XTF Advisors Trust, et al.; Notice of Application, 23856-23861 [E7-8231]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 83 (Tuesday, May 1, 2007)]
[Notices]
[Pages 23856-23861]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-8231]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27783; File No. 812-13334]


XTF Advisors Trust, et al.; Notice of Application

April 25, 2007.

AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

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

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Applicants: XTF Advisors Trust (the ``Trust'') and XTF Advisors LLC, 
(the ``Investment Advisor''), (collectively the ``Applicants'').

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

Filing Date: The Application was filed on October 17, 2006, and amended 
on April 17, 2007.

Hearing or Notification of Hearing: If no hearing is ordered, the 
requested exemption will be granted. Any interested person may request 
a hearing on this Application, or ask to be notified if a hearing is 
ordered. Any requests must be received by the Commission by 5:30 p.m. 
on May 21, 2007. Request a hearing in writing, giving the nature of 
your interest, the reason for the request, and the issues you contest. 
Serve the Applicants with the request, either personally or by mail, 
and also send it to the Secretary of the Commission, along with proof 
of service by affidavit, or in the case of any attorney-at-law by 
certificate. Request notification of the date of a hearing by writing 
to the Secretary of the Commission.

ADDRESSES: The Commission: Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicants: 
c/o JoAnn Strasser, Esq., Thompson Hine LLP, 312 Walnut St., Suite 
1400, Cincinnati Ohio 45202.

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

SUPPLEMENTARY INFORMATION: The following is a summary of the 
Application; the complete Application is available for a fee from the 
Commission's Public Reference Branch, 100 F Street, NE., Room 1580, 
Washington, DC 20549-1090 (telephone (202) 551-8090).

Applicants' Representations

    1. Each Insurance Fund is registered under the 1940 Act as an open-
end management investment company. The Trust was organized under 
Delaware law on October 10, 2006 and is registered under the 1940 Act 
as a management investment company (File Nos. 811-21971/333-138261).
    2. The Investment Advisor was organized in 2002, under the laws of 
the State of Delaware, and registered with the Commission under the 
Investment Advisors Act of 1940, as amended, in 2005. The sole member 
of the Investment Advisor is XTF L.P., a Delaware limited partnership.
    3. Applicants represent that the Trust intends to, and other 
Insurance Funds may in the future, offer Shares to separate accounts of 
affiliated and unaffiliated insurance companies in order to fund 
various types of insurance products. These separate accounts are, or 
will be, registered as investment companies under the 1940 Act or will 
be exempt from such registration under Section 3(c) of the 1940 Act 
(individually a ``Separate Account'' and collectively the ``Separate 
Accounts''). Insurance companies whose Separate Account(s) may now or 
in the future own Shares are referred to herein as ``Participating 
Insurance Companies.''
    4. Applicants represent that the Participating Insurance Companies 
have established, or will establish, their own Separate Accounts and 
design their own Variable Contracts. Each Participating Insurance 
Company has, or will have, the legal obligation to satisfy all 
applicable requirements under both State and Federal law. Each 
Participating Insurance Company may rely on Rule 6e-2 or Rule 6e-3(T) 
under the 1940 Act, although in connection with the establishment and 
maintenance of Separate Accounts funding variable life insurance 
policies some Participating Insurance Companies may rely on individual 
exemptive orders as well.
    5. Applicants state that each Participating Insurance Company on 
behalf of its Separate Accounts has entered, or will enter, into a 
participation agreement with each Insurance Fund in which it invests 
which will govern participation by the Participating Insurance Company 
in such Insurance Fund (a ``Participation Agreement''). The role of the 
Insurance Fund under this arrangement, insofar as Federal securities 
laws are applicable, will consist of offering Shares to the Separate 
Accounts and fulfilling any conditions that the Commission may impose 
upon granting the order requested herein.
    6. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares to Qualified Plans administered by a Trustee. 
Section 817(h) of the Internal Revenue Code of 1986, as amended (the 
``Code''), imposes certain diversification standards on the underlying 
assets of Separate Accounts funding Variable Contracts. In particular, 
the Code provides that Variable Contracts shall not be treated as an 
annuity contract or life insurance policy for any period (and any 
subsequent period) for which the underlying assets are not, in 
accordance with regulations prescribed by the Treasury Department, 
adequately diversified. On March 2, 1989, the Treasury Department 
issued Treasury Regulations (Treas. Reg. Section 1.817-

