
[Federal Register Volume 78, Number 205 (Wednesday, October 23, 2013)]
[Notices]
[Pages 63255-63261]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30745; File No. 812-14152]


Arden Investment Series Trust, et al.; Notice of Application

October 17, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application pursuant to Section 6(c) of the 
Investment Company Act of 1940, as amended (the ``1940 Act'' or 
``Act''), seeking 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.

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Applicants: Arden Investment Series Trust (the ``Trust'') and Arden 
Asset Management LLC (``Arden'') (collectively, the ``Applicants'').

Summary of Application: Applicants request an order granting exemptions 
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 in cases where 
a life insurance company separate account supporting variable life 
insurance contracts (``VLI Accounts'') holds shares of Arden Variable 
Alternative Strategies Fund, an existing portfolio of the Trust (the 
``Existing Variable Fund''), or a ``Future Variable Fund,'' \1\ (any 
Existing Variable Fund or Future Variable Fund is referred to herein as 
a ``Fund,'' and collectively, the ``Funds''), and one or more of the 
following other types of investors also hold shares of the Funds: (i) 
Any life insurance company separate account supporting variable annuity 
contracts (``VA Accounts''); (ii) any VLI Account; (iii) trustees of 
qualified group pension or group retirement plans (``Plans'' or 
``Qualified Plans'') outside the separate account context; (iv) the 
investment adviser or any subadviser to a Fund or affiliated persons of 
the adviser or subadviser (representing seed money investments in the 
Fund) (``Advisers''); and (v) any general account of an insurance 
company depositor of VA Accounts and/or VLI Accounts and affiliated 
persons of such insurance company (``General Accounts'').
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    \1\ As used herein, a Future Variable Fund is any investment 
company (or investment portfolio or series thereof), other than the 
Existing Variable Fund, designed to be sold to VA Accounts and/or 
VLI Accounts and to which Applicants or their affiliates may in the 
future serve as investment advisers, investment subadvisers, 
investment managers, administrators, principal underwriters or 
sponsors.

Filing Date: The application was filed on May 2, 2013, and amended and 
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restated on October 2, 2013.

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 November 11, 2013, 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, 375 Park Avenue, 32nd 
Floor, New York, NY 10152.

FOR FURTHER INFORMATION CONTACT: Sonny Oh, Senior Counsel, or Joyce M. 
Pickholz, Branch Chief, Insured Investments Office, Division of 
Investment Management at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search.htm, 
or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust was organized as a Delaware statutory trust on April 
11, 2012 and is registered under the Act as an open-end management 
investment company (Reg. File No. 811-22701). The Trust is a series 
investment company as defined by Rule 18f-2 under the Act and the 
Existing Variable Fund is a series of the Trust. The Trust has 
registered two classes of shares of the Existing Variable Fund under 
the Securities Act of 1933 (the ``1933 Act'') (Reg. File No. 333-
180881) on Form N-1A. The Trust may in the future establish additional 
Funds and additional classes of shares for any of the Funds. Shares of 
the Funds will not be offered to the general public. The existing 
series of the Trust are the Existing Variable Fund, Arden Alternative 
Strategies Fund and Arden Alternative Strategies II. This Application 
seeks exemptive relief only for the Existing Variable Fund and any 
Future Variable Fund of the Trust as defined herein but does not seek 
exemptive relief for the Arden Alternative Strategies Fund or Arden 
Alternative Strategies II because they are not designed to be sold to 
VA Accounts and/or VLI Accounts.
    2. Arden serves as the investment adviser to the Trust and the 
Existing Variable Fund. Arden is a Delaware limited liability company 
and is registered as an investment adviser under the Investment 
Advisers Act of 1940, as amended. Subject to the authority of the Board 
of Trustees of the Trust, Arden is responsible for the overall 
management of the business

