[Federal Register Volume 72, Number 36 (Friday, February 23, 2007)]
[Notices]
[Pages 8209-8215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-3068]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27701; File No. 812-13272]


Wilshire Variable Insurance Trust, et al.; Notice of Application

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

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

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APPLICANTS:  Wilshire Variable Insurance Trust (the ``Trust'') and 
Wilshire Associates Incorporated (``Wilshire'' and together with the 
Trust, ``Applicants'').

SUMMARY OF APPLICATION:  Applicants seek an order exempting them 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 other 
investment company or portfolio that is designed to fund insurance 
products and for which Wilshire or any of its affiliates may serve in 
the future as investment adviser, manager, principal underwriter, 
sponsor, or administrator (``Future Trusts'') (the Trust, together with 
Future Trusts, the ``Trusts'') to be sold to and held by: (a) Separate 
accounts funding variable annuity and variable life insurance contracts 
(collectively the ``Variable Contracts'') issued by both affiliated and 
unaffiliated life insurance companies; (b) trustees of qualified group 
pension and group retirement plans (``Qualified Plans'') outside of the 
separate account context; (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) Wilshire and any 
affiliate of Wilshire that serves as an investment adviser, manager, 
principal underwriter, sponsor or administrator for the purpose of 
providing seed capital (collectively, ``Wilshire Entities''); (e) any 
other insurance company general accounts permitted to hold shares of 
the Trusts pursuant to Treasury Regulation Section 1.817-5 (``General 
Accounts'').

FILING DATE:  The application was filed on April 4, 2006 and amended on 
November 1, 2006.

HEARING OR NOTIFICATION OF HEARING:  An order granting the application 
will be issued unless the Commission orders

[[Page 8210]]

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 March 14, 2007, and should be 
accompanied by proof of service on Applicants in the form of an 
affidavit or, for lawyers, a certificate of service. Hearing requests 
should State the nature of the requester's interest, the reason for the 
request, and the issues contested. Persons who wish to be notified of a 
hearing may request notification by writing to the Secretary of the 
Commission.

ADDRESSES:  Secretary, SEC, 100 F Street, NE., Washington, DC 20549-
1090. Applicants, Lawrence E. Davanzo, c/o Wilshire Associates 
Incorporated, 1299 Ocean Avenue, Suite 700, Santa Monica, California 
90401.

FOR FURTHER INFORMATION CONTACT:  Sally Samuel, 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 may be obtained for a fee from 
the SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549 (tel. (202) 551-8090).

Applicants' Representations

    1. The Trust is registered with the Commission as an open-end 
management investment company and is organized as a Delaware statutory 
trust. Wilshire, a California corporation, is registered with the 
Commission as an investment adviser under the Investment Advisers Act 
of 1940, as amended, and serves as the investment adviser to the Trust. 
The Trust currently consists of, and offers shares of beneficial 
interest (``shares'') representing interests in, fourteen separate 
investment portfolios (each, a ``Portfolio,'' and collectively, the 
``Portfolios''). The Trust or any Future Trusts may offer one or more 
additional investment portfolios in the future (also referred to as 
``Portfolios'').
    2. Shares of the Portfolios will be offered to separate accounts of 
affiliated and unaffiliated insurance companies (each, a 
``Participating Insurance Company'') as investment vehicles to fund 
Variable Contracts. These separate accounts will be registered as 
investment companies under the 1940 Act or will be exempt from such 
registration (individually, a ``Separate Account'' and collectively, 
the ``Separate Accounts''). Shares of the Portfolios may also be 
offered to Qualified Plans, Wilshire Entities and General Accounts.
    3. The Participating Insurance Companies at the time of their 
investment in the Trusts either have established or will establish 
their own Separate Accounts and have designed or will design their own 
Variable Contracts. Each Participating Insurance Company has or will 
have the legal obligation of satisfying all applicable requirements 
under both State and Federal law. Each Participating Insurance Company, 
on behalf of its Separate Accounts, has entered or will enter into an 
agreement with the Trusts concerning such Participating Insurance 
Company's participation in the Portfolios. The role of the Trusts under 
this agreement, insofar as the Federal securities laws are applicable, 
will consist of, among other things, offering shares of the Portfolios 
to the participating Separate Accounts and complying with any 
conditions that the Commission may impose upon granting the order 
requested herein.