[[Page 23857]]

5) that established diversification requirements for Variable 
Contracts, which require the Separate Accounts upon which these 
contracts or policies are based to be diversified as provided in the 
Treasury Regulations. In the case of Separate Accounts that invest in 
underlying investment companies, the Treasury Regulations provide a 
``look through'' rule that permits the Separate Account to look to the 
underlying investment company for purposes of meeting the 
diversification requirements, provided that the beneficial interests in 
the investment company are held only by the segregated asset accounts 
of one or more insurance companies. However, the Treasury Regulations 
also contain certain exceptions to this requirement, one of which 
allows shares in an investment company to be held by the trustee of a 
qualified pension or retirement plan without adversely affecting the 
ability of shares in the same investment company to also be held by 
Separate Accounts funding Variable Contracts (Treas. Reg. Section 
1.817-5(f)(3)(iii)). Another exception allows the investment adviser of 
the investment company and certain companies related to the investment 
adviser to hold shares of the investment company, an exception that is 
often used to provide the capital required by Section 14(a) of the 1940 
Act.
    7. Qualified Plans may choose the Shares offered as the sole 
investment under the Qualified Plan or as one of several investments. 
Qualified Plan participants may or may not be given an investment 
choice depending on the terms of the Qualified Plan itself. Exercise of 
voting rights by participants in any such Qualified Plans, as opposed 
to the trustees of such Qualified Plans, cannot be mandated by the 
Applicants. Each Qualified Plan must be administered in accordance with 
the terms of the Qualified Plan and as determined by its trustee or 
trustees. To the extent permitted under applicable law, an Advisor may 
act as investment adviser or trustee to Qualified Plans that purchase 
Shares.
    8. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares to an Advisor. The Treasury Regulations permit 
such sales as long as the return on Shares held by the Advisor or its 
affiliates is computed in the same manner as for Shares held by the 
Separate Accounts, and the Advisor does not intend to sell the Shares 
to the public. The Treasury Regulations impose an additional 
restriction on sales to an Advisor, who may hold Shares only in 
connection with the creation of an Insurance Fund. Applicants 
anticipate that sales will be made to an Advisor for the purpose of 
providing necessary capital required by Section 14(a) of the 1940 Act. 
Any Shares purchased by an Advisor will automatically be redeemed if 
and when the Advisor's investment advisory agreement terminates.
    9. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares to General Accounts. The Treasury Regulations 
permit sales to General Accounts as long as the return on Shares held 
by General Accounts is computed in the same manner as for Shares held 
by a Separate Account, and the General Accounts do not intend to sell 
the Shares to the Public. Applicants anticipate that sales may be made 
to General Accounts for purposes of creation of the Insurance Funds.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance policies issued through a Separate Account registered as 
a unit investment trust (``UIT'') under the 1940 Act, Rule 6e-2(b)(15) 
provides partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) 
of the 1940 Act. Section 9(a)(2) of the 1940 Act makes it unlawful for 
any company to serve as an investment adviser or principal underwriter 
of any UIT, if an affiliated person of that company is subject to 
disqualification enumerated in Section 9(a)(1) or (2) of the 1940 Act. 
Sections 13(a), 15(a) and 15(b) of the 1940 Act have been deemed by the 
Commission to require ``pass-through'' voting with respect to an 
underlying investment company's shares. Rule 6e-2(b)(15) provides these 
exemptions apply only where all of the assets of the UIT are shares of 
management investment companies ``which offer their shares exclusively 
to variable life insurance separate accounts of the life insurer or of 
any affiliated life insurance company.'' Therefore, the relief granted 
by Rule 6e-2(b)(15) is not available with respect to a scheduled 
premium life insurance Separate Account that owns shares of an 
underlying fund that also offers its shares to a variable annuity 
Separate Account or a flexible premium variable life insurance Separate 
Account of the same company or any other affiliated company. The use of 
a common management investment company as the underlying investment 
vehicle for both variable annuity and variable life insurance Separate 
Accounts of the same life insurance company or of any affiliated life 
insurance company is referred to herein as ``mixed funding.''
    2. The relief granted by Rule 6e-2(b)(15) also is not available 
with respect to a scheduled premium variable life insurance Separate 
Account that owns shares of an underlying fund that also offers its 
shares to Separate Accounts funding Variable Contracts issued by one or 
more unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment vehicle for 
Separate Accounts funding Variable Contracts issued by one or more 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. Moreover, because the relief under Rule 6e-2(b)(15) is available 
only where shares are offered exclusively to variable life insurance 
Separate Accounts of a life insurer or any affiliated life insurance 
company, additional exemptive relief is necessary if the Shares are 
also to be sold to Qualified Plans, an Advisor and General Accounts 
(collectively, ``Eligible Purchasers''). Applicants note that if the 
Shares were sold only to Separate Accounts funding variable annuity 
contracts and/or Eligible Purchasers, exemptive relief under Rule 6e-
2(b)(15) would not be necessary. The relief provided for under this 
section does not relate to Eligible Purchasers or to a registered 
investment company's ability to sell its shares to Eligible Purchasers. 
The use of a common management investment company as the underlying 
investment vehicle for Separate Accounts funding Variable Contracts 
issued by affiliated and unaffiliated insurance companies, and for 
Eligible Purchasers, is referred to herein as ``extended mixed and 
shared funding.''
    4. In connection with flexible premium variable life insurance 
contracts issued through a Separate Account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b)(15) provides partial exemptions from 
Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act. The exemptions 
granted by Rule 6e-3(T)(b)(15) are available only where all the assets 
of the Separate Account consist of the shares of one or more registered 
management investment companies that offer to sell their shares 
``exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance companies, offering either scheduled 
contracts or flexible contracts, or both; or which also offer their 
shares to variable annuity separate accounts of the life insurer or of 
an affiliated life insurance company or which offer their shares to any 
such life insurance company in consideration solely for advances made 
by the life insurer in connection with the operation

