
[Federal Register: December 16, 2008 (Volume 73, Number 242)]
[Notices]               
[Page 76421-76428]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de08-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28530; File No. 812-13563]

 
TIAA-CREF Life Funds, et al.

December 10, 2008.
AGENCY: Securities and Exchange Commission (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: TIAA-CREF Life Funds (the ``Trust''), the TIAA-CREF Life 
Insurance Company (``TIAA-CREF Life''), and Teachers Advisors, Inc. 
(``Advisors'') (collectively, ``Applicants'').

Summary of Application: Applicants seek an order to permit shares of 
the Trust and shares of any other future investment company (``Other 
Investment Companies'') that is designed to fund insurance products and 
for which TIAA-CREF Life, or any of its affiliates, may serve as 
administrator, investment manager, principal underwriter or sponsor 
(the Trust and Other Investment Companies being hereinafter referred 
to, collectively, as ``Insurance Investment Companies''), or permit 
shares of any current or future series of any Insurance Investment 
Company (``Insurance Fund''), to be sold to and held by: (1) Separate 
accounts funding variable annuity and variable life insurance contracts 
issued by both affiliated and unaffiliated life insurance companies of 
TIAA-CREF Life; (2) trustees on behalf of tax-qualified and certain 
other retirement and employee benefit plans outside of the separate 
account context (``Qualified Plans'' or ``Plans''); (3) Advisors and 
any affiliate of Advisors that serves as an investment adviser, 
manager, principal underwriter, sponsor, or administrator for the 
purpose of providing seed capital to an Insurance Fund (collectively, 
the ``Manager''); and (4) any insurance company general account that is 
permitted to hold shares of an Insurance Fund consistent with the 
requirements of Treasury Regulation 1.817-5 (``General Account'') under 
the circumstances described in the Application.

Filing Date: The Application was filed on August 13, 2008, and amended 
and restated on December 10, 2008.

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 must be received by the 
Commission by 5:30 p.m. on January 5, 2009, 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: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o Stewart P. Greene, 
Esq., TIAA-CREF Life Funds, 730 Third Avenue, New York, New York 10017-
3206.

FOR FURTHER INFORMATION CONTACT: Michael Kosoff, Staff Attorney, at 
(202) 551-6754 or Harry Eisenstein, 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 may be obtained for a fee from 
the Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, DC 20549 (202-551-8090).
    Applicant's Representations:
    1. Each Insurance Investment Company is, or will be, registered as 
an open-end management investment company under the 1940 Act. The Trust 
(File Nos. 333-61759/811-08961) currently consists of, and offers 
shares of beneficial interest in, ten (10) investment portfolios that 
are sold only to separate accounts of TIAA-CREF Life which fund 
variable life and variable annuity contracts. The Trust may offer one 
or more additional series or classes of shares in the future. The Trust 
sells its shares directly or indirectly to TIAA-CREF Life, which holds 
the shares in its separate accounts to support variable annuity and 
variable life insurance contracts.
    2. TIAA-CREF Life is a New York stock insurance company. TIAA-CREF 
Life is licensed to do business in all fifty (50) United States and the 
District of Columbia. TIAA-CREF Life is a wholly owned subsidiary of 
TIAA-CREF Enterprises, Inc., which is a wholly owned subsidiary of 
Teachers Insurance and Annuity Association of America (``TIAA''), a 
stock life insurance company organized under the laws of the State of 
New York.
    3. Advisors is the investment adviser to the Trust and also is 
responsible for providing or obtaining at its own expense most of the 
services necessary to operate the Trust on a day-to-day basis, 
including custodial, administrative, portfolio accounting, dividend 
disbursing, auditing, and ordinary legal services. Advisors, a Delaware 
corporation, is registered as an investment adviser under the 
Investment Advisers Act of 1940, as amended, and is a wholly-owned 
indirect subsidiary of TIAA.
    4. The Trust currently offers shares of the Insurance Funds only to 
the separate accounts of TIAA-CREF Life, an affiliated insurance 
company, in order to fund benefits under variable annuity and other 
variable insurance contracts. In the future, the Insurance Investment 
Companies intend to offer shares of the Insurance Funds to (a) both 
registered and unregistered separate accounts of affiliated and 
unaffiliated insurance companies in order to fund variable annuity and 
variable life insurance contracts (collectively, ``Separate 
Accounts''); (b) Qualified Plans; (c) any Manager; and (d) any General 
Accounts.
    5. Affiliated or unaffiliated insurance companies whose Separate 
Account(s) may now or in the future own shares of the Insurance Funds 
are referred to herein as ``Participating Insurance Companies.'' The 
Participating Insurance Companies have established or will establish 
their own Separate Accounts and design their own variable contracts. 
Each Participating Insurance Company has or will have the legal 
obligation to satisfy all applicable requirements under both state and 
federal law. Participating Insurance Companies may rely on Rules 6e-2 
and 6e-3(T) under the 1940 Act in connection with the establishment and 
maintenance of variable life insurance Separate Accounts, although some 
Participating Insurance Companies, in connection with variable life 
insurance contracts, may rely on individual exemptive orders as well. 
Each