[[Page 63256]]

affairs of the Trust and oversees the investment operations of the 
Existing Variable Fund, including the purchase, retention and 
disposition of securities in accordance with the Fund's investment 
objective.
    3. The Existing Variable Fund proposes, and Future Variable Funds 
will propose, to offer their shares to VLI and VA Accounts of various 
life insurance companies (``Participating Insurance Companies'') to 
serve as investment media to support variable life insurance contracts 
and variable annuity contracts (together, ``Variable Contracts'') 
issued through such accounts. 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 Act and 
will be registered as a unit investment trust. For purposes of the Act, 
the Participating 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. There are currently no Participating Insurance Companies.
    5. The Funds will sell their shares to VLI and VA Accounts only if 
each Participating Insurance Company sponsoring such a VLI or VA 
Account enters into a participation agreement with the Funds. The 
participation agreements define or will define the relationship between 
each Fund and each Participating Insurance Company and memorialize or 
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 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 role of the Funds under this arrangement, 
with regard to the federal securities laws, will consist of offering 
and selling shares of the Funds to the separate accounts and fulfilling 
any conditions that the Commission may impose in granting the requested 
order.
    6. 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.''
    7. Applicants propose that the Existing Variable Fund and any 
Future Variable Funds may offer their shares directly to Qualified 
Plans, the Fund's Advisers, and a General Account of any Participating 
Insurance Companies.
    8. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for VLI Accounts, VA 
Accounts, Qualified Plans, Advisers and General Accounts is referred to 
herein as ``extended mixed funding.''

Applicants' Legal Analysis

    1. Section 9(a) 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 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. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the Act provide 
partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
Act to VLI Accounts supporting certain VLI Contracts and to their life 
insurance company depositors under limited circumstances, as described 
in the application. VLI Accounts, their depositors and their principal 
underwriters may not rely on the exemptions provided by Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) if shares of the Fund are held by a VLI 
Account through which certain VLI Contracts are issued, a VLI Account 
of an unaffiliated Participating Insurance Company, an unaffiliated 
Adviser, any VA Account, a Qualified Plan or a General Account. 
Accordingly, Applicants request an order of the Commission granting 
exemptions from 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 in cases where certain 
VLI Account hold shares of the Funds and one or more of the following 
types of investors also hold shares of the Funds: (i) VA Accounts and 
VLI Accounts (supporting scheduled premium or flexible premium VLI 
Contracts) of affiliated and unaffiliated Participating Insurance 
Companies; (ii) Qualified Plans; (iii) Advisers; and/or (iv) General 
Accounts.
    3. Applicants maintain that there is no policy reason for the sale 
of Fund shares to Qualified Plans, Advisers or General Accounts to 
prohibit or otherwise limit a Participating Insurance Company from 
relying on the relief provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 
Nonetheless, Rule 6e-2 and Rule 6e-3(T) each specifically provides that 
the relief granted thereunder is available only where shares of the 
underlying fund are offered exclusively to insurance company separate 
accounts. In this regard, Applicants request exemptive relief to the 
extent necessary to permit shares of the Funds to be sold to Qualified 
Plans, Advisers and General Accounts while allowing Participating 
Insurance Companies and their VA Accounts and VLI Accounts to enjoy the 
benefits of the relief granted under Rule 6e-2(b)(15) and Rule 6e-
3(T)(b)(15). Applicants note that if the Funds were to sell their 
shares only to Qualified Plans, exemptive relief under Rule 6e-2 and 
Rule 6e-3(T) would not be necessary. The relief provided for under Rule 
6e-2(b)(15) and Rule 6e-3(T)(b)(15) does not relate to Qualified Plans, 
Advisers or General Accounts or to a registered investment company's 
ability to sell its shares to such purchasers.
    4. Applicants are not aware of any reason for excluding separate 
accounts and investment companies engaged in shared funding from the 
exemptive relief provided under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), 
or for excluding separate accounts and investment companies engaged in 
mixed funding from the exemptive relief provided under Rule 6e-
2(b)(15). Similarly,

[[Page 63257]]