[[Page 23858]]

of the separate account.'' Therefore, Rule 6e-3(T)(b)(15) permits mixed 
funding but does not permit shared funding.
    5. Moreover, because the relief under Rule 6e-3(T)(b)(15) is 
available only where Shares are offered exclusively to Separate 
Accounts funding Variable Contracts issued by a life insurer or any 
affiliated life insurance company, additional exemptive relief is 
necessary if the Shares are also to be sold to Eligible Purchasers. 
Applicants note that if the Shares were sold only to Separate Accounts 
funding variable annuity contracts and/or Eligible Purchasers, 
exemptive relief under Rule 6e-3(T)(b)(15) would not be necessary. The 
relief provided for under this section does not relate to Eligible 
Purchasers or to a registered investment company's ability to sell its 
shares to Eligible Purchasers.
    6. Applicants maintain that there is no policy reason for the sale 
of the Shares to Eligible Purchasers to result in a prohibition 
against, or otherwise limit a Participating Insurance Company from 
relying on the relief provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 
However, because the relief under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
is available only when shares are offered exclusively to certain 
Separate Accounts, additional exemptive relief may be necessary if the 
Shares are also to be sold to Eligible Purchasers. Applicants therefore 
request relief in order to have the Participating Insurance Companies 
enjoy the benefits of the relief granted in Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) even where Eligible Purchasers are investing in the 
relevant Insurance Fund. Applicants note that if the Shares were to be 
sold only to Eligible Purchasers, and/or Separate Accounts funding 
variable annuity contracts, exemptive relief under Rule 6e-2(b)(15) and 
Rule 6e-3(T)(b)(15) would be unnecessary. The relief provided for under 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not relate to Eligible 
Purchasers, or to a registered investment company's ability to sell its 
shares to Eligible Purchasers.
    7. Consistent with the Commission's authority under Section 6(c) of 
the 1940 Act to grant exemptive orders to a class or classes of persons 
and transactions, this Application requests relief for the class 
consisting of Participating Insurance Companies and their Separate 
Accounts (and to the extent necessary, investment advisers, principal 
underwriters and depositors of such Separate Accounts).
    8. In effect, the partial relief granted in Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) under the 1940 Act from the requirements of Section 9 of 
the 1940 Act limits the amount of monitoring necessary to ensure 
compliance with Section 9 to that which is appropriate in light of the 
policy and purposes of Section 9. Those rules recognize that it is not 
necessary for the protection of investors or the purposes fairly 
intended by the policy and provisions of the 1940 Act to apply the 
provisions of Section 9(a) to individuals in a large insurance complex, 
most of whom will have no involvement in matters pertaining to 
investment companies in that organization. Applicants assert that it is 
also unnecessary to apply Section 9(a) of the 1940 Act to the many 
individuals in various unaffiliated insurance companies (or affiliated 
companies of Participating Insurance Companies) that may utilize the 
Insurance Fund as investment vehicles for Variable Contracts. 
Applicants argue that there is no regulatory purpose in extending the 
monitoring requirements to embrace a full application of Section 9(a)'s 
eligibility restrictions because of mixed funding or shared funding and 
sales to Qualified Plans, an Advisor or General Accounts. Applicants 
represent that the Participating Insurance Companies and Qualified 