[[Page 76422]]

Participating Insurance Company will enter into a participation 
agreement with the applicable Insurance Investment Company on behalf of 
the Insurance Funds in which that Participating Insurance Company 
invests. The role of the Insurance Funds under this arrangement, 
insofar as federal securities laws are applicable, will consist of 
offering their shares to the Separate Accounts and fulfilling any 
conditions that the Commission may impose upon granting the order 
requested in the Application.
    6. The Insurance Investment Companies intend to offer shares of the 
Insurance Funds directly to Qualified Plans outside of the separate 
account context. Qualified Plans may choose any of the Insurance Funds 
that are offered as the sole investment under the Plan or as one of 
several investments. Plan participants may or may not be given an 
investment choice depending on the terms of the Plan itself. Shares of 
any of the Insurance Funds sold to such Qualified Plans would be held 
or deemed to be held by the trustee(s) of said Plans. Certain Qualified 
Plans, including Section 403(b)(7) Plans and Section 408(a) Plans, may 
vest voting rights in Plan participants instead of Plan trustees. 
Exercise of voting rights by participants in any such Qualified Plans, 
as opposed to the trustees of such Plans, cannot be mandated by the 
Applicants. Each Plan must be administered in accordance with the terms 
of the Plan and as determined by its trustee or trustees.
    7. Shares of each Insurance Fund also may be offered to a Manager 
or to General Accounts, in reliance on regulations issued by the 
Treasury Department (Treas. Reg. 1.817-5) that established 
diversification requirements for variable annuity and variable life 
insurance contracts (``Treasury Regulations''). Treasury Regulation 
1.817-5(f)(3)(ii) permits such sales as long as the return on shares 
held by the Manager is computed in the same manner as for shares held 
by the Separate Accounts, and the Manager does not intend to sell to 
the public shares of the Insurance Investment Company that it holds. An 
additional restriction is imposed by the Treasury Regulations on sales 
to the Manager, who may hold shares only in connection with the 
creation or management of the Insurance Investment Company. Applicants 
represent that sales in reliance on Treasury Regulation 1.817-
5(f)(3)(ii) will be made to a Manager consistent with the above 
conditions and for the purpose of providing seed capital. Treasury 
Regulation 1.817-51(f)(3) permits sales to general accounts of 
insurance companies and their corporate affiliates as long as the 
return on shares held by such persons is computed in the same manner as 
for shares held by a Separate Account, such persons do not intend to 
sell to the public shares of the Insurance Fund that they hold, and a 
segregated asset account of the life insurance company whose general 
account holds those shares also holds or will hold a beneficial 
interest in the Insurance Fund. Applicants represent that sales to 
General Accounts will be made consistent with these provisions.
    Applicants' Legal Analysis:
    1. Applicants request that the Commission issue an order pursuant 
to Section 6(c) of the 1940 Act granting exemptions from the provisions 
of Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder (including any comparable 
provisions of a permanent rule that replaces Rule 6e-3(T)), to the 
extent necessary to permit shares of each Insurance Investment Company 
to be offered and sold to, and held by: (1) Separate Accounts funding 
variable annuity contracts and scheduled premium and flexible premium 
variable life insurance contracts issued by both affiliated and 
unaffiliated life insurance companies; (2) Qualified Plans; (3) any 
Manager to an Insurance Fund; and (4) General Accounts under the 
circumstances described in the Application.
    2. Section 6(c) authorizes the Commission to exempt any person, 
security, or transaction or any class or classes of persons, 
securities, or transactions from any provision or provisions of the 
1940 Act and/or of any rule thereunder if and to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    3. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account organized as 
a unit investment trust (``Trust Account''), Rule 6e-2(b)(15) provides 
partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
1940 Act. The exemptions granted to an insurance company by Rule 6e-
2(b)(15) are available only where each registered management investment 
company underlying the Trust Account (``underlying fund'') offers its 
shares ``exclusively to variable life insurance separate accounts of 
the life insurer or of any affiliated life insurance company * * *.'' 
(emphasis added). Therefore, the relief granted by Rule 6e-2(b)(15) is 
not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an underlying fund that 
also offers its shares to a variable annuity separate account of the 
same company or of any affiliated life insurance company. The use of a 
common underlying fund as the underlying investment medium for both 
variable annuity and variable life insurance separate accounts of the 
same life insurance company or of any affiliated life insurance company 
is referred to herein as ``mixed funding.''
    4. In addition, the relief granted by Rule 6e-2(b)(15) is not 
available with respect to a scheduled premium variable life insurance 
separate account that owns shares of an underlying fund that also 
offers its shares to separate accounts funding variable contracts of 
one or more unaffiliated life insurance companies. The use of a common 
underlying fund as the underlying investment medium for variable life 
insurance separate accounts of one insurance company and separate 
accounts funding variable contracts of one or more unaffiliated life 
insurance companies is referred to herein as ``shared funding.'' 
Moreover, because the relief under Rule 6e-2(b)(15) is available only 
where shares are offered exclusively to variable life insurance 
separate accounts, additional exemptive relief may be necessary if the 
shares of the Insurance Investment Companies are also to be sold to 
General Accounts, Qualified Plans or the Manager.
    5. In connection with the funding of flexible premium variable life 
insurance contracts issued through a Trust Account, Rule 6e-3(T)(b)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act to the extent that those sections have been deemed by 
the Commission to require ``pass-through'' voting with respect to an 
underlying fund's shares. The exemptions granted to a separate account 
by Rule 6e-3(T)(b)(15) are available only where all of the assets of 
the separate account consist of the shares of one or more underlying 
funds which offer their shares ``exclusively to separate accounts of 
the life insurer, or of any affiliated life insurance company, offering 
either scheduled contracts or flexible contracts, or both; or which 
also offer their shares to variable annuity separate accounts of the 
life insurer or of an affiliated life insurance company'' (emphasis 
added). Therefore, Rule 6e-3(T) permits mixed funding with respect to a 
flexible premium variable life insurance separate account, subject to

