

[Federal Register: July 20, 2007 (Volume 72, Number 139)]
[Notices]               
[Page 39860-39865]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20jy07-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27886; File No. 812-13333]

 
Delaware VIP Trust et al., Notice of Application

July 16, 2007.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application (``Application'') for exemption, pursuant 
to section 6(c) of the Investment Company Act of 1940, as amended (the 
``1940 Act''), 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: Delaware VIP Trust (the ``Fund'') and Delaware 
Management Company, a series of Delaware Management Business Trust and 
investment manager to the Fund (``DMC'') (collectively the 
``Applicants'').
SUMMARY: Applicants request an order exempting them 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 and shares of any other investment company or 
portfolio that is designed to fund insurance products and for which DMC 
or any of its affiliates, may serve in the future as investment 
adviser, manager, principal underwriter, sponsor, or administrator 
(``Future Funds'') (the Fund, together with Future Funds, the 
``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) DMC or its affiliates who serve or may serve as an 
investment manager, investment adviser, principal underwriter, sponsor 
or administrator of a Fund (collectively, ``DMC Entities'') for the 
purpose of providing initial capital to a Fund; and (e) any other 
account of a Participating Insurance Company permitted to hold shares 
of the Funds (``General Account'').

DATES: The Application was filed on September 26, 2006, and amended on 
July 11, 2007. 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 by writing to the Secretary of 
the Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on August 8, 2007, and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: The Commission: Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicants: 
David P. O'Connor, Esq. c/o Delaware VIP Trust, 2005 Market Street, 
Philadelphia, Pennsylvania 19103.

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 
SEC's Public Reference Branch, 100 F Street, NE., Room 1580, 
Washington, DC 20549 (telephone (202) 551-8090).

Applicant's Representations

    1. The Fund (File No. 811-05162) is registered under the 1940 Act 
as an open-end management investment company comprised of and offering 
shares of beneficial interest (``shares'') in 15 investment portfolios 
(each a ``Portfolio'' and, collectively, the ``Portfolios''). The Fund 
or any Future Funds may offer one or more additional investment 
portfolios in the future (also referred to as ``Portfolios''). 
Applicants state that the Fund's shares are registered under the 
Securities Act of 1933, as amended (the ``1933 Act'') (File No. 033-
14363) and the investment manager to the Fund, DMC, is registered with 
the Commission as an investment adviser under the Investment Advisers 
Act of 1940, as amended.
    2. Applicants represent that there will be no public shareholders 
of any Portfolio. Applicants state that pursuant to exemptive relief 
provided in a 1987 SEC order (Rel. IC-16105), Fund shares are being 
offered to both affiliated and unaffiliated insurance company separate 
accounts funding variable annuity or variable life insurance products. 
Applicants state that separate accounts which currently or in the 
future may hold shares are (or will be) registered as unit investment 
trusts under the 1940 Act or exempt from such registration 
(individually, a ``Separate Account'' and collectively, ``Separate 
Accounts''). Insurance companies whose Separate Account(s) may now or 
in the future own shares are referred to herein as ``Participating 
Insurance Companies.''
    3. Applicants propose that the Funds be permitted to offer and/or 
sell shares to Separate Accounts funding Variable Contracts issued by 
Participating Insurance Companies. Applicants represent that the 
Participating Insurance Companies at the time of their investment in 
the Funds either have or will establish their own Separate Accounts and 
design their own Variable Contracts. Each Participating Insurance 
Company has or will have the legal obligation of satisfying all 
applicable requirements under both state and

[[Page 39861]]