Applicants are not aware of any reason for excluding Participating 
Insurance Companies from the exemptive relief requested because the 
Funds may also sell their shares to Qualified Plans, Advisers and 
General Accounts. Rather, Applicants submit that the proposed sale of 
shares of the Funds to these purchasers may allow for the development 
of larger pools of assets resulting in the potential for greater 
investment and diversification opportunities, and for decreased 
expenses at higher asset levels resulting in greater cost efficiencies.
    5. For the reasons explained below, Applicants have concluded that 
investment by Qualified Plans, Advisers and General Accounts in the 
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.
    6. Consistent with the Commission's authority under Section 6(c) of 
the Act to grant exemptive orders to a class or classes of persons and 
transactions, Applicants request exemptions for a class consisting of 
Participating Insurance Companies and their separate accounts investing 
in the Existing Variable Fund and Future Variable Funds, as well as 
their principal underwriters, that currently invest or in the future 
will invest in the Funds.
    7. Section 6(c) of the 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 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 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 Act.
    8. Section 9(a)(3) of the 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 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.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 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)).
    10. The Applicants represent that the sale of Fund shares to 
Qualified Plans, Advisers or General Accounts will not have any impact 
on the exemptions requested herein regarding the disregard of pass-
through voting rights. Shares sold to Qualified Plans will be held by 
such Plans. 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 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 as 
disclosed in the application.
    11. Similarly, Advisers and General Accounts are not subject to any 
pass-through voting rights. Accordingly, unlike the circumstances 
surrounding VLI Account and VA Account investments in shares of the 
Funds, the issue of the resolution of any material irreconcilable 
conflicts with respect to voting is not present with respect to 
Advisers or General Accounts of Participating Insurance Companies.
    12. Applicants recognize 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. However, now, under the tax 
code any underlying fund, including the Funds, that sells shares to VA 
Accounts or VLI Accounts, would, in effect, be precluded from also 
selling its shares to the public. Consequently, the Funds may not sell 
their shares to the public.
    13. Applicants assert that the rights of an insurance company on 
its own initiative or on instructions from a state insurance regulator 
to disregard the voting instructions of owners of Variable Contracts is 
not inconsistent with either mixed funding or shared funding. 
Applicants state that 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.
    14. 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 regulator could require action 
that is inconsistent with the requirements of other states in which the 
insurance company offers its contracts. However, the fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem. 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 Fund. This requirement 
will be provided for in the participation agreement that will be 
entered into by Participating Insurance Companies with the relevant 
Fund.

[[Page 63258]]

    15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give Participating 
Insurance Companies 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. 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.
    16. 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 Fund's election, to 
withdraw its VLI Accounts' and VA Accounts' investments in the relevant 
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 Fund.
    17. Applicants assert that there is no reason why the investment 
policies of a Fund would or should be materially different from what 
these policies would or should be if the Fund supported only VA 
Accounts or VLI Accounts, whether flexible premium or scheduled premium 
VLI Contracts. Each type of insurance contract is designed as a long-
term investment program.
    18. Each 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. There is 
no reason to believe that different features of various types of 
Variable Contracts will lead to different 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.
    19. Furthermore, 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. A Fund 
supporting even one type of Variable Contract must accommodate these 
diverse factors in order to attract and retain purchasers. Permitting 
mixed and shared funding will provide economic support for the 
continuation of the Funds. Mixed and shared funding will broaden the 
base of potential Variable Contract owner investors, which may 
facilitate the establishment of additional Funds serving diverse goals.
    20. Applicants do not believe that the sale of the shares to Plans, 
Advisers or General Accounts 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.
    21. Applicants considered whether there are any issues raised under 
the Code, Treasury Regulations, or Revenue Rulings thereunder, if 
Qualified Plans, VA Accounts, VLI Accounts, Advisers and General 
Accounts all invest in the same Fund. Applicants have concluded that 
neither the Code, nor the Treasury Regulations nor Revenue Rulings 
thereunder present any inherent conflicts of interest if Qualified 
Plans, VA Accounts, VLI Accounts, Advisers and General Accounts all 
invest in the same Fund.
    22. Applicants note that, while there are differences in the manner 
in which distributions from separate accounts and Qualified Plans are 
taxed, these differences have no impact on the Funds. When 
distributions are to be made, and a separate account or Plan is unable 
to net purchase payments to make distributions, the separate account or 
Plan will redeem shares of the relevant 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 Variable Contracts, and a Plan will 
then make distributions in accordance with the terms of the Plan.
    23. Applicants considered whether it is possible to provide an 
equitable means of giving voting rights to Variable Contract owners, 
Plans, Advisers and General Accounts. In connection with any meeting of 
Fund shareholders, the Fund will inform each Participating Insurance 
Company (with respect to its separate accounts and general account), 
Adviser, and Qualified Plan of its 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 in accordance with 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 Fund. Shares of a Fund that are held by an 
Adviser or a General Account will generally be in the same proportion 
as all votes cast on behalf of all Variable Contract owners having 
voting rights. However, an Adviser or General Account will vote its 
shares in such other manner as may be required by the Commission or its 
staff. 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 Fund, to withdraw its investment in the Fund, and no 
charge or penalty will be imposed as a result of such withdrawal.
    24. Applicants do not believe that the ability of a Fund to sell 
its shares to a Qualified Plan, Adviser or General Account gives rise 
to a senior security as defined by Section 18(g) of the Act. Regardless 
of the rights and benefits of participants under Plans or owners of 
Variable Contracts, VLI Accounts, VA