[[Page 76423]]

certain conditions. However, Rule 6e-3(T) does not permit shared 
funding because the relief granted by Rule 6e-3(T)(b)(15) is not 
available with respect to a flexible premium variable life insurance 
separate account that owns shares of an underlying fund that also 
offers its shares to separate accounts (including variable annuity and 
flexible premium and scheduled premium variable life insurance separate 
accounts) of unaffiliated life insurance companies. The relief provided 
by Rule 6e-3(T) is not relevant to the purchase of shares of the 
Insurance Investment Companies by Qualified Plans, the Manager or 
General Accounts. However, because the relief granted by Rule 6e-
3(T)(b)(15) is available only where shares of the underlying fund are 
offered exclusively to separate accounts, or to life insurers in 
connection with the operation of a separate account, additional 
exemptive relief may be necessary if the shares of the Insurance 
Investment Companies are also to be sold to Qualified Plans, the 
Manager or General Accounts.
    6. Applicants assert that none of the relief provided for in Rules 
6e-2(b)(15) and 6e-3(T)(b)(15) relates to Qualified Plans, the Manager 
or General Accounts, or to an underlying fund's ability to sell its 
shares to such purchasers. It is only because some of the Separate 
Accounts that may invest in the Insurance Investment Companies may 
themselves be investment companies that rely upon Rules 6e-2 and 6e-
3(T) and wish to continue to rely upon that relief provided in those 
Rules, that the Applicants are applying for the relief described in the 
Application. If and when a material irreconcilable conflict between the 
Separate Accounts arises in this context or between Separate Accounts 
on the one hand and Qualified Plans, the Manager or General Accounts on 
the other hand, the Participating Insurance Companies, Qualified Plans 
and the Manager must take whatever steps are necessary to remedy or 
eliminate the conflict, including eliminating the Insurance Funds as 
eligible investment options. Applicants have concluded that investment 
by the Manager or the inclusion of Qualified Plans or General Accounts 
as eligible shareholders should not increase the risk of material 
irreconcilable conflicts among shareholders. However, Applicants 
further assert that even if a material irreconcilable conflict 
involving the Qualified Plans, Manager or General Accounts arose, the 
Qualified Plans, Manager or General Accounts, unlike the Separate 
Accounts, can simply redeem their shares and make alternative 
investments. By contrast, insurance companies cannot simply redeem 
their separate accounts out of one fund and invest in another. Time 
consuming, complex transactions must be undertaken to accomplish such 
redemptions and transfers. Applicants thus argue that allowing the 
Manager, General Accounts or Qualified Plans to invest directly in the 
Insurance Investment Companies should not increase the opportunity for 
conflicts of interest.
    7. Applicants state that Treasury Regulations permit shares of an 
investment company held by the separate accounts of insurance companies 
funding variable life insurance contracts to also be held by a 
Qualified Plan, the investment company's investment manager or its 
affiliates, or a General Account. Thus, the sale of shares of the same 
investment company to separate accounts through which variable life 
insurance contracts and variable annuities are issued to Qualified 
Plans, to the investment company's investment manager and its 
affiliates, or to General Accounts (collectively, ``eligible 
shareholders'') could not have been envisioned at the time of the 
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15), given the then-
current tax law.
    8. Applicants state that Paragraph (3) of Section 9(a) provides, 
among other things, that it is unlawful for any company to serve as 
investment adviser to or principal underwriter for any registered open-
end investment company if an affiliated person of that company is 
subject to a disqualification enumerated in Sections 9(a)(1) or (a)(2). 
Rule 6e-2(b)(15)(i) and (ii) and Rule 6e-3(T)(b)(15)(i) and (ii) under 
the 1940 Act provide exemptions from Section 9(a) under certain 
circumstances, subject to the limitations discussed above on mixed and 
shared funding. These exemptions limit the application of the 
eligibility restrictions to affiliated individuals or companies that 
directly participate in the management or administration of the 
underlying fund.
    The relief provided by Rules 6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) 
permits a person disqualified under Section 9(a) to serve as an 
officer, director, or employee of the life insurer, or any of its 
affiliates, so long as that person does not participate directly in the 
management or administration of the underlying fund.
    The relief provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) 
permits the life insurer to serve as the underlying fund's investment 
adviser or principal underwriter, provided that none of the insurer's 
personnel who are ineligible, pursuant to Section 9(a), are 
participating in the management or administration of the underlying 
fund.
    Applicants submit that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 limits, 
in effect, the amount of monitoring of an insurer's personnel, which 
would otherwise be necessary to ensure compliance with Section 9, to 
that which is appropriate in light of the policy and purposes of 
Section 9. Those Rules recognize that it is not necessary for the 
protection of investors or the purposes fairly intended by the policy 
and provisions of the 1940 Act to apply the provisions of Section 9(a) 
to the many individuals in an insurance company complex, most of whom 
typically will have no involvement in matters pertaining to investment 
companies in that organization. Applicants assert that it is also 
unnecessary to apply Section 9(a) of the 1940 Act to the many 
individuals employed by Participating Insurance Companies (or 
affiliated companies of Participating Insurance Companies) who do not 
directly participate in the administration or management of the 
Insurance Investment Companies.
    Applicants claim there is no regulatory purpose in extending the 
monitoring requirements to embrace a full application of Section 9(a)'s 
eligibility restrictions because of mixed funding or shared funding. 
Many of the Participating Insurance Companies are not expected to play 
any role in the management or administration of the Insurance 
Investment Companies. Those individuals who participate in the 
management or administration of the Insurance Investment Companies will 
remain the same regardless of which separate accounts or insurance 
companies use the Insurance Investment Companies. Therefore, applying 
the monitoring requirements of Section 9(a) to the thousands of 
individuals employed by the Participating Insurance Companies would not 
serve any regulatory purpose. Furthermore, the increased monitoring 
costs would reduce the net rates of return realized by contract owners 
and Plan participants.
    Moreover, the relief requested should not be affected by the sale 
of shares of the Insurance Investment Companies to Qualified Plans, the 
Manager or General Accounts under the circumstances described in this 
Application. The insulation of the Insurance Investment Companies from 
those individuals who are disqualified under the 1940 Act remains in 
place. Because Qualified Plans, the Manager and General Accounts are 
not investment companies and will not be deemed to be affiliated