Plans are not expected to play any role in the management of the 
Insurance Funds. Applicants argue that those individuals who 
participate in the management of the Insurance Funds will remain the 
same regardless of which Separate Accounts or Qualified Plans invest in 
the Insurance Funds. Applying the monitoring requirements of Section 
9(a) of the 1940 Act because of investment by Separate Accounts of 
Participating Insurance Companies or Qualified Plans would be 
unjustified and would not serve any regulatory purpose and could reduce 
the net rates of return realized by contract owners and Qualified Plan 
holders due to increased monitoring costs.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from pass-through voting requirements with 
respect to several significant matters, assuming the limitations on 
mixed and shared funding are observed. Rules 6e-2(b)(15)(iii)(A) and 
6e-3(T)(b)(15)(iii)(A) provide that the insurance company may disregard 
the voting instructions of its contract owners with respect to the 
investments of an underlying fund, or any contract between such a fund 
and its investment adviser, when required to do so by an insurance 
regulatory authority (subject to the provisions of Rules 6e-2(b)(5)(i), 
6e-2(b)(7)(ii)(A), 6e-3(T)(b)(5)(i) and 6e-3(T)(b)(7)(ii)(A) under the 
1940 Act). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) 
provide that an insurance company may disregard the voting instructions 
of its contract owners if the contract owners initiate any change in an 
underlying fund's investment policies, principal underwriter or any 
investment adviser (provided that disregarding such voting instructions 
is reasonable and subject to the other provisions of Rules 6e-
2(b)(5)(ii), 6e-2(b)(7)(ii)(B), 6e-2(b)(7)(ii)(C), 6e-3(T)(b)(5)(ii), 
6e-3(T)(b)(7)(ii)(B), and 6e-3(T)(b)(7)(ii)(C) under the 1940 Act).
    10. Rule 6e-2 under the 1940 Act recognizes that a variable 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and is subject to extensive State 
regulation. In adopting Rule 6e-2(b)(15)(iii), the Commission expressly 
recognized that State insurance regulators have authority, pursuant to 
State insurance laws or regulations, to disapprove or require changes 
in investment policies, investment advisers, or principal underwriters. 
The Commission also expressly recognized that State insurance 
regulators have authority to require an insurer to draw from its 
general account to cover costs imposed upon the insurer by a change 
approved by contract owners over the insurer's objection. The 
Commission, therefore, deemed such exemptions necessary ``to assure the 
solvency of the life insurer and performance of its contractual 
obligations by enabling an insurance regulatory authority or the life 
insurer to act when certain proposals reasonably could be expected to 
increase the risks undertaken by the life insurer.'' In this respect, 
flexible premium variable life insurance contracts are identical to 
scheduled premium variable life insurance contracts. Therefore, the 
corresponding provisions of Rule 6e-3(T) under the 1940 Act undoubtedly 
were adopted in recognition of the same factors.
    11. Applicants also assert that the sale of Shares to Qualified 
Plans, an Advisor and General Accounts will not have any impact on the 
relief requested herein. With respect to Qualified Plans, which are not 
registered as investment companies under the 1940 Act, shares of a 
portfolio of an investment company sold to a Qualified Plan must be 
held by the trustee(s) of the Qualified Plan pursuant to Section 403(a) 
of the Employee Retirement Income Security Act (``ERISA''). Applicants 
note that (1) Section 403(a) of ERISA endows Qualified Plan trustees 
with the exclusive authority and responsibility for voting proxies 
provided neither of two enumerated exceptions to that

