

[Federal Register: August 9, 2007 (Volume 72, Number 153)]
[Notices]               
[Page 44881-44890]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au07-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27921; File No. 812-13353]

 
Sentinel Variable Products Trust, et al.; Notice of Application

August 3, 2007.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an 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 
1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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Applicants: Sentinel Variable Products Trust (the ``Trust''), Sentinel 
Asset Management, Inc. (``SAM'') (collectively, ``Applicants'').

Summary of Application: Applicants seek an order pursuant to section 
6(c) of the 1940 Act, exempting each life insurance company separate 
account supporting variable life insurance contracts (``VLI Accounts'') 
(and its insurance company depositor) that may invest in shares of the 
Trust or a ``future trust'' as defined below, 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 to the extent necessary to 
permit such VLI Accounts to hold shares of the Trust or a future trust 
when one or more of the following other types of investors also hold 
shares of the Trust or a future trust: (1) A life insurance company 
separate account supporting variable annuity contracts (a ``VA 
Account''), (2) a VLI Account of a life insurance company that is not 
an affiliated person of the insurance company depositor of any other 
VLI Account, (3) the general account of an insurance company depositor 
of a VLI Account (representing seed money investments in the Trust or 
future trust), (4) the Trust's or future trust's investment adviser 
(representing seed money investments in the Trust or future trust), or 
(5) trustees of group qualified pension and group retirement plans 
(hereinafter, a ``Plan'') outside the separate account context. As used 
herein, a ``future trust'' is any investment company (or investment 
portfolio or series thereof), other than the Trust, shares of which are 
sold to VLI Accounts and to which Applicants or their affiliates may in 
the future serve as investment advisers, investment sub-advisers, 
investment managers, administrators, principal underwriters or 
sponsors. Investment portfolios or series of the Trust or any future 
trust are referred to herein as ``Insurance Funds.''

Filing Date: The application was filed on December 21, 2006, and 
amended on July 30, 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 28, 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 writer's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o Kerry A. Jung, National 
Life Insurance Company, 1 National Life Drive, Montpelier, Vermont 
05604; copies to David S. Goldstein, Sutherland Asbill & Brennan LLP, 
1275 Pennsylvania Avenue, NW., Washington, DC 20004-2404.

FOR FURTHER INFORMATION CONTACT: Ellen J. Sazzman, Senior Counsel, at 
(202) 551-6762, or Harry Eisenstein, Branch Chief, at (202) 551-6795, 
Office of Insurance Products, Division of Investment Management.

[[Page 44882]]


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., Washington, DC 20549 
((202) 551-8090).

Applicants' Representations

    1. The Trust was formed as a Delaware business trust on March 14, 
2000. The Trust is registered under the Act as an open-end management 
investment company. The Trust is a series investment company as defined 
by Rule 18f-2 under the 1940 Act and is currently comprised of six 
series: Sentinel Variable Products Common Stock Fund, Sentinel Variable 
Products Mid Cap Growth Fund, Sentinel Variable Products Small Company 
Fund, Sentinel Variable Products Balanced Fund, Sentinel Variable 
Products Bond Fund, Sentinel Variable Products Money Market Fund. The 
Trust issues a separate series of shares of beneficial interest for 
each Fund and has filed a registration statement under the Securities 
Act of 1933 (the ``1933 Act'') on Form N-1A (File No. 333-35832) to 
register such shares. The Trust may establish additional Funds in the 
future and additional classes of shares for such Funds.
    2. The Trust and future trusts may offer each series of their 
shares to: VLI Accounts and VA Accounts of various life insurance 
companies (``Participating Insurance Companies''); Participating 
Insurance Company depositors of VLI Accounts investing seed money in 
one or more Funds through their general accounts; SAM, as a seed money 
investment in one or more Funds; an investment adviser of a future 
trust investing seed money in one or more Insurance Funds; and Plans. 
The VLI Accounts, VA Accounts, Participating Insurance Companies, 
Plans, and SAM are described below.
    3. Each VLI Account and VA Account is or will be established as a 
segregated asset account by a Participating Insurance Company pursuant 
to the insurance law of the insurance company's state of domicile. As 
such, the assets of each will be the property of the Participating 
Insurance Company, and that portion of the assets of such an Account 
equal to the reserves and other contract liabilities with respect to 
the Account will not be chargeable with liabilities arising out of any 
other business that the insurance company may conduct. The income, 
gains and losses, realized or unrealized from such an Account's assets 
will be credited to or charged against the Account without regard to 
other income, gains or losses of the Participating Insurance Company. 
If a VLI Account or VA Account is registered as an investment company, 
it will be a ``separate account'' as defined by Rule 0-1(e) (or any 
successor rule) under the 1940 Act and will be registered as a unit 
investment trust. For purposes of the 1940 Act, the life insurance 
company that establishes such a registered VLI Account or VA Account is 
the depositor and sponsor of the Account as those terms have been 
interpreted by the Commission with respect to variable life insurance 
and variable annuity separate accounts.
    4. The Participating Insurance Companies are National Life 
Insurance Company (``National Life'') and various other life insurance 
companies that are not affiliated persons of National Life. National 
Life is an affiliated person of SAM and the Trust. At the current time, 
the following VLI Accounts and VA Accounts of National Life invest in 
the Trust: (2) National Variable Life Insurance Account, and (2) 
National Variable Annuity Account II.
    5. SAM serves as the investment adviser to the Trust and each of 
its Funds. SAM is a Delaware corporation and is registered as an 
investment adviser under the Investment Advisers Act of 1940. It is a 
wholly owned subsidiary of NLV Financial Corporation and an affiliate 
of National Life Insurance Company. Under the supervision of the 
Trust's board of trustees, SAM is responsible for making all investment 
decisions for the Funds.
    6. The Trust proposes to offer and sell its shares (and a future 
trust would offer and sell its shares) to VLI Accounts and VA Accounts 
of various Participating Insurance Companies as an investment medium to 
support variable life insurance contracts (``VLI Contracts'') and 
variable annuity contracts (``VA Contracts'') (together, ``Variable 
Contracts'') issued through such Accounts. As described more fully 
below, the Trust (or a future trust) will only sell its shares to 
registered VLI Accounts and registered VA Accounts if each 
Participating Insurance Company sponsoring such a VLI Account or VA 
Account enters into a participation agreement with the Trust (or a 
future trust). The participation agreements will define the 
relationship between the Trust (or a future trust) and a Participating 
Insurance Company and will memorialize, among other matters, the fact 
that, except where the agreement specifically provides otherwise, the 
Participating Insurance Company will remain responsible for 
establishing and maintaining any VLI Account or VA Account covered by 
the agreement and for complying with all applicable requirements of 
state and federal law pertaining to such Accounts and to the sale and 
distribution of Variable Contracts issued through such Accounts. The 
participation agreements also will memorialize, among other matters, 
the fact that, unless the agreement specifically states otherwise, the 
Trust (or a future trust) will remain responsible for establishing and 
maintaining any Insurance Fund covered by the agreement, for complying 
with all applicable requirements of state and federal law pertaining to 
such Funds and to the offer and sale of its shares to VLI Accounts and 
VA Accounts covered by the agreement, and for compliance with the 
conditions stated in this application.
    7. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for both VLI Accounts and VA 
Accounts of the same Participating Insurance Company, or of two or more 
insurance companies that are affiliated persons of each other, is 
referred to herein as ``mixed funding.'' The use of a common management 
investment company (or investment portfolio thereof) as an investment 
medium for VLI Accounts and/or VA Accounts of two or more Participating 
Insurance Companies that are not affiliated persons of each other, is 
referred to herein as ``shared funding.''
    8. The Trust (or a future trust) may sell its shares directly to 
the Plans (i.e., not to VLI Accounts or VA Accounts supporting Variable 
Contracts issued to Plans). As described below, federal tax law permits 
investment companies such as the Insurance Funds to increase their net 
assets by selling shares to Plans.
    9. 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 Insurance Fund. 
The Code provides that Variable Contracts will not be treated as 
annuity contracts or life insurance contracts, as the case may be, for 
any period (or any subsequent period) for which the underlying assets 
are not, in accordance with regulations issued by the Treasury 
Department, adequately diversified. On March 2, 1989, the Treasury 
Department issued regulations (Treas. Reg. 1.817-5) that established 
diversification requirements for Variable Contracts, which require the 
separate accounts upon which these Contracts 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