[[Page 63259]]

Accounts, Qualified Plans, Advisers and General Accounts only have, or 
will only have, rights with respect to their respective shares of a 
Fund. These parties can only redeem such shares at net asset value. No 
shareholder of a class of the Fund has any preference over any other 
shareholder of the class with respect to distribution of assets or 
payment of dividends.
    25. Applicants do not believe that the veto power of state 
insurance commissioners over certain potential changes to Fund 
investment objectives approved by Variable Contract owners creates 
conflicts between the interests of such owners and the interests of 
Plan participants, Advisers or General Accounts. 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.
    26. Although Participating Insurance Companies may have to overcome 
regulatory impediments in redeeming shares of a Fund held by their 
separate accounts, Applicants state that the Plans and 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 Variable Contract owners and the interests of Plans 
and Plan participants can usually be resolved quickly since the Plans 
can, on their own, redeem their Fund shares. Advisers and General 
Accounts can similarly redeem their shares of a Fund and make 
alternative investments at any time.
    27. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
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 Variable 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.
    28. Applicants recognize that the foregoing is not an all-inclusive 
list, but rather is representative of issues that they believe are 
relevant to this Application. Applicants believe that the sale of Fund 
shares to Qualified Plans would not increase the risk of material 
irreconcilable conflicts between the interests of Plan participants and 
Variable Contract owners or other investors. Further, Applicants submit 
that the use of the Funds with respect to Plans is not substantially 
dissimilar from each Fund's current and anticipated use, in that Plans, 
like separate accounts, are generally long-term investors.
    29. Applicants assert that permitting a Fund to sell its shares to 
an Adviser or to the General Account of a Participating Insurance 
Company for the purpose of obtaining see money will enhance management 
of each Fund without raising significant concerns regarding material 
irreconcilable conflicts among different types of investors.
    30. Various factors have limited the number of insurance companies 
that offer Variable Contracts. These factors include the costs of 
organizing and operating a funding vehicle, certain insurers' lack of 
experience with respect to investment management, and the lack of name 
recognition by the public of certain 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 Funds as a common investment vehicle for Variable 
Contracts would reduce or eliminate these concerns. Mixed and shared 
funding should also provide several benefits to owners of Variable 
Contracts by eliminating a significant portion of the costs of 
establishing and administering separate underlying funds.
    31. Applicants state that the Participating Insurance Companies 
will benefit not only from the investment and administrative expertise 
of the Funds' Adviser, but also from the potential cost efficiencies 
and investment flexibility afforded by larger pools of funds. 
Therefore, making the Funds available for mixed and shared funding will 
encourage more insurance companies to offer Variable Contracts. This 
should result in increased competition with respect to both Variable 
Contract design and pricing, which can in turn be expected to result in 
more product variety. Applicants also assert that sale of shares in a 
Fund to Qualified Plans, in addition to VLI Accounts and VA Accounts, 
will result in an increased amount of assets available for investment 
in a Fund.
    32. Applicants also submit that, regardless of the type of 
shareholder in a Fund, an Adviser is or would be contractually and 
otherwise obligated to manage the Fund solely and exclusively in 
accordance with the Fund's investment objectives, policies and 
restrictions, as well as any guidelines established by the Fund's Board 
of Trustees (the ``Board'').
    33. Applicants assert that sales of Fund shares, as described 
above, will not have any adverse federal income tax consequences to 
other investors in such a Fund.
    34. In addition, Applicants assert 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 Commission order requested herein shall 
be subject to the following conditions:
    1. A majority of the Board of each Fund will consist of persons who 
are not ``interested persons'' of the Fund, as defined by Section 
2(a)(19) of the 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 will monitor a 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 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