federal law. Applicants represent that each Participating Insurance 
Company, on behalf of its Separate Accounts, has or will enter into an 
agreement with the Funds concerning such Participating Insurance 
Company's participation in the relevant Portfolio (a ``Participation 
Agreement''). The role of the Funds under this agreement, insofar as 
the federal securities laws are applicable, will consist of, among 
other things, offering shares of the Portfolios to the participating 
Separate Accounts and complying with any conditions that the Commission 
may impose.
    4. Applicants propose that the Funds be permitted to offer and/or 
sell Shares to Qualified Plans. section 817(h) of the Internal Revenue 
Code of 1986, as amended (the ``Code''), imposes certain 
diversification standards on the assets underlying Variable Contracts, 
such as those in each Portfolio. The Code provides that Variable 
Contracts will not be treated as annuity contracts or life insurance 
contracts for any period (or any subsequent period) for which the 
underlying assets are not, in accordance with regulations issued by the 
Treasury Department (individually, a ``Treasury Regulation'' and 
collectively the ``Treasury Regulations''), adequately diversified. 
section 817(h) of the Code and the Regulations thereunder provide, in 
general, that the ability to look through to the assets of an 
underlying fund in applying the diversification test is only available 
if all of the beneficial interests in the investment company are held 
by the segregated asset accounts of one or more insurance companies. 
However, the Regulations contain certain exceptions to this 
requirement, one of which allows shares in an underlying mutual fund to 
be held by the trustees of a qualified pension or retirement plan 
without adversely affecting the tax status of Variable Contracts. 
(Treas. Reg. 1.817-5(f)(3)(iii)). Applicants represent that as a result 
of this exception to the general diversification requirement, shares of 
the Portfolios sold to the Qualified Plans would be held by the 
trustees of such Qualified Plans as required by section 403(a) of the 
Employee Retirement Income Security Act, as amended (``ERISA'').
    5. Applicants also propose that the Funds be permitted to offer 
and/or sell shares to DMC Entities for the purpose of providing initial 
capital to a Fund and to General Accounts. The Regulations permit sales 
of Portfolio shares to General Accounts and DMC Entities so long as the 
return on shares held by each is computed in the same manner as for 
shares held by a Separate Account, and the General Accounts and DMC 
Entities do not intend to sell shares of the Portfolio held by it to 
the Public. The Regulations impose an additional restriction on sales 
to investment advisers, who may hold shares only in connection with the 
creation of the Portfolio. Applicants anticipate that sales in reliance 
on these provisions of the Regulations will be made to DMC Entities for 
purposes of providing the initial capital for a Fund and that any 
Portfolio shares purchased by DMC Entities will be redeemed immediately 
if and when a DMC Entity no longer serves as an investment adviser to 
such Portfolio.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts 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 9(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 a 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 have been 
deemed by the Commission to require ``pass-through'' 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 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 flexible premium variable life insurance Separate 
Account of the same company or any other affiliated insurance 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 
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 management 
investment company as the underlying investment vehicle for variable 
annuity and/or variable life insurance Separate Accounts of 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. 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 of the Portfolios are also 
to be sold to Qualified Plans, DMC Entities and General Accounts 
(collectively ``Eligible Purchasers''). Applicants note that if shares 
of the Portfolios are sold only to Qualified Plans, exemptive relief 
under Rule 6e-2 would not be necessary. The relief provided for under 
this section does not relate to Qualified Plans or to a registered 
investment company's ability to sell its shares to Qualified Plans. The 
use of a common management investment company as the underlying 
investment vehicle for variable annuity and variable life Separate 
Accounts of affiliated and unaffiliated insurance companies, and for 
Qualified Plans, 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. Because the relief under Rule 6e-3(T) is available only where 
shares are offered exclusively to variable life insurance separate 
accounts of a life insurer or any affiliated life insurance

[[Page 39862]]