[[Page 23859]]

provision applies; (2) some of the Qualified Plans may provide for the 
trustee(s), an investment adviser (or advisers), or another named 
fiduciary to exercise voting rights in accordance with instructions 
from participants; and (3) there is no requirement to pass through 
voting rights to Qualified Plan participants.
    12. Applicants argue that an Advisor and General Accounts are 
similar in that they are not subject to any pass-through voting 
requirements. Applicants therefore, conclude that unlike the case with 
insurance company Separate Accounts, the issue of resolution of 
material irreconcilable conflicts with respect to voting is not present 
with Eligible Purchasers.
    13. Applicants represent that where a Qualified Plan does not 
provide participants with the right to give voting instructions, the 
trustee or named fiduciary has responsibility to vote the shares held 
by the Qualified Plan. Accordingly, Applicants argue that even if an 
Advisor or an affiliate of an Advisor were to serve in the capacity of 
trustee or named fiduciary with voting responsibilities, an Advisor or 
its affiliates would have a fiduciary duty to vote relevant Shares in 
the best interest of the Qualified Plan participants.
    14. Further, Applicants assert that even if a Qualified Plan were 
to hold a controlling interest in an Insurance Fund, Applicants do not 
believe that such control would disadvantage other investors in such 
Insurance Fund to any greater extent than is the case when any 
institutional shareholder holds a majority of the voting securities of 
any open-end management investment company. In this regard, Applicants 
submit that investment in an Insurance Fund by a Qualified Plan will 
not create any of the voting complications occasioned by mixed funding 
or shared funding. Unlike mixed funding or shared funding, Qualified 
Plan investor voting rights cannot be frustrated by veto rights of 
insurers or State regulators.
    15. Where a Qualified Plan provides participants with the right to 
give voting instructions, Applicants see no reason to believe that 
participants in Qualified Plans generally or those in a particular 
Qualified Plan, either as a single group or in combination with 
participants in other Qualified Plans, would vote in a manner that 
would disadvantage Variable Contract holders. Applicants assert that 
the purchase of Shares by Qualified Plans that provide voting rights 
does not present any complications not otherwise occasioned by mixed or 
shared funding.
    16. Applicants do not believe that the sale of the Shares to 
Qualified Plans will increase the potential for material irreconcilable 
conflicts of interest between or among different types of investors. In 
particular, Applicants see very little potential for such conflicts 
beyond those that would otherwise exist between Variable Contract 
owners.
    17. Applicants assert that permitting an Insurance Fund to sell its 
shares to an Advisor or to the General Account of a Participating 
Insurance Company will enhance management of each Insurance Fund 
without raising significant concerns regarding material irreconcilable 
conflicts. Unlike the circumstances of many investment companies that 
serve as underlying investment media for variable insurance products, 
an Insurance Fund may be deemed to lack an insurance company 
``promoter'' for purposes of Rule 14a-2 under the 1940 Act. 
Accordingly, any Insurance Funds that are established as new 
registrants may be subject to the requirements of Section 14(a) of the 
1940 Act, which generally requires that an investment company have a 
net worth of $100,000 upon making a public offering of its shares. 
Insurance Funds also will require more limited amounts of initial 
capital in connection with the creation of any new series of Shares and 
the voting of initial Shares of such series on matters requiring the 
approval of Shareholders. A potential source of the requisite initial 
capital is an Insurance Fund's investment adviser or a Participating 
Insurance Company. Either of these parties may have an interest in 
making the requisite capital investment and in participating with an 
Insurance Fund in its organization. However, provision of seed capital 
or the purchase of shares in connection with the management of an 
Insurance Fund by its investment adviser or by a Participating 
Insurance Company may be deemed to violate the exclusivity requirement 
of Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(15).
    18. Given the conditions of Treas. Reg. Section 1.817-5(f)(3) and 
the harmony of interest between an Insurance Fund, on the one hand, and 
an Advisor or a Participating Insurance Company, on the other, 
Applicants assert that little incentive for overreaching exists. 
Applicants further assert that such investment should not implicate the 
concerns discussed above regarding the creation of material 
irreconcilable conflicts. Instead, Applicants argue that permitting 
investments by an Advisor, or by General Accounts, will permit the 
orderly and efficient creation of an Insurance Fund, and reduce the 
expense and uncertainty of using outside parties at the early stages of 
the Insurance Fund's operations.