[[Page 44883]]

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 permits shares in an investment company to be 
held by a 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 adviser of the investment company (and 
certain companies related to the investment adviser) to hold shares of 
the investment company representing seed capital.
    10. Plans may invest in shares of an investment company 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. The trustees or other fiduciaries of a 
Plan may vote investment company shares held by the Plan in their own 
discretion or, if the applicable Plan so provides, vote such shares in 
accordance with instructions from participants in such Plans. 
Applicants have no control over whether trustees or other fiduciaries 
of Plans, rather than participants in the Plans, have the right to vote 
under any particular Plan. Each Plan must be administered in accordance 
with the terms of the Plan and as determined by its trustee or 
trustees.
    11. Applicants propose that any Insurance Fund also be permitted to 
sell shares to its investment adviser. The Treasury Regulations permit 
such sales as long as the return on shares held by the adviser is 
computed in the same manner as shares held by VLI Accounts and VA 
Accounts, the adviser does not intend to sell the shares to the public, 
and sales to an investment adviser are only made in connection with the 
creation or management of the Insurance Fund for the purpose of 
providing seed capital.
    12. Applicants propose that any Insurance Fund also be permitted to 
sell shares to the general account of a Participating Insurance 
Company. The Treasury Regulations also permit such sales as long as the 
return on shares held by general accounts are computed in the same 
manner as shares held by VLI Accounts and VA Accounts, and the 
Participating Insurance Company does not intend to sell the shares to 
the public. Applicants anticipate that sales of shares may be made to 
general accounts of Participating Insurance Companies in return for 
seed money.
    13. The promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
preceded the issuance of the Treasury Regulations permitting the shares 
of Insurance Funds to be held by a Plan, an adviser for the Fund, or 
the general account of a Participating Insurance Company without 
adversely affecting the ability of the VLI Account to also hold shares.
    14. The use of a common management investment company (or 
investment portfolio thereof) as an investment medium for VLI Accounts, 
VA Accounts, Plans, investment advisers and general accounts of 
Participating Insurance Companies is referred to herein as ``extended 
mixed funding.''

