the Qualified Plans; (f) a decision by a Participating 
Insurance Company to disregard the voting instructions of contract 
owners; or (g) if applicable, a decision by a Qualified Plan to 
disregard the voting instructions of Qualified Plan participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of General Account assets in an 
Insurance Fund), as Adviser, and any Trustee on behalf of any Qualified 
Plan that executes a Participation Agreement upon becoming an owner of 
10 percent or more of the assets of an Insurance Fund (collectively, 
``Participant'') will report any potential or existing conflicts to the 
Board of the relevant Insurance Fund. Participants will be reasonsible 
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 
responsibility 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 Trustee for a Qualified Plan to 
inform the Board whenever it has determined to disregard Qualified 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 under 
their Participation Agreement with the relevant Insurance Fund, and 
these responsibilities will be carried out with a view only to the 
interests of the contract owners. The responsibility to report such 
information and conflicts, and to assist the Board, also will be 
contractual obligations of all Qualified Plans under their 
Participation Agreement with the relevant Insurance Fund, and such 
agreements will provide that these responsibilities will be carried out 
with a view only to the interests of Qualified Plan participants.
    4. If it is determined by a majority of the Board of an Insurance 
Fund, or a majority of the disinterested directors/trustees of such 
Board, that a material irreconcilable conflict exists, then the 
relevant Participant will, at its expense and to the extent reasonably 
practicable (as determined by a majority of the disinterested 
directors/trustees), take whatever steps are necessary to remedy or 
eliminate the material irreconcilable conflict, up to and including: 
(a) Withdrawing the assets allocable to some or all of their Separate 
Accounts from the relevant Insurance Fund and reinvesting such assets 
in a different investment vehicle including another Insurance Fund, 
submitting the question as to whether such segregation should be 
implemented to a vote of all affected contract and policy owners and, 
as appropriate, segregating the assets of any appropriate group (i.e., 
variable annuity contract owners or variable life insurance policy 
owners of one or more Participating Insurance Companies) that votes in 
favor of such segregation, or offering to the affected contract or 
policy owners the option of making such a change; and (b) establishing 
a new registered management investment company or managed separate 
account. If a material irreconcilable conflict arises because of a 
decision by a Participating Insurance Company to disregard contract or 
policy 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 
relevant Insurance Fund, to withdraw such participating Insurance 
Company's Separate Account investments in the Insurance 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 Qualified 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 Fund, to withdraw its investment in the 
Insurance 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 will be a contractual 
obligation of all Participants under their Participation Agreement with 
the relevant Insurance Fund, and these responsibilities will be carried 
out with a view only to the interests of contract or policy owners and 
Qualified Plan participants. For purposes of this Condition 4, a 
majority of the disinterested directors/trustees of the Board of each 
Insurance Fund will determine whether or not any proposed

[[Page 36839]]