Applicants' Conditions

    Applicants consent to the following conditions with respect to each 
Insurance Fund:
    1. A majority of the Board of each Insurance Fund will consist of 
persons who are not ``interested persons'' of the Insurance Fund, as 
defined by Section 2(a)(19) of the 1940 Act, and the rules thereunder, 
and as modified by any applicable orders of the Commission, except that 
if this condition is not met by reason of death, disqualification or 
bona fide 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.
    2. The Board of each Insurance Fund will monitor the Insurance Fund 
for the existence of any material irreconcilable conflict between the 
interests of the contract owners of all Separate Accounts and 
participants of all Qualified Plans investing in the Insurance Fund, 
and determine what action, if any should be taken in response to such 
conflicts. A material irreconcilable conflict may arise for a variety 
of reasons, including: (a) An action by any State insurance regulatory 
authority; (b) a change in applicable Federal or State insurance, tax, 
or securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Insurance Fund are being 
managed; (e) a difference in voting instructions given by variable 
annuity contract owners, variable life insurance contract owners, and 
trustees of the Qualified Plans; (f) a decision by a Participating 
Insurance Company to disregard the voting instructions of contract 
owners; or (g) if applicable, a decision by a Qualified Plan to 
disregard the voting instructions of Qualified Plan participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of General Account assets in an 
Insurance Fund), an Advisor, and any Trustee on behalf of any Qualified 
Plan that executes a Participation Agreement upon becoming an owner of 
10 percent or more of the

[[Page 23860]]