[[Page 76424]]

with the Insurance Investment Companies solely by virtue of their 
shareholdings, no additional relief is necessary.
    9. Applicants submit that 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 an 
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 an insurance company may 
disregard the voting instructions of its contract owners if the 
contract owners initiate any change in an underlying fund's investment 
policies, principal underwriter, or any investment adviser (provided 
that disregarding such voting instructions is reasonable and subject to 
the other provisions of 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. Applicants assert that Rule 6e-2 recognizes that a variable 
life insurance contract is an insurance contract; it has important 
elements unique to insurance contracts; and it is subject to extensive 
state regulation of insurance. In adopting Rule 6e-2(b)(15)(iii), the 
Commission expressly recognized that state insurance regulators have 
authority, pursuant to state insurance laws or regulations, to 
disapprove or require changes in investment policies, investment 
advisers, or principal underwriters. The Commission also expressly 
recognized that state insurance regulators have authority to require an 
insurer to draw from its general account to cover costs imposed upon 
the insurer by a change approved by contract owners over the insurer's 
objection. The Commission therefore deemed such exemptions necessary 
``to assure the solvency of the life insurer and performance of its 
contractual obligations by enabling an insurance regulatory authority 
or the life insurer to act when certain proposals reasonably could be 
expected to increase the risks undertaken by the life insurer.'' In 
this respect, flexible premium variable life insurance contracts are 
identical to scheduled premium variable life insurance contracts; 
therefore, Rule 6e-3(T)'s corresponding provisions presumably were 
adopted in recognition of the same factors. State insurance regulators 
have much the same authority with respect to variable annuity separate 
accounts as they have with respect to variable life insurance separate 
accounts. Insurers generally assume both mortality and expense risks 
under variable annuity contracts. Therefore, variable annuity contracts 
pose some of the same kinds of risks to insurers as variable life 
insurance contracts. The Commission staff has not addressed the general 
issue of state insurance regulators' authority in the context of 
variable annuity contracts, and has not developed a single 
comprehensive exemptive rule for variable annuity contracts.
    11. Applicants assert that the Insurance Investment Companies' sale 
of shares to Qualified Plans, the Manager or General Accounts will not 
have any impact on the relief requested herein in this regard. Shares 
of the Insurance Investment Companies sold to Qualified Plans would be 
held by the trustees of such Plans. The exercise of voting rights by 
Qualified Plans, whether by the trustees, by participants, by 
beneficiaries, or by investment managers engaged by the Plans, does not 
present the type of issues respecting the disregard of voting rights 
that are presented by variable life separate accounts. With respect to 
the Qualified Plans, which are not registered as investment companies 
under the 1940 Act, there is no requirement to pass through voting 
rights to Plan participants. Similarly, the Manager and General 
Accounts are not subject to any pass-through voting requirements. 
Accordingly, unlike the case with Separate Accounts, the issue of the 
resolution of material irreconcilable conflicts with respect to voting 
is not present with Qualified Plans, the Manager or General Accounts.
    12. Applicants assert that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. A particular state insurance regulatory body could require 
action that is inconsistent with the requirements of other states in 
which the insurance company offers its policies. The fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem.
    13. Applicants further assert that shared funding by unaffiliated 
Participating Insurance Companies is, in this respect, no different 
than the use of the same investment company as the funding vehicle for 
affiliated Participating Insurance Companies, which Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) permit under various circumstances. Affiliated 
Participating Insurance Companies may be domiciled in different states 
and be subject to differing state law requirements. Affiliation does 
not reduce the potential, if any exists, for differences in state 
regulatory requirements. In any event, the conditions discussed below 
are designed to safeguard against and provide procedures for resolving 
any adverse effects that differences among state regulatory 
requirements may produce.
    14. Applicants maintain that the right under Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) of an insurance company to disregard contract owners' 
voting instructions does not raise any issues different from those 
raised by the authority of state insurance administrators over separate 
accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can 
disregard contract owner voting instructions only with respect to 
certain specified items and under certain specified conditions. 
Affiliation does not eliminate the potential, if any exists, for 
divergent judgments as to the advisability or legality of a change in 
investment policies, principal underwriter, or investment adviser 
initiated by contract owners. The potential for disagreement is limited 
by the requirements in Rules 6e-2 and 6e-3(T) that the insurance 
company's disregard of voting instructions be reasonable and based on 
specific good faith determinations. However, a particular Participating 
Insurance Company's disregard of voting instructions nevertheless could 
conflict with the majority of contract owner voting instructions. The 
Participating Insurance Company's action could arguably be different 
than the determination of all or some of the other Participating 
Insurance Companies (including affiliated insurers) that the contract 
owners' voting instructions should prevail, and could either preclude a 
majority vote approving the change or could represent a minority view. 
If the Participating Insurance Company's judgment represents a minority 
position or would preclude a majority vote, the Participating Insurance 
Company may be required, at an Insurance Investment Company's election, 
to withdraw its separate account's investment in that Insurance 
Investment Company, and no