Applicants' Legal Analysis

    1. 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 investment company, including a unit investment trust, 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 have been deemed by the Commission to 
require ``pass-through'' voting with respect to an underlying 
investment company's shares.
    2. Rule 6e-2(b)(15) under the Act provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act to VLI Accounts 
supporting scheduled premium VLI Contracts and to their life insurance 
company depositors. The exemptions granted by the Rule are available, 
however, only where an Insurance Fund offers its shares exclusively to 
VLI Accounts of the same Participating Insurance Company and/or of 
Participating Insurance Companies that are affiliated persons of the 
same Participating Insurance Company and then, only where scheduled 
premium VLI Contracts are issued through such VLI Accounts. Therefore, 
VLI Accounts, their depositors and their principal underwriters may not 
rely on the exemptions provided by Rule 6e-2(b)(15) if shares of the 
Insurance Fund are held by a VLI Account through which flexible premium 
VLI Contracts are issued, a VLI Account of an unaffiliated 
Participating Insurance Company, an unaffiliated investment adviser, 
any VA Account or a Plan. In other words, Rule 6e-2(b)(15) does not 
permit a scheduled premium VLI Account to invest in shares of a 
management investment company that serves as a vehicle for mixed 
funding, extended mixed funding or shared funding.
    3. Accordingly, Applicants request an order of the Commission 
granting exemptions from sections 9(a), 13(a), 15(a), and 15(b) of the 
1940 Act, and Rule 6e-2(b)(15) thereunder, to the extent necessary to 
permit a scheduled premium VLI Account to hold shares of Insurance 
Funds when one or more of the following types of investors also hold 
shares of the Insurance Funds: (1) VA Accounts, (2) VLI Accounts 
supporting flexible premium VLI Contracts, (3) VA Accounts or VLI 
Accounts of Participating Insurance Companies that are not affiliated 
persons of the depositor of the scheduled premium VLI Account, (4) the 
general account of a Participating Insurance Company, (5) the 
investment adviser (or an affiliated person of the investment adviser) 
of an Insurance Fund, or (6) a Plan.
    4. Rule 6e-3(T)(b)(15) under the 1940 Act provides partial 
exemptions from sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act 
to VLI Accounts supporting flexible premium variable life insurance 
contracts and their life insurance company depositors. The exemptions 
granted by the Rule are available, however, only where an Insurance 
Fund offers its shares exclusively to VLI Accounts (through which 
either scheduled premium or flexible premium VLI Contracts are issued) 
of the same Participating Insurance Company and/or of Participating 
Insurance Companies that are affiliated persons of the same 
Participating Insurance Company, VA Accounts of the same Participating 
Insurance Company or of affiliated Participating Insurance Companies, 
or the general account of the same Participating Insurance Company or 
of affiliated Participating Insurance Companies. Therefore, VLI 
Accounts, their depositors and their principal underwriters may not 
rely on the exemptions provided by Rule 6e-3(T)(b)(15) if shares of the 
Insurance Fund are held by a VLI Account of an unaffiliated 
Participating Insurance Company, a VA Account of an unaffiliated 
Participating Insurance Company, the general account of an unaffiliated 
Participating Insurance Company, an unaffiliated investment adviser, or 
a Plan. In other words, Rule 6e-3(T)(b)(15) permits VLI Accounts 
supporting flexible premium VLI Contracts to invest in shares of a 
management investment company that serves as a vehicle for mixed 
funding but does not permit such a VLI Account to invest in shares of a 
management

[[Page 44884]]

investment company that serves as a vehicle for extended mixed funding 
or shared funding.
    5. Accordingly, Applicants request an order of the Commission 
granting exemptions from sections 9(a), 13(a), 15(a) and 15(b) of the 
1940 Act and Rule 6e-3(T)(b)(15) (and any comparable permanent rule) 
thereunder, to the extent necessary to permit a flexible premium VLI 
Account to hold shares of Insurance Funds when one or more of the 
following types of investors also hold shares of the Insurance Funds: 
(1) VA Accounts, (2) VA Accounts or VLI Accounts of Participating 
Insurance Companies that are not affiliated persons of the depositor of 
the flexible premium VLI Account, (3) the general account of a 
Participating Insurance Company, (4) the investment adviser (or an 
affiliated person of the investment adviser) of an Insurance Fund, or 
(5) a Plan.
    6. As explained below, Applicants maintain that there is no public 
policy reason why VLI Accounts and their Participating Insurance 
Company depositors (or principal underwriters) should not be able to 
rely on the exemptions provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
just because shares of Insurance Funds held by the VLI Accounts are 
also held by a Fund's investment adviser (or affiliated person), the 
general account of the Participating Insurance Company (or another 
Participating Insurance Company), or a Plan (``Eligible 817(h) 
Purchasers''). Rather, Applicants assert that the proposed sale of 
Insurance Fund shares to Plans may allow for the development of larger 
pools of assets, resulting in the potential for greater investment and 
diversification opportunities and decreased expenses at higher asset 
levels. Similarly, Applicants believe that the proposed sale of 
Insurance Fund shares to investment advisers (or their affiliates) and 
general accounts of Participating Insurance Companies for seed money 
may result in the creation of more Insurance Funds as investment 
options for certain VA Contracts and VLI Contracts than would otherwise 
be the case.
    7. Applicants maintain that the reason the Commission did not grant 
more extensive relief in the area of mixed and shared funding when it 
adopted Rule 6e-3(T) is because of the Commission's uncertainty in this 
area with respect to issues such as conflicts of interest. Applicants 
believe, however, that the Commission's concern in this area is not 
warranted here. For the reasons explained below, Applicants have 
concluded that investment by Eligible 817(h) Purchasers in the 
Insurance Funds should not increase the risk of material irreconcilable 
conflicts between owners of VLI Contracts and other types of investors 
or between owners of VLI Contracts issued by unaffiliated Participating 
Insurance Companies.
    8. Pursuant to 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, Applicants request exemptions for a class of parties 
consisting of VLI Accounts, their Participating Insurance Company 
depositors and their principal underwriters.
    9. In the context of mixed funding, extended mixed funding and 
shared funding, the Commission has granted numerous orders of exemption 
covering a class composed of registered VLI Accounts, their insurance 
company depositors and principal underwriters. Applicants assert that 
the scope of the exemptions and the conditions proposed in their 
Application are largely identical to these precedents. Applicants 
believe that the same policies and considerations that led the 
Commission to grant such exemptions to other similarly situated 
applicants are present should apply here.
    10. Section 6(c) of the 1940 Act provides, in part, that the 
Commission, by order upon application, may conditionally or 
unconditionally 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, or any rule or regulation 
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. The Applicants submit that the exemptions 
requested 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.
    11. Section 9(a)(3) of the 1940 Act provides, among other things, 
that it is unlawful for any company to serve as investment adviser or 
principal underwriter of any registered open-end investment company if 
an affiliated person of that company is subject to a disqualification 
enumerated in sections 9(a)(1) or (2). Rules 6e-2(b)(15)(i) and (ii) 
and Rules 6e-3(T)(b)(15)(i) and (ii) under the 1940 Act provide 
exemptions from Section 9(a) under certain circumstances, subject to 
the limitations discussed above on mixed funding, extended mixed 
funding and shared funding. These exemptions limit the application of 
the eligibility restrictions to affiliated individuals or companies 
that directly participate in management of the underlying investment 
company.
    12. The relief provided by Rules 6e-2(b)(15)(i) and 6e-
3(T)(b)(15)(i) permits a person that is disqualified under sections 
9(a)(1) or (2) of the Act to serve as an officer, director, or employee 
of the life insurance company, or any of its affiliates, as long as 
that person does not participate directly in the management or 
administration of the underlying investment company. The relief 
provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) under the 1940 
Act permits the life insurance company to serve as the underlying 
investment company's investment adviser or principal underwriter, 
provided that none of the insurer's personnel who are ineligible 
pursuant to section 9(a) participates in the management or 
administration of the investment company.
    13. 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 all 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 VLI Accounts and VA 
Accounts. Applicants maintain there is no regulatory purpose served in 
extending the monitoring requirements to embrace a full application of 
section 9(a)'s eligibility restrictions because of mixed funding, 
extended mixed funding or shared funding. The Participating Insurance 
Companies and Plans are not expected to play any role in the management 
of the Insurance Funds. Those individuals who participate in the 
management of the Insurance Funds will remain the same regardless of 
which VA Accounts, VLI Accounts, Plans or other Eligible 817(h) 
Purchasers invest in the Insurance Funds. Applicants assert that 
applying the