assets of an Insurance Fund (collectively, ``Participants'') will 
report any potential or existing conflicts to the Board of the relevant 
Insurance Fund. 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 to 
inform the Board whenever it has determined to disregard Qualified Plan 
participant voting instructions. The responsibility to report such 
information and conflicts, and to assist the Board, will be a 
contractual obligation of all Participating Insurance Companies under 
their Participation Agreement with the relevant Insurance Fund, and 
these responsibilities will be carried out with a view only to the 
interests of the contract owners. The responsibility to report such 
information and conflicts, and to assist the Board, also will be 
contractual obligations of all Qualified Plans under their 
Participation Agreement with the relevant Insurance Fund, and such 
agreements will provide that these responsibilities will be carried out 
with a view only to the interests of Qualified Plan participants.
    4. If it is determined by a majority of the Board of an Insurance 
Fund, or a majority of the disinterested directors/trustees of such 
Board, that a material irreconcilable conflict exists, then the 
relevant Participant will, at its expense and to the extent reasonably 
practicable (as determined by a majority of the disinterested 
directors/trustees), take whatever steps are necessary to remedy or 
eliminate the material irreconcilable conflict, up to and including: 
(a) Withdrawing the assets allocable to some or all of their Separate 
Accounts from the relevant Insurance Fund and reinvesting such assets 
in a different investment vehicle including another Insurance Fund, 
submitting the question as to whether such segregation should be 
implemented to a vote of all affected contract or policy owners and, as 
appropriate, segregating the assets of any appropriate group (i.e., 
variable annuity contract owners or variable life insurance policy 
owners of one or more Participating Insurance Companies) that votes in 
favor of such segregation, or offering to the affected contract or 
policy owners the option of making such a change; and (b) establishing 
a new registered management investment company or managed separate 
account. If a material irreconcilable conflict arises because of a 
decision by a Participating Insurance Company to disregard contract or 
policy owner voting instructions, and that decision represents a 
minority position or would preclude a majority vote, then the 
Participating Insurance Company may be required, at the election of the 
relevant Insurance Fund, to withdraw such Participating Insurance 
Company's Separate Account investments in the Insurance Fund, and no 
charge or penalty will be imposed as a result of such withdrawal. If a 
material irreconcilable conflict arises because of a Qualified Plan's 
decision to disregard Qualified Plan participant voting instructions, 
if applicable, and that decision represents a minority position or 
would preclude a majority vote, the Qualified Plan may be required, at 
the election of the Insurance Portfolio, to withdraw its investment in 
the Insurance Fund, and no charge or penalty will be imposed as a 
result of such withdrawal. The responsibility to take remedial action 
in the event of a Board determination of a material irreconcilable 
conflict and to bear the cost of such remedial action will be a 
contractual obligation of all Participants under their Participation 
Agreement with the relevant Insurance Fund, and these responsibilities 
will be carried out with a view only to the interests of contract or 
policy owners and Qualified Plan participants. For purposes of this 
Condition 4, a majority of the disinterested directors/trustees of the 
Board of each Insurance Fund will determine whether or not any proposed 
action adequately remedies any material irreconcilable conflict, but, 
in no event, will the Insurance Fund or an Advisor, as relevant, be 
required to establish a new funding vehicle for any Variable Contract. 
No Participating Insurance Company will be required by this Condition 4 
to establish a new funding vehicle for any Variable Contract if any 
offer to do so has been declined by vote of a majority of the contract 
or policy owners materially and adversely affected by the material 
irreconcilable conflict. Further, no Qualified Plan will be required by 
this Condition 4 to establish a new funding vehicle for the Qualified 
Plan if: (a) A majority of the Qualified Plan participants materially 
and adversely affected by the irreconcilable material conflict vote to 
decline such offer, or (b) pursuant to documents governing the 
Qualified Plan, the Qualified Plan makes such decision without a 
Qualified Plan participant vote.
    5. The determination by the Board of each Insurance Fund of the 
existence of a material irreconcilable conflict and its implications 
will be made known in writing promptly to all Participants.
    6. As to Variable Contracts issued by Separate Accounts registered 
under the 1940 Act, Participating Insurance Companies will provide 
pass-through voting privileges to all Variable Contract owners as 
required by the 1940 Act as interpreted by the Commission. However, as 
to Variable Contracts issued by unregistered Separate Accounts, pass-
through voting privileges will be extended to contract owners to the 
extent granted by the issuing insurance company. Accordingly, such 
Participants, where applicable, will vote the Shares held in their 
Separate Accounts in a manner consistent with voting instructions 
timely received from Variable Contract owners. Participating Insurance 
Companies will be responsible for assuring that each Separate Account 
investing in the relevant Insurance Fund calculates voting privileges 
in a manner consistent with other Participants. The obligation to 
calculate voting privileges as provided in this Application will be a 
contractual obligation of all Participating Insurance Companies under 
their Participation Agreement with the relevant Insurance Fund. Each 
Participating Insurance Company will vote Shares for which it has not 
received timely voting instructions, as well as Shares held in its 
General Account or otherwise attributed to it, in the same proportion 
as it votes those Shares for which it has received voting instructions. 
Each Qualified Plan will vote as required by applicable law and 
governing Qualified Plan documents.
    7. As long as the 1940 Act requires pass-through voting privileges 
to be provided to Variable Contract owners, an Advisor, who has 
provided seed capital for the Insurance Fund, and any General Account 
will vote their respective Shares in the same proportion as all 
variable contract owners having voting rights with respect to that 
Insurance Fund; provided, however, that an Advisor or any General 
Account shall vote its Shares in such other manner as may be required 
by the Commission or its staff.
    8. Each Insurance Fund will comply with all provisions of the 1940 
Act requiring voting by shareholders, which, for these purposes, shall 
be the persons having a voting interest in the Shares, and, in 
particular, the Insurance Fund will either provide for annual meetings 
(except to the extent that the