[[Page 76425]]

charge or penalty would be imposed as a result of such withdrawal.
    15. With respect to voting rights, Applicants assert that it is 
possible to provide an equitable means of giving such voting rights to 
contract owners and to Qualified Plans, the Manager or General 
Accounts. The transfer agent(s) for the Insurance Investment Companies 
will inform each shareholder, including each separate account, each 
Qualified Plan, the Manager and each General Account, of its share 
ownership, in an Insurance Investment Company. Each Participating 
Insurance Company will then solicit voting instructions in accordance 
with the ``pass-through'' voting requirement. Investment by Qualified 
Plans or General Accounts in any Insurance Investment Company will 
similarly present no conflict. The likelihood that voting instructions 
of insurance company contract owners will ever be disregarded or the 
possible withdrawal referred to immediately above is extremely remote 
and this possibility will be known, through prospectus disclosure, to 
any Qualified Plan or General Account choosing to invest in an 
Insurance Fund. Moreover, even if a material irreconcilable conflict 
involving Qualified Plans or General Accounts arises, the Qualified 
Plans or General Accounts may simply redeem their shares and make 
alternative investments.
    16. Applicants assert that there is no reason that the investment 
policies of an Insurance Fund would or should be materially different 
from what they would or should be if such Insurance Fund funded only 
variable annuity contracts or variable life insurance policies, whether 
flexible premium or scheduled premium policies. Each type of insurance 
product is designed as a long-term investment program. Similarly, the 
investment strategy of Qualified Plans and General Accounts (i.e., 
long-term investment) coincides with that of variable contracts and 
should not increase the potential for conflicts. Each of the Insurance 
Funds will be managed to attempt to achieve its investment objective, 
and not to favor or disfavor any particular Participating Insurance 
Company or type of insurance product or other investor. There is no 
reason to believe that different features of various types of contracts 
will lead to different investment policies for different types of 
variable contracts. The sale and ultimate success of all variable 
insurance products depends, at least in part, on satisfactory 
investment performance, which provides an incentive for the 
Participating Insurance Company to seek optimal investment performance.
    17. Furthermore, Applicants assert that no one investment strategy 
can be identified as appropriate to a particular insurance product. 
Each pool of variable annuity and variable life insurance contract 
owners is composed of individuals of diverse financial status, age, 
insurance needs and investment goals. An Insurance Fund supporting even 
one type of insurance product must accommodate these diverse factors in 
order to attract and retain purchasers. Permitting mixed and shared 
funding will provide economic justification for the growth of the 
Insurance Investment Company. In addition, permitting mixed and shared 
funding will facilitate the establishment of additional Insurance Funds 
serving diverse goals. The broader base of contract owners and 
shareholders can also be expected to provide economic justification for 
the creation of additional series of each Insurance Investment Company 
with a greater variety of investment objectives and policies.
    18. Applicants maintain that Section 817(h) of the Code is the only 
section in the Code where separate accounts are discussed. Section 
817(h) imposes certain diversification standards on the underlying 
assets of variable annuity contracts and variable life contracts held 
in the portfolios of management investment companies. Treasury 
Regulation 1.817-5, which established diversification requirements for 
such portfolios, specifically permits, in paragraph (f)(3), among other 
things, ``qualified pension or retirement plans,'' ``the general 
account of a life insurance company,'' ``the manager * * * of an 
investment company'' and separate accounts to share the same underlying 
management investment company. Applicants therefore have concluded that 
neither the Code nor the Treasury Regulations nor Revenue Rulings 
thereunder present any inherent conflicts of interest if Qualified 
Plans, Separate Accounts, the Manager and General Accounts all invest 
in the same underlying fund.
    19. Applicants maintain that the ability of the Insurance 
Investment Companies to sell their shares directly to Qualified Plans, 
the Manager or General Accounts does not create a ``senior security,'' 
as such term is defined under Section 18(g) of the 1940 Act, with 
respect to any variable contract, Qualified Plan, Manager or General 
Accounts. As noted above, regardless of the rights and benefits of 
contract owners or Qualified Plan participants, the Separate Accounts, 
Qualified Plans, the Manager and the General Accounts have rights only 
with respect to their respective shares of the Insurance Investment 
Companies. They can only redeem such shares at net asset value. No 
shareholder of any of the Insurance Investment Companies has any 
preference over any other shareholder with respect to distribution of 
assets or payment of dividends.
    20. Applicants considered whether there is a potential for future 
conflicts of interest between Participating Separate Accounts and 
Qualified 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 participants under Qualified Plans and 
contract owners of Participating Separate Accounts from possible future 
changes in the federal tax laws than that which already exists between 
variable annuity contract owners and variable life insurance contract 
owners.
    21. Applicants assert that permitting an Insurance Investment 
Company to sell its shares to the Manager in compliance with Treas. 
Reg. 1.817-5 will enhance Insurance Investment Company management 
without raising significant concerns regarding material irreconcilable 
conflicts.
    22. Applicants submit that given the conditions of Treas. Reg. 
1.817-5(i)(3) and the harmony of interest between an Insurance 
Investment Company, on the one hand, and its Manager(s) or a 
Participating Insurance Company, on the other, little incentive for 
overreaching exists. Applicants assert that such investments should not 
implicate the concerns discussed above regarding the creation of 
material irreconcilable conflicts. Instead, Applicants assert that 
permitting investment by the Manager or General Accounts will permit 
the orderly and efficient creation and operation of Insurance 
Investment Companies, and reduce the expense and uncertainty of using 
outside parties at the early stages of Insurance Investment Company 
operations.
    23. Applicants assert that various factors have limited the number 
of insurance companies that offer variable contracts. These factors 
include the costs of organizing and operating a funding medium, the 
lack of expertise with respect to investment management (principally 
with respect to stock and money market investments) and the lack of 
name recognition by the public of certain Participating Insurance 
Companies as investment experts. In particular, some smaller life 
insurance companies may not find it economically feasible, or within 
their investment or administrative expertise, to enter the variable 
contract business on their own. Use of the Insurance Investment

[[Page 76426]]