[[Page 44885]]

monitoring requirements of section 9(a) of the Act because of 
investment by VLI Accounts would be unjustified and would not serve any 
regulatory purpose. Furthermore, the increased monitoring costs could 
reduce the net rates of return realized by owners of VLI Contracts and 
Plan participants.
    14. 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 funding, extended mixed funding 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 variable 
life insurance contract owners with respect to the investments of an 
underlying investment company, or any contract between such an 
investment company 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)).
    15. 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 
owners of its variable life insurance contracts if such owners initiate 
any change in an underlying investment company'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) of Rules 6e-2 and 6e-3(T)).
    16. In the case of a change in the investment policies of the 
underlying investment company, the insurance company, in order to 
disregard contract owner voting instructions, must make a good faith 
determination that such a change either would: (1) Violate state law, 
or (2) result in investments that either (a) would not be consistent 
with the investment objectives of its separate account, or (b) would 
vary from the general quality and nature of investments and investment 
techniques used by other separate accounts of the company, or of an 
affiliated life insurance company with similar investment objectives.
    17. Both Rule 6e-2 and Rule 6e-3(T) generally recognize that a 
variable life insurance contract is primarily a life insurance contract 
containing many important elements unique to life insurance contracts 
and subject to extensive state insurance regulation. In adopting 
subparagraph (b)(15)(iii) of these Rules, the Commission implicitly 
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.
    18. Applicants assert that the sale of Insurance Fund shares to 
Eligible 817(h) Purchasers will not have any impact on the exemptions 
requested herein regarding the disregard of pass-through voting rights. 
Shares sold to Plans will be held by such Plans. Applicants believe 
that the exercise of voting rights by Plans, whether by trustees, 
participants, beneficiaries, or investment managers engaged by the 
Plans, does not raise the type of issues respecting disregard of voting 
rights that are raised by VLI Accounts. With respect to Plans, which 
are not registered as investment companies under the 1940 Act, there is 
no requirement to pass through voting rights to Plan participants. 
Indeed, to the contrary, applicable law expressly reserves voting 
rights associated with Plan assets to certain specified persons. Under 
section 403(a) of the Employee Retirement Income Security Act of 1974 
(``ERISA''), shares of a portfolio of an investment company sold to a 
Plan must be held by the trust(s) funding the Plan. Section 403(a) also 
provides that the trustee(s) of such trusts must have exclusive 
authority and discretion to manage and control the Plan, with two 
exceptions: (1) When the Plan expressly provides that the trustee(s) 
are subject to the direction of a named fiduciary who is not a trustee, 
in which case the trustee(s) are subject to proper directions made in 
accordance with the terms of the Plan and not contrary to ERISA, and 
(2) when the authority to manage, acquire, or dispose of assets of the 
Plan is delegated to one or more investment managers pursuant to 
section 402(c)(3) of ERISA. Unless one of the above two exceptions 
stated in section 403(a) applies, Plan trustees have the exclusive 
authority and responsibility for voting investment company shares (or 
related proxies) held by their Plan.
    19. Where a Plan does not provide participants with the right to 
give voting instructions, Applicants do not see any potential for 
material irreconcilable conflicts of interest between or among the 
Variable Contract owners and Plan participants with respect to voting 
of the respective Insurance Fund shares. Accordingly, unlike the 
circumstances surrounding VLI Accounts and VA Accounts, because Plans 
are not required to pass through voting rights to participants, 
Applicants believe that the issue of resolution of material 
irreconcilable conflicts of interest should not arise with respect to 
voting Insurance Fund shares.
    20. In addition, if a Plan were to hold a controlling interest in 
an Insurance Fund, Applicants do not believe that 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 shares of any open-end management investment company. 
In this regard, Applicants submit that investment in an Insurance Fund 
by a Plan will not create any of the voting complications occasioned by 
VLI Account investments in the Fund. Unlike VLI Account investments, 
Plan voting rights cannot be frustrated by veto rights of Participating 
Insurance Companies or state insurance regulators.
    21. Where a Plan provides participants with the right to instruct 
the trustee(s) as to how to vote Insurance Fund shares, Applicants see 
no reason why such participants generally or those in a particular 
Plan, either as a single group or in combination with participants in 
other Plans, would vote in a manner that would disadvantage VLI 
Contract owners. Applicants believe that the purchase of shares by 
Plans that provide voting rights does not present any complications not 
otherwise occasioned by mixed or shared funding.
    22. Similarly, an investment adviser to an Insurance Fund (or its 
affiliates) and the general accounts of Participating Insurance 
Companies are not subject to any pass-through voting requirements. 
Accordingly, Applicants submit that, unlike the circumstances 
surrounding VLI Account and VA Account investments in Insurance Fund 
shares, investment in such shares by Eligible 817(h) Purchasers should 
not raise issues of resolution of material irreconcilable conflicts of 
interest with respect to voting.
    23. Applicants recognize that the Commission's primary concern with 
respect to mixed funding, extended mixed funding and shared funding 
issues is the potential for irreconcilable conflicts between the 
interests of owners of variable life insurance contracts and those of 
other investors in an open end investment company serving as an 
investment vehicle for such contracts. Applicants submit that the 
prohibitions on mixed and shared funding might reflect concern 
regarding possible different investment motivations among investors. 
When Rule 6e-2 was first adopted, variable annuity separate accounts 
could invest in mutual funds whose shares were also offered to the 
general public. Therefore, the Commission staff may have been