company, additional exemptive relief is necessary if the shares of the 
Portfolios are also to be sold to Eligible Purchasers, as described 
above. Applicants note that if shares of the Portfolios were sold only 
to Qualified Plans, exemptive relief under Rule 6e-3(T)(b)(15) would 
not be necessary. The relief provided for under this section does not 
relate to Qualified Plans or to a registered investment company's 
ability to sell its shares to Qualified Plans.
    6. Applicants maintain, as discussed below, that there is no policy 
reason for the sale of the Portfolios' 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-
2(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 Separate Accounts, additional exemptive relief 
may be necessary if the shares of the Portfolios 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). Applicants note 
that if the Portfolios' shares were to be sold only to Eligible 
Purchasers and/or Separate Accounts funding variable annuity contracts, 
exemptive relief under Rule 6e-2 and Rule 6e-3(T) would be unnecessary. 
The relief provided for under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does 
not relate to Qualified Plans, DMC Entities, or General Accounts, or to 
a registered investment company's ability to sell its shares to such 
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, the Application requests relief for the class 
consisting of Participating Insurance Companies and their Separate 
Accounts that will invest in the Portfolios, and, to the extent 
necessary, Qualified Plans, 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 company 
complex, most of whom will have no involvement in matters pertaining to 
investment companies in that organization. Applicants assert that the 
Participating Insurance Companies and Qualified Plans are not expected 
to play any role in the management of the Funds and that those 
individuals who participate in the management of the Funds will remain 
the same regardless of which Separate Accounts or Qualified Plans 
invest in the Funds. Applicants argue that applying the monitoring 
requirements of section 9(a) of the 1940 Act because of investment by 
separate accounts of other insurers or Qualified Plans would be 
unjustified, would not serve any regulatory purpose and monitoring 
costs could reduce the net rates of return realized by contract owners 
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 the pass-through voting requirement 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 do so by an insurance 
regulatory authority (subject to the provisions of paragraphs (b)(5)(i) 
and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T), respectively, under the 
1940 Act). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
provide that the insurance company may disregard the voting 
instructions of 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 paragraphs (b)(5)(ii), (b)(7)(ii)(B), and (b)(7)(ii)(C), 
respectively, of Rules 6e-2 and 6e-3(T) under the 1940 Act).
    10. Rule 6e-2 under the 1940 Act recognizes that a variable life 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and 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. 
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, the Investment Manager and General Accounts will not have any 
impact on the relief requested. With respect to the Qualified Plans, 
which are not registered as investment companies under the 1940 Act, 
shares of a portfolio of a fund sold to a Qualified Plan must be held 
by the trustees of the Qualified Plan pursuant to section 403(a) of the 
Employee Retirement Income Security Act, as amended (``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 Investment Manager 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 responsibility to vote the shares held 
by the Qualified Plan in the

[[Page 39863]]

best interest of the Qualified Plan participants. Accordingly, 
Applicants argue that even if DMC or an affiliate of DMC were to serve 
in the capacity of trustee or named fiduciary with voting 
responsibilities, DMC or the affiliates would have a fiduciary duty to 
vote those 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 a Portfolio, Applicants do not 
believe that such control would disadvantage other investors in such 
Portfolio 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 a Portfolio 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 sale of the shares of the 
Portfolios 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 which would otherwise exist between 
variable annuity and variable life insurance contract owners.
    17. Unlike the circumstances of many investment companies that 
serve as underlying investment media for variable insurance products, 
the Fund may be deemed to lack an insurance company ``promoter'' for 
purposes of Rule 14a-2 under the 1940 Act. Accordingly, the Fund and 
any other such Future Funds or Portfolios that are established as new 
registrants 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. 
Portfolios also will require more limited amounts of initial capital in 
connection with the creation of new series 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 a 
Portfolio's adviser or a Participating Insurance Company. Either of 
these parties may have an interest in making the requisite capital 
investments. Applicants note, however, that the provision of initial 
capital 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. 1.817-5(f)(3) and the 
harmony of interest between a Portfolio, on the one hand, and DMC 
Entities 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 investment by DMC 
Entities or Participating Insurance Companies' General Accounts will 
permit the orderly and efficient creation of the Funds or series 
thereof, and reduce the expense and uncertainty of using outside 
parties at the early stages of Portfolio operations.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. A majority of the Board of Trustees (the ``Board'') of the Fund 
will consist of persons who are not ``interested persons'' of the 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 the death, 
disqualification, or bona-fide resignation 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 or by 
future rule.
    2. The Board will monitor the 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 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 interpretative 
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 
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 a 
Portfolio), DMC Entities, and any trustee on behalf of a Qualified Plan 
that executes a Participation Agreement upon becoming an owner of 10 
percent or more of the assets of any Portfolio (collectively, 
``Participants'') will report any potential or existing conflicts to 
the Board. 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 responsibility includes, but 
is not limited to, an obligation of each Participating Insurance 
Company to inform the Board whenever contract owner voting instructions 
are disregarded, and, if pass-through voting is applicable, an 
obligation of each of the trustees on behalf of 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 Agreements with the 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 
Agreements, and such agreements will provide that these 
responsibilities will

[[Page 39864]]