Companies as a common investment medium for variable contracts, 
Qualified Plans and General Accounts would help alleviate these 
concerns, because Participating Insurance Companies, Qualified Plans 
and General Accounts will benefit not only from the administrative 
expertise of Advisors and its affiliates, as well as the investment 
expertise of any investment manager to an Insurance Fund, but also from 
the cost efficiencies and investment flexibility afforded by a large 
pool of funds. Therefore, making the Insurance Investment Companies 
available for mixed and shared funding and permitting the purchase of 
Insurance Investment Company shares by Qualified Plans and General 
Accounts may encourage more insurance companies to offer variable 
contracts, and this should result in increased competition with respect 
to both variable contract design and pricing, which can be expected to 
result in more product variation and lower charges. Mixed and shared 
funding also may benefit variable contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate funds. Furthermore, granting the requested relief should 
result in an increased amount of assets available for investment by the 
Insurance Investment Companies. This may benefit variable contract 
owners by promoting economies of scale, by reducing risk through 
greater diversification due to increased money in the Insurance 
Investment Companies, or by making the addition of new Insurance Funds 
more feasible.
    Applicants' Conditions:
    Applicants and the Manager 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 Insurance Investment 
Company that relies on the order:
    1. A majority of the Board of Trustees or Board of Directors 
(``Board'') of each Insurance Investment Company shall consist of 
persons who are not ``interested persons'' of the Insurance Investment 
Company, 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 
(``Independent Board Members''), except that if this condition is not 
met by reason of the death, disqualification, or bona fide resignation 
of any trustee or director, then the operation of this condition shall 
be suspended: (i) For a period of 90 days if the vacancy or vacancies 
may be filled by the Board; (ii) for a period of 150 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (iii) for 
such longer period as the Commission may prescribe by order upon 
application or by future rule.
    2. The Board of each Insurance Investment Company will monitor the 
Insurance Investment Company for the existence of any material 
irreconcilable conflict among and between the interests of the contract 
owners of all Separate Accounts, participants of Qualified Plans, the 
Manager or General Accounts investing in that Insurance Investment 
Company, 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: (i) An action by any state insurance 
regulatory authority; (ii) 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; 
(iii) an administrative or judicial decision in any relevant 
proceeding; (iv) the manner in which the investments of any Insurance 
Fund are being managed; (v) a difference in voting instructions given 
by variable annuity contract owners, variable life insurance contract 
owners, and trustees of the Qualified Plans; (vi) a decision by a 
Participating Insurance Company to disregard the voting instructions of 
contract owners; or (vii) if applicable, a decision by a Qualified 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 all 
Insurance Investment Companies), a Manager, and any trustee on behalf 
of any Qualified Plan that executes a fund participation agreement upon 
becoming an owner of 10% or more of the assets of an Insurance 
Investment Company (``Participating Qualified Plan'') (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 by each Participating Insurance 
Company to inform the Board whenever contract owner voting instructions 
are disregarded and, if pass-through voting is applicable, an 
obligation by each trustee for a Qualified Plan that is a Participant 
to inform the Board whenever it has determined to disregard Plan 
participant voting instructions. The responsibility to report such 
information and conflicts and to assist the Board will be a contractual 
obligation of all Participating Insurance Companies under their 
agreements governing participation in the Insurance Investment Company, 
and such 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 Participating Qualified Plans under 
their agreements governing participation in the Insurance Investment 
Company, and such agreements will provide that these responsibilities 
will be carried out with a view only to the interests of Qualified Plan 
participants.
    4. If it is determined by a majority of the Board of an Insurance 
Investment Company, or a majority of its Independent Board Members, 
that a material irreconcilable conflict exists, the relevant 
Participant shall, at its expense and to the extent reasonably 
practicable (as determined by a majority of the Independent Board 
Members), take whatever steps are necessary to remedy or eliminate the 
material irreconcilable conflict, up to and including: (i) Withdrawing 
the assets allocable to some or all of the Separate Accounts from the 
relevant Insurance Investment Company or any series therein and 
reinvesting such assets in a different investment medium (including 
another Insurance Fund, if any); (ii) in the case of Participating 
Insurance Companies, submitting the question of whether such 
segregation should be implemented to a vote of all affected contract 
owners and, as appropriate, segregating the assets of any appropriate 
group (i.e., variable annuity contract owners or variable life 
insurance contract owners of one or more Participating Insurance 
Companies) that votes in favor of such segregation, or offering to the 
affected contract owners the option of making such a change; (iii) 
withdrawing the assets allocable to some or all of the Qualified Plans 
from the affected Insurance Investment Company or any Insurance Fund 
and reinvesting those assets in a different investment medium; and (iv) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a Participating Insurance Company's decision to disregard contract 
owner voting instructions and that decision represents a minority 
position or would preclude a majority vote, the

[[Page 76427]]