[[Page 44886]]

concerned with the potentially different investment motivations of 
public shareholders and owners of variable life insurance contracts. 
Applicants submit there also may have been some concern with respect to 
the problems of permitting a state insurance regulatory authority to 
affect the operations of a publicly available mutual fund and the 
investment decisions of public shareholders.
    24. For reasons unrelated to the 1940 Act, however, Revenue Ruling 
81-225 (Sept. 25, 1981) effectively deprived variable annuity contracts 
funded by publicly available mutual funds of their tax-benefited 
status. The Tax Reform Act of 1984 codified the prohibition against the 
use of publicly available mutual funds as an investment vehicle for 
both variable annuity contracts and variable life insurance contracts. 
In particular, section 817(h) of the Code, in effect, requires that the 
investments made by both variable annuity and variable life insurance 
separate accounts be ``adequately diversified.'' If such a separate 
account is organized as part of a ``two-tiered'' arrangement where the 
account invests in shares of an underlying open-end investment company 
(i.e., an underlying fund), the diversification test will be applied to 
the underlying fund (or to each of several underlying funds), rather 
than to the separate account itself, but only if ``all of the 
beneficial interests'' in the underlying fund ``are held by one or more 
insurance companies (or affiliated companies) in their general account 
or in segregated asset accounts.'' Accordingly, a separate account that 
invests in a publicly available mutual fund will not be adequately 
diversified for these purposes. As a result, any underlying fund, 
including any Insurance Fund that sells shares to VA Accounts or VLI 
Accounts, would, in effect, be precluded from also selling its shares 
to the public. Consequently, the Insurance Funds may not sell their 
shares to the public.
    25. Applicants submit that the rights of an insurance company or a 
state insurance regulator to disregard the voting instructions of 
owners of Variable Contracts is not inconsistent with either mixed 
funding or shared funding. The National Association of Insurance 
Commissioners Variable Life Insurance Model Regulation (the ``NAIC 
Model Regulation'') suggests that it is unlikely that insurance 
regulators would find an underlying fund's investment policy, 
investment adviser or principal underwriter objectionable for one type 
of Variable Contract but not another type. The NAIC Model Regulation 
has long permitted the use of a single underlying fund for different 
separate accounts. Moreover, Article VI, section 3 of the NAIC Model 
Regulation has been amended to remove a previous prohibition on one 
separate account investing in another separate account. Lastly, the 
NAIC Model Regulation does not distinguish between scheduled premium 
and flexible premium variable life insurance contracts. Applicants 
contend that the NAIC Model Regulation therefore reflects the NAIC's 
apparent confidence that such combined funding is appropriate and that 
state insurance regulators can adequately protect the interests of 
owners of all variable contracts.
    26. Applicants submit 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 regulator could require action 
that is inconsistent with the requirements of other states in which the 
insurance company offers its contracts. However, Applicants believe 
that the fact that different insurers may be domiciled in different 
states does not create a significantly different or enlarged problem.
    27. Applicants submit that shared funding by unaffiliated insurers, 
in this respect, is no different than the use of the same investment 
company as the funding vehicle for affiliated insurers, which Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) permit. Affiliated insurers 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 set forth below are designed to safeguard against, and 
provide procedures for resolving, any adverse effects that differences 
among state regulatory requirements may produce. If a particular state 
insurance regulator's decision conflicts with the majority of other 
state regulators, then the affected Participating Insurance Company 
will be required to withdraw its separate account investments in the 
relevant Insurance Fund. This requirement will be provided for in the 
Participation Agreement that will be entered into by Participating 
Insurance Companies with the relevant Insurance Fund.
    28. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give the Participating 
Insurance Company the right to disregard the voting instructions of VLI 
Contract owners in certain circumstances. This right derives from the 
authority of state insurance regulators over VLI Accounts and VA 
Accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), a Participating 
Insurance Company may disregard VLI Contract owner voting instructions 
only with respect to certain specified items. Applicants maintain that 
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 such Contract owners. The potential for disagreement is 
limited by the requirements in Rules 6e-2 and 6e-3(T) that the 
Participating Insurance Company's disregard of voting instructions be 
reasonable and based on specific good faith determinations.
    29. A particular Participating Insurance Company's disregard of 
voting instructions, nevertheless, could conflict with the voting 
instructions of a majority of VLI Contract owners. The Participating 
Insurance Company's action possibly could be different than the 
determination of all or some of the other Participating Insurance 
Companies (including affiliated insurers) that the voting instructions 
of VLI Contract owners should prevail, and either could 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, then the Participating 
Insurance Company may be required, at the relevant Insurance Fund's 
election, to withdraw its VLI Accounts' and VA Accounts' investments in 
the relevant Insurance Fund. No charge or penalty will be imposed as a 
result of such withdrawal. This requirement will be provided for in the 
Participation Agreement entered into by the Participating Insurance 
Companies with the relevant Insurance Fund.
    30. Applicants submit that there is no reason why the investment 
policies of an Insurance Fund would or should be materially different 
from what these policies would or should be if the Insurance Fund 
supported only VA Accounts or VLI Accounts, whether flexible premium or 
scheduled premium VLI Contrasts. Each type of insurance contract is 
designed as a long-term investment program.
    31. Applicants represent that each Insurance Fund will be managed 
to attempt to achieve its specified investment objective, and not favor 
or disfavor any particular Participating Insurance Company or type of 
insurance contract. Applicants contend that there is no reason to 
believe that different features of various types of Variable Contracts 
will lead to different