[[Page 63260]]

investments of the 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 a Fund), 
the Advisers, and any Plan that executes a participation agreement upon 
its becoming an owner of 10% or more of the assets of a Fund 
(collectively, ``Participants'') will report any potential or existing 
conflicts to the Board. 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 trustee for a 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 a 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 a 
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, or a majority of 
the disinterested trustees of the Board, that a material irreconcilable 
conflict exists, then the relevant Participant will, at its expense and 
to the extent reasonably practicable (as determined by a majority of 
the disinterested trustees), take whatever steps are necessary to 
remedy or eliminate the material irreconcilable conflict, up to and 
including: (a) Withdrawing the assets allocable to some or all of their 
VLI Accounts or VA Accounts from the Fund and reinvesting such assets 
in a different investment vehicle, including another 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 
Contact 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 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 
Fund, to withdraw such Participating Insurance Company's VLI Account 
and VA Account investments in the Fund, and no charge or penalty will 
be imposed as a result of such withdrawal. If a material irreconcilable 
conflict arises because of a 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 Fund, to withdraw its 
investment in the Fund, and no charge or penalty will be imposed as a 
result of such withdrawal. The responsibility to take remedial action 
in the event of a Board determination of a material irreconcilable 
conflict and to bear the cost of such remedial action will be a 
contractual obligation of all Participants under their participation 
agreement with a 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 
trustees of the Board of a Fund will determine whether or not any 
proposed action adequately remedies any material irreconcilable 
conflict, but, in no event, will the 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 determination by the Board 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 the Commission continues to interpret the Act as requiring such 
pass-through voting privileges. 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 
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 a 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 Fund held 
in its VLI or VA Accounts for which no timely voting instructions are 
received, as well as shares held in 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 Commission continues to interpret the Act as 
requiring that pass-through voting privileges be provided to Variable

[[Page 63261]]

Contract owners, a Fund Adviser or any General Account will vote its 
respective 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 Adviser or General Account shall vote 
its shares in such other manner as may be required by the Commission or 
its staff.
    8. Each 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 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 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 
Fund will act in accordance with the Commission's interpretations of 
the requirements of Section 16(a) with respect to periodic elections of 
trustees and with whatever rules the Commission may promulgate 
thereunder.
    9. A 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 Adviser or from the General Account of a Participating 
Insurance Company.
    10. Each 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 Fund will disclose, in its prospectus that: (a) 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 Fund and the interests of Plan participants 
investing in the Fund, if applicable, may conflict; and (c) the Fund's 
Board will monitor events in order to identify the existence of any 
material irreconcilable conflicts 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 proposed 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 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 Fund such reports, materials or data as the Board reasonably 
may request so that the trustees 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. 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 Fund.
    13. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants of a conflict and determining 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the Board or other appropriate 
records, and such minutes or other records shall be made available to 
the Commission upon request.
    14. Each Fund will not accept a purchase order from a Qualified 
Plan if such purchase would make the Plan an owner of 10 percent or 
more of the assets of the Fund unless the Plan executes an agreement 
with the Fund governing participation in the 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.

Conclusion

    Applicants submit, for all of 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 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24770 Filed 10-22-13; 8:45 am]
BILLING CODE 8011-01-P