Participating Insurance Company may be required, at the Insurance 
Investment Company's election, to withdraw its Separate Account's 
investment in the Insurance Investment Company, and no charge or 
penalty will be imposed as a result of such withdrawal. If a material 
irreconcilable conflict arises because of a Qualified Plan's decision 
to disregard Plan participant voting instructions, if applicable, and 
that decision represents a minority position or would preclude a 
majority vote, the Qualified Plan may be required, at the election of 
the Insurance Investment Company, to withdraw its investment in the 
Insurance Investment Company, and no charge or penalty will be imposed 
as a result of such withdrawal. The responsibility to take remedial 
action in the event of a Board determination of a material 
irreconcilable conflict and to bear the cost of such remedial action 
shall be a contractual obligation of all Participants under their 
agreements governing participation in the Insurance Investment Company, 
and these responsibilities will be carried out with a view only to the 
interests of the contract owners or Plan participants.
    For the purposes of this Condition (4), a majority of the 
Independent Board Members shall determine whether or not any proposed 
action adequately remedies any material irreconcilable conflict, but in 
no event will the Insurance Investment Company or its Manager be 
required to establish a new funding medium for any variable contract. 
No Participating Insurance Company shall be required by this Condition 
(4) to establish a new funding medium for any variable contract if an 
offer to do so has been declined by vote of a majority of contract 
owners materially and adversely affected by the material irreconcilable 
conflict. No Qualified Plan shall be required by this Condition (4) to 
establish a new funding medium for such Qualified Plan if (i) a 
majority of Qualified Plan participants materially and adversely 
affected by the material irreconcilable conflict vote to decline such 
offer or (ii) pursuant to governing Qualified Plan documents and 
applicable law, the Qualified Plan makes such decision without 
Qualified Plan participant vote.
    5. The Board's determination of the existence of a material 
irreconcilable conflict and its implications shall be made known 
promptly in writing to all Participants.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners whose contracts are 
funded through a registered Separate Account 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 Participating 
Insurance Companies, where applicable, will vote shares of each 
Insurance Fund held in their Separate Accounts in a manner consistent 
with voting instructions timely received from such contract owners. 
Participating Insurance Companies shall be responsible for assuring 
that each of their Separate Accounts investing in an Insurance 
Investment Company calculates voting privileges in a manner consistent 
with all other Participating Insurance Companies, as instructed by the 
Insurance Investment Company.
    The obligation to calculate voting privileges as provided in this 
Application shall be a contractual obligation of all Participating 
Insurance Companies under their agreements governing participation in 
the Insurance Investment Company. 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 Plan will 
vote as required by applicable law and governing Plan documents.
    7. As long as the 1940 Act requires pass-through voting privileges 
to be provided to variable contract owners or the Commission interprets 
the 1940 Act to require the same, a Manager and any General Account 
will vote their respective shares in the same proportion as all 
variable contract owners having voting rights with respect to that 
Insurance Investment Company or Insurance Fund, as the case may be; 
provided, however, that a Manager or any General Account shall vote its 
shares in such other manner as may be required by the Commission or its 
staff.
    8. An Insurance Fund will make its shares available to a Separate 
Account and/or Qualified Plans at or about the same time it accepts any 
seed capital from any Manager or any General Account of a Participating 
Insurance Company.
    9. An Insurance Investment Company will notify all Participants 
that disclosure regarding potential risks of mixed and shared funding 
may be appropriate in prospectuses for any of the Separate Accounts and 