[[Page 44887]]

investment policies for each or for different VLI Accounts and VA 
Accounts. The sale of Variable Contracts and ultimate success of all VA 
Accounts and VLI Accounts depends, at least in part, on satisfactory 
investment performance, which provides an incentive for each 
Participating Insurance Company to seek optimal investment performance.
    32. Applicants represent that no single investment strategy can be 
identified as appropriate to a particular Variable Contract. Each 
``pool'' of VLI Contract and VA Contract owners is composed of 
individuals of diverse financial status, age, insurance needs and 
investment goals. An Insurance Fund supporting even one type of 
Variable Contract must accommodate these diverse factors in order to 
attract and retain purchasers. Applicants contend that permitting mixed 
and shared funding will provide economic support for the continuation 
of the Insurance Funds, and will broaden the base of potential Variable 
Contract owner investors, which may facilitate the establishment of 
additional Insurance Funds serving diverse goals.
    33. Applicants do not believe that the sale of the shares to 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 owners of VLI Contracts and VA 
Contracts. Applicants submit that either there are no conflicts of 
interest or that there exists the ability by the affected parties to 
resolve such conflicts consistent with the best interests of VLI 
Contract owners, VA Contract owners and Plan participants.
    34. Applicants considered whether there are any issues raised under 
the Code, Treasury Regulations, or Revenue Rulings thereunder, if 
Plans, VA Accounts, and VLI Accounts all invest in the same Insurance 
Fund. Section 817(h) of the Code is the culmination of a series of 
Revenue Rulings aimed at the control of investments by owners of 
Variable Contracts and discusses insurance company separate accounts. 
Treasury Regulation 1.817-5(f)(3)(iii), which establishes the 
diversification requirements for underlying funds, specifically 
permits, among other things, ``qualified pension or retirement plans,'' 
separate accounts to invest in the same underlying fund. Applicants 
have concluded for this reason that neither the Code, nor the Treasury 
Regulations nor Revenue Rulings thereunder, present any inherent 
conflicts of interest if Plans, VLI Accounts, and VA Accounts all 
invest in the same Insurance Fund.
    35. Applicants note that, while there are differences in the manner 
in which distributions from VLI Accounts and Plans are taxed, these 
differences have no impact on the Insurance Funds. When distributions 
are to be made, and a VLI Account or Plan is unable to net purchase 
payments to make distributions, the VLI Account or Plan will redeem 
shares of the relevant Insurance Fund at its net asset values in 
conformity with Rule 22c-1 under the Act (without the imposition of any 
sales charge) to provide proceeds to meet distribution needs. A 
Participating Insurance Company will then make distributions in 
accordance with the terms of its VLI Contract and a Plan will then make 
distributions in accordance with the terms of the Plan.
    36. Applicants considered whether it is possible to provide an 
equitable means of giving voting rights to VLI Contract owners and 
Plans. In connection with any meeting of Insurance Fund shareholders, 
the Fund's transfer agent will inform each Participating Insurance 
Company and other Eligible 817(h) Purchaser of their share holdings and 
provide other information necessary for such shareholders to 
participate in the meeting (e.g., proxy materials). Each Participating 
Insurance Company then will solicit voting instructions from owners of 
VLI Contracts and VA Contracts as required by either Rules 6e-2 or 6e-
3(T), or section 12(d)(1)(E)(iii)(aa) of the Act, as applicable, and 
its Participation Agreement with the relevant Insurance Fund. Shares 
held by a Participating Insurance Company general account will be voted 
by the Company in the same proportion of shares for which it receives 
voting instructions from its Variable Contract owners. Shares held by 
Plans will be voted in accordance with applicable law. The voting 
rights provided to Plans with respect to the shares would be no 
different from the voting rights that are provided to Plans with 
respect to shares of mutual funds sold to the general public. 
Furthermore, if a material irreconcilable conflict arises because of a 
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 Plan may be required, at the election of 
the relevant Insurance Fund, to withdraw its investment in the 
Insurance Fund, and no charge or penalty will be imposed as a result of 
such withdrawal.
    37. Applicants do not believe that the veto power of state 
insurance commissioners over certain potential changes to Insurance 
Fund investment objectives approved by owners of VLI Contracts creates 
conflicts between the interests of such owners and the interests of 
Plan participants. Applicants note that a basic premise of corporate 
democracy and shareholder voting is that not all shareholders may agree 
with a particular proposal. Their interests and opinions may differ, 
but this does not mean that inherent conflicts of interest exist 
between or among such shareholders or that occasional conflicts of 
interest that do occur between or among them are likely to be 
irreconcilable.
    38. Applicants represent that although Participating Insurance 
Companies may have to overcome regulatory impediments in redeeming 
shares of an Insurance Fund held by their VLI Accounts, the Plans and 
the participants in participant-directed Plans can make decisions 
quickly and redeem their shares in a Fund and reinvest in another 
investment company or other funding vehicle without impediments, or as 
is the case with most Plans, hold cash pending suitable investment. As 
a result, conflicts between the interests of VLI Contract owners and 
the interests of Plans and Plan participants can usually be resolved 
quickly since the Plans can, on their own, redeem their Insurance Fund 
shares.
    39. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
and Plans created by future changes in the tax laws. Applicants do not 
see any greater potential for material irreconcilable conflicts arising 
between the interests of VLI Contract owners (or, for that matter, VA 
Contract owners) and Plan participants from future changes in the 
federal tax laws than that which already exists between VLI Contract 
owners and VA Contract owners.
    40. Applicants recognize that the issues described above are not 
all-inclusive, but rather are representative of issues that they 
believe are relevant to the application. In light of the above, 
Applicants believe that the sale of Insurance Fund shares to Plans 
trustees would not increase the risk of material irreconcilable 
conflicts between the interests of Plan participants and VLI Contract 
owners or other investors. Further, Applicants submit that the use of 
the Insurance Funds with respect to Plans is not substantially 
dissimilar from each Insurance Fund's anticipated