action adequately remedies any material irreconcilable conflict, but, 
in no event, will the Insurance Fund or an Adviser, as relevant, be 
required to establish a new funding vehicle for any Variable Contract. 
No Participating Insurance Company will be required by this Condition 4 
to establish a new funding vehicle for any Variable Contract if any 
offer to do so has been declined by vote of a majority of the contract 
or policy owners materially and adversely affected by the material 
irreconcilable conflict. Further, no Qualified Plan will be reuqired by 
this Condition 4 to establish a new funding vehicle for the Qualified 
Plan if: (a) A majority of the Qualified Plan participants materially 
and adversely affected by the irreconcilable material conflict vote to 
decline such offer, or (b) pursuant to documents governing the 
Qualified Plan, the Qualified Plan makes such decision without a 
Qualified Plan participant vote.
    5. The Board of each Insurance Fund's determination of the 
existence of a material irreconcilable conflict and its implications 
will be made known in writing promptly to all Participants.
    6. As to Variable Contracts issued by Separate Accounts registered 
under the 1940 Act, Participating Insurance Companies will provide 
pass-through voting privileges to all Variable Contract owners as 
required by the 1940 Act as interpreted by the Commission. However, as 
to Variable Contracts issued by unregistered Separate Accounts, pass-
through voting privileges will be extended to contract owners to the 
extent granted by the issuing insurance company. Accordingly, such 
Participants, where applicable, will vote the Shares held in their 
Separate Accounts in a manner consistent with voting instructions 
timely received from Variable Contract owners. Participating Insurance 
Companies will be responsible for assuring that each Separate Account 
investing in the relevant Insurance Fund calculates voting privileges 
in a manner consistent with other Participants. The obligation to 
calculate voting privileges as provided in this Application will be a 
contractual obligation of all Participating Insurance Companies under 
their Participation Agreement with the relevant Insurance Fund. Each 
Participating Insurance Company will vote Shares for which it has not 
received timely voting instructions, as well as Shares held in its 
General Account or otherwise attributed to it, in the same proportion 
as it votes those Shares for which it has received voting instructions. 
Each Qualified Plan will vote as required by applicable law and 
governing Qualified Plan documents.
    7. As long as the 1940 Act requires pass-through voting privileges 
to be provided to Variable Contract owners, an Adviser and any General 
Account will vote their respective Shares in the same proportion as all 
variable contract owners having voting rights with respect to that 
Insurance Fund; provided, however, that an Adviser or any General 
Account shall vote its Shares in such other manner as may be required 
by the Commission or its staff.
    8. Each Insurance Fund 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, and, in 
particular, the Insurance Fund will either provide for annual meetings 
(except to the extent that 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 each Insurance Fund is not, or will not be, 
one of those trusts of the type 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 Fund 
will act in accordance with the Commission's interpretations of the 
requirements of Section 16(a) with respect to periodic elections of 
directors/trustees and with whatever rules the Commission may 
promulgate thereto.
    9. An Insurance Fund will make its shares available to the Separate 
Accounts and Qualified Plans at or about the time it accepts any seed 
capital from an Adviser or General Account of a Participating Insurance 
Company.
    10. Each Insurance Fund has notified, or will notify, all 
Participants that Separate Account prospectus disclosure or Qualified 
Plan prospectuses or other Qualified Plan disclosure documents 
regarding potential risks of mixed and shared funding may be 
appropriate. Each Insurance Fund will disclose, in its prospectus that: 
(a) Shares of the Fund may be offered to Separate Accounts funding both 
variable annuity contracts and variable life insurance policies and, if 
applicable, to Qualified Plans; (b) due to differences in tax treatment 
and other considerations, the interests of various contract owners 
participating in the Insurance Fund and the interests of Qualified 
Plans investing in the Insurance Fund, if applicable, may conflict; and 
(c) the Insurance Fund's Board will monitor events in order to identify 
the existence of any material irreconcilable conflicts and to determine 
what action, if any, should be taken in response to any such conflict.
    11. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 
1940 Act are amended, or proposed Rule 6e-3 under the 1940 At 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 this Application, then 
each Insurance Fund and/or Participating Insurance Companies, as 
appropriate, shall take such steps as may be necessary to comply with 
Rules 6e-2 or 6e-3(T), or Rule 6e-3, as such rules are applicable.
    12. Each Participant, at least annually, will submit to the Board 
of each Insurance Fund such reports, materials or data as the Board 
reasonably may request so that the directors/trustees of the Board may 
fully carry out the obligations imposed upon the Board by the 
conditions contained in this Application. Such reports, materials and 
data will be submitted more frequently if deemed appropriate by the 
Board of an Insurance Fund. The obligations of the Participants to 
provide these reports, materials and data to the Board, when it so 
reasonably requests, will be a contractual obligation of all 
Participants under their Participation Agreement with the relevant 
Insurance Fund.
    13. All reports of potential or existing conflicts received by the 
Board of each Insurance 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 the 
Board or other appropriate records, and such minutes or other records 
shall be made available to the Commission upon request.
    14. Each Insurance Fund will not accept a purchase order from a 
Qualified Plan if such purchase would make the Qualified Plan an owner 
of 10 percent or more of the assets of the Insurance Fund unless the 
Trustee for such Qualified Plan executes an agreement with the 
Insurance Fund governing participation in the Insurance Fund that 
includes the conditions set forth herein to the extent applicable. A 
Trustee for a Qualified Plan will execute an application containing an 
acknowledgement of this condition at the time of its initial purchase 
of Shares.

Conclusions

    Applicants submit that, for the reasons summarized above and to the 
extent necessary or appropriate to

[[Page 36840]]

provide for the transactions described herein, the requested exemptions 
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, in accordance with the 
standards of Section 6(c) of the 1940 Act, are in the public interest 
and consistent with the protection of investors and the purpose fairly 
intended by the policy and provisiosn of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5747 Filed 6-27-06; 8:45 am]

BILLING CODE 8010-01-M