in Plan disclosure documents. Each Insurance Investment Company will 
disclose in its prospectus that: (i) Shares of the Insurance Investment 
Company may be offered to insurance company Separate Accounts that fund 
both variable annuity and variable life insurance contracts, and to 
Qualified Plans; (ii) due to differences of tax treatment or other 
considerations, the interests of various contract owners participating 
in the Insurance Investment Company and the interests of Qualified 
Plans or General Accounts investing in the Insurance Investment Company 
might at some time be in conflict; and (iii) the Board will monitor 
events in order to identify the existence of any material 
irreconcilable conflicts and to determine what action, if any, should 
be taken in response to any such conflict.
    10. All reports received by the Board of potential or existing 
conflicts, and all Board action with regard to determining the 
existence of a conflict, notifying Participants of a conflict, and 
determining whether any proposed action adequately remedies a conflict, 
will be properly recorded in the minutes of the Board or other 
appropriate records, and such minutes or other records shall be made 
available to the Commission upon request.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the 1940 
Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief 
from any provision of the 1940 Act or the rules thereunder with respect 
to mixed or shared funding on terms and conditions materially different 
from any exemptions granted in the order requested in this Application, 
then each Insurance Investment Company and/or the Participating 
Insurance Companies, as appropriate, shall take such steps as may be 
necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and 
Rule 6e-3, as adopted, to the extent such rules are applicable.
    12. Each Insurance Investment Company will comply with all 
provisions of the 1940 Act requiring voting by shareholders (which, for 
these purposes, shall be the persons having a voting interest in the 
shares of that Insurance Investment Company or Insurance Fund, as the 
case may be), and in particular each Insurance Investment Company will 
either provide for annual meetings (except insofar as the Commission 
may interpret Section 16 of the 1940 Act not to require such meetings) 
or comply with Section 16(c) of the 1940 Act (although each Insurance 
Investment Company is not, or will not be, one of the trusts described 
in Section 16(c) of the 1940 Act) as well as with Section 16(a) of the 
1940 Act and, if and when applicable, Section 16(b) of the 1940 Act. 
Further, each Insurance Investment Company

[[Page 76428]]

will act in accordance with the Commission's interpretation of the 
requirements of Section 16(a) of the 1940 Act with respect to periodic 
elections of directors (or trustees) and with whatever rules the 
Commission may promulgate with respect thereto.
    13. Each Participant shall at least annually submit to the Board of 
an Insurance Investment Company such reports, materials or data as the 
Board may reasonably request so that it may fully carry out the 
obligations imposed upon it by the conditions contained in this 
Application. Such reports, materials and data shall 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 
of the Insurance Investment Company when it so reasonably requests, 
shall be a contractual obligation of the Participants under their 
agreements governing participation in each Insurance Investment 
Company.
    14. Each Insurance Investment Company will not accept a purchase 
order from a Qualified Plan if such purchase would make the Qualified 
Plan an owner of 10% or more of the assets of the Insurance Investment 
Company unless the trustee for such Plan executes a participation 
agreement with such Insurance Investment Company which includes the 
conditions set forth herein to the extent applicable. A trustee for a 
Qualified Plan will execute an application containing an acknowledgment 
of this condition at the time of such Plan's initial purchase of the 
shares of any Insurance Investment Company or Insurance Fund.
    Conclusion: Applicants submit that, for the reasons summarized 
above, 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, 
under delegated authority.
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-29697 Filed 12-15-08; 8:45 am]

BILLING CODE 8011-01-P