[[Page 44888]]

use, in that Plans, like VLI Accounts, are generally long-term 
investors.
    41. Applicants represent that a potential source of initial capital 
is an Insurance Fund's investment adviser or a Participating Insurance 
Company. Either of these parties may have an interest in making a 
capital investment and in assisting an Insurance Fund in its 
organization. However, provision of 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).
    42. Applicants assert that permitting an Insurance Fund to sell its 
shares to its investment adviser (or the adviser's affiliates) or to 
the general account of a Participating Insurance Company for the 
purpose of obtaining seed money will enhance management of each 
Insurance Fund without raising significant concerns regarding material 
irreconcilable conflicts among different types of investors.
    43. Given the conditions of Treasury Regulation 1.817-5(f)(3) and 
the harmony of interest between an Insurance Fund, on the one hand, and 
its investment adviser (or affiliates) or a Participating Insurance 
Company, on the other, Applicants assert that little incentive for 
overreaching exists. Furthermore, such investment should not implicate 
the concerns discussed above regarding the creation of material 
irreconcilable conflicts. Instead, permitting investments by an 
investment adviser (or its affiliates), or by general accounts of 
Participating Insurance Companies, will permit the orderly and 
efficient creation and operation of an Insurance Fund, and reduce the 
expense and uncertainty of using outside parties at the early stages of 
the Insurance Fund's operations.
    44. Applicants also submit that, regardless of the type of 
shareholder in an Insurance Fund, its investment adviser (and the 
adviser's affiliates) are or would be contractually and otherwise 
obligated to manage the Insurance Fund solely and exclusively in 
accordance with that Fund's investment objectives, policies and 
restrictions, as well as any guidelines established by the its board of 
trustees (a ``Board''). Thus, each Insurance Fund will be managed in 
the same manner as any other mutual fund.
    45. Applicants do not believe that the ability of an Insurance Fund 
to sell its shares to its investment adviser (or an affiliated person 
of the adviser), to Plans, or to the general account of a Participating 
Insurance Company gives rise to a senior security. A ``Senior 
Security'' is defined in section 18(g) of the Act to include ``any 
stock of a class having priority over any other class as to 
distribution of assets or payment of dividends.'' As noted above, 
regardless of the rights and benefits of participants under Plans and 
owners of VLI Contracts, VLI Accounts, VA Accounts, Participating 
Insurance Companies, Plans, and investment advisers (or their 
affiliates), only have, or will only have, rights with respect to their 
respective shares of an Insurance Fund. These parties can only redeem 
such shares at net asset value. No shareholder of an Insurance Fund has 
any preference over any other shareholder with respect to distribution 
of assets or payment of dividends.
    46. In addition, Applicants note that the Commission has issued 
numerous orders permitting mixed funding, extended mixed funding and 
shared funding. Therefore, Applicants submit that granting the 
exemptions requested herein is in the public interest and, as discussed 
above, will not compromise the regulatory purposes of sections 9(a), 
13(a), 15(a), or 15(b) of the Act or Rules 6e-2 or 6e-3(T) thereunder.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions which shall apply to the Trust 
as well as any future trust that relies on the order:
    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 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 of each Insurance Fund will monitor the Insurance Fund 
for the existence of any material irreconcilable conflict between and 
among the interests of the owners of all VLI Contracts and VA Contracts 
and participants of all 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 VA Contract 
owners, VLI Contract owners, and Plans or Plan participants, (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of contract owners; or (g) if applicable, a decision by a 
Plan to disregard the voting instructions of 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), an adviser and its affiliates, and any Plan that 
executes a Participation Agreement upon its becoming an owner of 10% or 
more of the net assets of an Insurance Fund (collectively, 
``Participants'') will report any potential or existing conflicts to 
the Board of the Insurance Fund. Each Participant 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 by each 
Participating Insurance Company to inform the Board whenever Variable 
Contract owner voting instructions are disregarded, and, if pass-
through voting is applicable, an obligation by each Plan to inform the 
Board whenever it has determined to disregard Plan participant voting 
instructions. The responsibility to report such information and 
conflicts, and to assist the Board, will be a contractual obligation of 
all Participating Insurance Companies under their Participation 
Agreement with an Insurance Fund, and these responsibilities will be 
carried out with a view only to the interests of the Variable Contract 
owners. The responsibility to report such information and conflicts, 
and to assist the Board, also will be contractual obligations of all 
Plans under their Participation Agreement with an Insurance Fund, and 
such agreements will provide that these responsibilities will be 
carried out with a view only to the interests of Plan participants.
    4. If it is determined by a majority of the Board of an Insurance 
Fund, or a