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 or a majority of 
the disinterested trustees of the 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 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 the 
Separate Accounts from the relevant Portfolio and reinvesting such 
assets in a different investment vehicle including another Portfolio, 
or in the case of a Participating Insurance Company Participant 
submitting the question as to 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., 
annuity contract owners or 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; 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 owner voting instructions, and 
that decision represents a minority position or would preclude a 
majority vote, then the insurer may be required, at the election of the 
Fund, to withdraw such insurer's Separate Account's investment in the 
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 Fund, to withdraw its 
investment in the 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 agreements 
governing participation in the Fund, and these responsibilities will be 
carried out with a view only to the interests of contract owners and 
Qualified Plan participants.
    For purposes of this Condition 4, a majority of the disinterested 
members of the Board Fund will determine whether or not any proposed 
action adequately remedies any material irreconcilable conflict, but, 
in no event will the Fund, DMC or an affiliate of DMC, 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 
owners materially and adversely affected by the material irreconcilable 
conflict. Further, no Qualified Plan will be required 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'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 shares of the applicable 
Portfolio 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 a Portfolio calculates voting 
privileges in a manner consistent with other Participants.
    The obligation to calculate voting privileges as provided in the 
Application will be a contractual obligation of all Participating 
Insurance Companies under their agreement with the Funds governing 
participation in a Portfolio. 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, DMC Entities and any 
General Account will vote its shares of any Portfolio in the same 
proportion as all variable contract owners having voting rights with 
respect to that Portfolio; provided, however, that DMC Entities or any 
insurance company General Account shall vote its shares in such other 
manner as may be required by the Commission or its staff.
    8. The 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 of the respective 
Portfolio, and, in particular, the 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) and will 
comply with section 16(a) of the 1940 Act, section 16(c) of the 1940 
Act (although the Fund is not one of those trusts of the type described 
in section 16(c) of the 1940 Act) and, if and when applicable, section 
16(b) of the 1940 Act. Further, the Fund will act in accordance with 
the Commission's interpretation of the requirements of section 16(a) 
with respect to periodic elections of directors/trustees and with 
whatever rules the Commission may promulgate with respect thereto.
    9. A Portfolio will make its shares available under Variable 
Contracts and to Qualified Plans at or about the same time it accepts 
any seed capital from DMC Entities or a General Account of a 
Participating Insurance Company.
    10. The Fund 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. The Fund will disclose in its prospectus 
that (a) shares of the Fund may be offered to Separate Accounts of both 
variable annuity and variable life insurance contracts 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 Fund and the interests of Qualified Plans 
investing in the Fund, if applicable, may conflict; and (c) the Fund's 
Board will monitor events in order to identify the existence of any 
material irreconcilable conflicts

[[Page 39865]]

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 Act is 
adopted, to provide exemptive relief from any provision of the 1940 
Act, or the rules promulgated thereunder, with respect to mixed or 
shared funding, on terms and conditions materially different from any 
exemptions granted in the order requested in the Application, then the 
Fund and/or Participating Insurance Companies, as appropriate, shall 
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), or Rule 6e-3, as such rules are applicable.
    12. The Participants, at least annually, will submit to the Board 
such reports, materials, or data as a Board reasonably may request so 
that the trustees of the Board may fully carry out the obligations 
imposed upon the Board by the conditions contained in the Application. 
Such reports, materials, and data will be submitted more frequently if 
deemed appropriate by the Board. The obligations of the Participants to 
provide these reports, materials, and data to the Board, when it so 
reasonably requests, will be a contractual obligation of all 
Participants under their agreements governing participation in the 
Portfolios.
    13. All reports of potential or existing conflicts received by the 
Board, 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. The Fund will not accept a purchase order from a Qualified Plan 
if such purchase would make the Qualified Plan shareholder an owner of 
10 percent or more of the assets of a Portfolio unless the Trustees of 
such Qualified Plan execute an agreement with the Fund governing 
participation in such Portfolio that includes the conditions set forth 
herein to the extent applicable. The Trustees of a Qualified Plan will 
execute an application containing an acknowledgment of this condition 
at the time of its initial purchase of shares of any Portfolio.

Conclusions

    Applicants submit that, for the reasons summarized above and to the 
extent necessary or appropriate to 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 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.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-14028 Filed 7-19-07; 8:45 am]

BILLING CODE 8010-01-P