[[Page 23861]]

Commission may interpret Section 16 of the 1940 Act not to require such 
meetings) or comply with Section 16(c) of the 1940 Act (although each 
Insurance Fund is not, or will not be, one of those trusts of the type 
described in Section 16(c) of the 1940 Act), as well as with Section 
16(a) of the 1940 Act and, if and when applicable, Section 16(b) of the 
1940 Act. Further, each Insurance Fund will act in accordance with the 
Commission's interpretations of the requirements of Section 16(a) with 
respect to periodic elections of directors/trustees and with whatever 
rules the Commission may promulgate thereto.
    9. An Insurance Fund will make its Shares available to the Separate 
Accounts and Qualified Plans at or about the time it accepts any seed 
capital from an Advisor or General Account of a Participating Insurance 
Company.
    10. Each Insurance Fund has notified, or will notify, all 
Participants that Separate Account prospectus disclosure or Qualified 
Plan prospectuses or other Qualified Plan disclosure documents 
regarding potential risks of mixed and shared funding may be 
appropriate. Each Insurance Fund will disclose in its prospectus that: 
(a) Shares of the Insurance Fund may be offered to Separate Accounts 
funding both variable annuity contracts and variable life insurance 
policies and, if applicable, to Qualified Plans; (b) due to differences 
in tax treatment and other considerations, the interests of various 
contract owners participating in the Insurance Fund and the interests 
of Qualified Plans investing in the Insurance Fund, if applicable, may 
conflict; and (c) the Insurance Fund's Board will monitor events in 
order to identify the existence of any material irreconcilable 
conflicts and to determine what action, if any, should be taken in 
response to any such conflict.
    11. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 
1940 Act are amended, or proposed Rule 6e-3 under the 1940 Act is 
adopted, to provide exemptive relief from any provision of the 1940 
Act, or the rules promulgated thereunder, with respect to mixed or 
shared funding, on terms and conditions materially different from any 
exemptions granted in the order requested in this Application, then 
each Insurance Fund and/or Participating Insurance Companies, as 
appropriate, shall take such steps as may be necessary to comply with 
Rules 6e-2 or 6e-3(T), or Rule 6e-3, as such rules are applicable.
    12. Each Participant, at least annually, will submit to the Board 
of each Insurance Fund such reports, materials or data as the Board 
reasonably may request so that the directors/trustees of the Board may 
fully carry out the obligations imposed upon the Board by the 
conditions contained in this Application. Such reports, materials and 
data will be submitted more frequently if deemed appropriate by the 
Board of an Insurance Fund. The obligations of the Participants to 
provide these reports, materials and data to the Board, when it so 
reasonably requests, will be a contractual obligation of all 
Participants under their Participation Agreement with the relevant 
Insurance Fund.
    13. All reports of potential or existing conflicts received by the 
Board of each Insurance Fund, and all Board action with regard to 
determining the existence of a conflict, notifying Participants of a 
conflict and determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
Board or other appropriate records, and such minutes or other records 
shall be made available to the Commission upon request.
    14. Each Insurance Fund will not accept a purchase order from a 
Qualified Plan if such purchase would make the Qualified Plan an owner 
of 10 percent or more of the assets of the Insurance Fund unless the 
Trustee for such Qualified Plan executes an agreement with the 
Insurance Fund governing participation in the Insurance Fund that 
includes the conditions set forth herein to the extent applicable. A 
Trustee for a Qualified Plan will execute an application containing an 
acknowledgement of this condition at the time of its initial purchase 
of Shares.

Conclusions

    Applicants submit that, for the reasons summarized above and to the 
extent necessary or appropriate to provide for the transactions 
described herein, the requested exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, in accordance with the standards of Section 
6(c) of the 1940 Act, are in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-8231 Filed 4-30-07; 8:45 am]
BILLING CODE 8010-01-P