[[Page 44889]]

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 VLI Accounts or VA Accounts 
from the Insurance Fund and reinvesting such assets in a different 
investment vehicle including another Insurance Fund, (b) in the case of 
a Participating Insurance Company, submitting the question as to 
whether such segregation should be implemented to a vote of all 
affected Variable Contract owners and, as appropriate, segregating the 
assets of any appropriate group (i.e., VA Contract owners or VLI 
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, (c) withdrawing the 
assets allocable to some or all of the Plans from the affected 
Insurance Fund and reinvesting them in a different investment medium, 
and (d) 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 
Variable Contract owner voting instructions, and that decision 
represents a minority position or would preclude a majority vote, then 
the Participating Insurance Company may be required, at the election of 
the Insurance Fund, to withdraw such Participating Insurance Company's 
VA Account and VLI 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 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 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 an Insurance 
Fund, and these responsibilities will be carried out with a view only 
to the interests of Variable Contract owners or, as applicable, 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 action adequately remedies any material 
irreconcilable conflict, but, in no event, will the Insurance Fund or 
its investment adviser be required to establish a new funding vehicle 
for any Variable Contract or Plan. 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 Plan will 
be required by this Condition 4 to establish a new funding vehicle for 
the Plan if: (a) A majority of the Plan participants materially and 
adversely affected by the irreconcilable material conflict vote to 
decline such offer, or (b) pursuant to documents governing the Plan, 
the Plan trustee makes such decision without a 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. Participating Insurance Companies will provide pass-through 
voting privileges to all Variable Contract owners whose Contracts are 
issued through registered VLI Accounts or registered VA Accounts for as 
long as required by the Act as interpreted by the Commission. However, 
as to Variable Contracts issued through VA Accounts or VLI Accounts not 
registered as investment companies under the Act, pass-through voting 
privileges will be extended to owners of such Contracts to the extent 
granted by the Participating Insurance Company. Accordingly, such 
Participating Insurance Companies, where applicable, will vote the 
shares of each Insurance Fund held in their VLI Accounts and VA 
Accounts in a manner consistent with voting instructions timely 
received from Variable Contract owners. Participating Insurance 
Companies will be responsible for assuring that each of their VLI and 
VA Accounts investing in an Insurance Fund calculates voting privileges 
in a manner consistent with all other Participating Insurance Companies 
investing in that Fund.
    The obligation to calculate voting privileges as provided in this 
Application shall be a contractual obligation of all Participating 
Insurance Companies under their Participation Agreement with the Fund. 
Each Participating Insurance Company will vote shares of each Insurance 
Fund held in its VLI or VA Accounts for which no timely voting 
instructions are received, as well as shares held by its general 
account or otherwise attributed to it, in the same proportion as those 
shares for which voting instructions are received. Each Plan will vote 
as required by applicable law, governing Plan documents and as provided 
in this application.
    7. As long as the Act requires pass-through voting privileges to be 
provided to Variable Contract owners or the Commission interprets the 
Act to require the same, an Insurance Fund investment adviser (or its 
affiliates) or any general account will vote their shares of the Fund 
in the same proportion as all votes cast on behalf of all Variable 
Contract owners having voting rights; provided, however, that such an 
investment adviser (or affiliates) 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 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in its 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 Act not to require such meetings) or comply with section 16(c) of 
the 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 Act), as 
well as with section 16(a) of the Act and, if and when applicable, 
section 16(b) of the 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 VLI 
Accounts, VA Accounts, and Plans at or about the time it accepts any 
seed capital from its investment adviser (or affiliates) or from a 
general account of a Participating Insurance Company.
    10. Each Insurance Fund has notified, or will notify, all 
Participants that disclosure regarding potential risks of mixed and 
shared funding may be appropriate in VLI Account and VA Account 
prospectuses or Plan documents. Each Insurance Fund will disclose, in 
its prospectus that: (a)

[[Page 44890]]

Shares of the Fund may be offered to both VA Accounts and VLI Accounts 
and, if applicable, to Plans, (b) due to differences in tax treatment 
and other considerations, the interests of various Variable Contract 
owners participating in the Insurance Fund and the interests of Plan 
participants 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 conflicts.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the Act 
are amended, or Rule 6e-3 under the Act is adopted, to provide 
exemptive relief from any provision of the 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 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), as 
amended, or Rule 6e-3, to the extent such rules are applicable.
    12. Each Participant, at least annually, shall 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 shall 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, shall be a contractual obligation of all 
Participants under their Participation Agreement with the 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 
Plan if such purchase would make the Plan an owner of 10 percent or 
more of the net assets of the Insurance Fund unless the 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 Plan will execute an application containing an 
acknowledgement of this condition at the time of its initial purchase 
of shares.

Conclusions

    Applicants submit, for all the reasons explained above, that the 
exemptions requested 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15550 Filed 8-8-07; 8:45 am]

BILLING CODE 8010-01-P