Applicants' Legal Analysis

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

[[Page 8211]]

which offer their shares to any such life insurance company in 
consideration solely for advances made by the life insurer in 
connection with the operation of the separate account.'' Therefore, 
Rule 6e-3(T)(b)(15) permits mixed funding but does not permit shared 
funding.
    5. The relief under Rule 6e-3(T) is available only where shares are 
offered exclusively to variable life insurance separate accounts of a 
life insurer or any affiliated life insurance company, and additional 
exemptive relief is necessary if the shares of the Portfolios are also 
to be sold to Qualified Plans or other eligible holders of shares as 
described above. Applicants note that if shares of the Portfolios were 
sold only to Qualified Plans, exemptive relief under Rule 6e-
3(T)(b)(15) would not be necessary. The relief provided for under this 
section does not relate to Qualified Plans or to a registered 
investment company's ability to sell its shares to Qualified Plans.
    6. Applicants maintain, as discussed below, that there is no policy 
reason for the sale of the Portfolios' shares to Qualified Plans, to 
Wilshire Entities, or General Accounts to result in a prohibition 
against, or otherwise limit, a Participating Insurance Company from 
relying on the relief provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 
However, because the relief under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
is available only when shares are offered exclusively to separate 
accounts, additional exemptive relief may be necessary if the shares of 
the Portfolios are also to be sold to Qualified Plans, Wilshire 
Entities, or General Accounts. Applicants therefore request relief in 
order to have the Participating Insurance Companies enjoy the benefits 
of the relief granted in Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 
Applicants note that if the Portfolios' shares were to be sold only to 
Qualified Plans, Wilshire Entities, or General Accounts and/or separate 
accounts funding variable annuity contracts, exemptive relief under 
Rule 6e-2 and Rule 6e-3(T) would be unnecessary. The relief provided 
for under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not relate to 
Qualified Plans, Wilshire Entities, or General Accounts, or to a 
registered investment company's ability to sell its shares to such 
purchasers.
    7. Section 9(a)(3) of the 1940 Act provides that it is unlawful for 
any company to serve as investment adviser or principal underwriter of 
any registered open-end investment company if an affiliated person of 
that company is subject to a disqualification enumerated in Sections 
9(a)(1) or (2). Rules 6e-2(b)(15)(i) and (ii) and Rules 6e-
3(T)(b)(15)(i) and (ii) under the 1940 Act provide exemptions from 
Section 9(a) under certain circumstances, subject to the limitations 
discussed above on mixed 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 
management company.
    8. 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 recognizes that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the 1940 Act to apply the provisions of Section 9(a) to individuals 
in a large insurance company complex, most of whom will have no 
involvement in matters pertaining to investment companies in that 
organization. The Participating Insurance Companies and Qualified Plans 
are not expected to play any role in the management of the Trusts. 
Those individuals who participate in the management of the Trusts will 
remain the same regardless of which Separate Accounts or Qualified 
Plans invest in the Trusts. Applying the monitoring requirements of 
Section 9(a) of the 1940 Act because of investment by separate accounts 
of other insurers or Qualified Plans would be unjustified and would not 
serve any regulatory purpose.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming the limitations on 
mixed and shared funding are observed. Rules 6e-2(b)(15)(iii)(A) and 
6e-3(T)(b)(15)(iii)(A)(1) provide that the insurance company may 
disregard the voting instructions of its contract owners with respect 
to the investments of an underlying fund, or any contract between such 
a fund and its investment adviser, when required to do so by an 
insurance regulatory authority (subject to the provisions of paragraphs 
(b)(5)(i) and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T), respectively, 
under the 1940 Act). Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard 
the voting instructions of its contract owners if the contract owners 
initiate any change in an underlying fund's investment policies, 
principal underwriter, or any investment adviser (provided that 
disregarding such voting instructions is reasonable and subject to the 
other provisions of paragraphs (b)(5)(ii), (b)(7)(ii)(B), and 
(b)(7)(ii)(C), respectively, of Rules 6e-2 and 6e-3(T) under the 1940 
Act).
    10. Rule 6e-2 under the 1940 Act recognizes that a variable life 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and is subject to extensive State 
regulation of insurance. In adopting Rule 6e-2(b)(15)(iii), the 
Commission expressly recognized that State insurance regulators have 
authority, pursuant to State insurance laws or regulations, to 
disapprove or require changes in investment policies, investment 
advisers, or principal underwriters. The Commission also expressly 
recognized that State insurance regulators have authority to require an 
insurer to draw from its general account to cover costs imposed upon 
the insurer by a change approved by contract owners over the insurer's 
objection. The Commission, therefore, deemed such exemptions necessary 
to assure the life insurer's solvency 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. The sale of Portfolio shares to Qualified Plans, Wilshire 
Entities, and General Accounts will not have any impact on the relief 
requested herein. With respect to the Qualified Plans, which are not 
registered as investment companies under the 1940 Act, there is no 
requirement to pass through voting rights to Qualified Plan 
participants. Indeed, to the contrary, applicable law expressly 
reserves voting rights associated with Qualified Plan assets to certain 
specified persons. Under Section 403(a) of the Employee Retirement 
Income Security Act of 1974, as amended (``ERISA''), shares of a 
portfolio of a fund sold to a Qualified Plan must be held by the 
trustees of the Qualified Plan. Section 403(a) also provides that the 
trustee(s) must have exclusive authority and discretion to manage and 
control the Qualified Plan with two exceptions: (i) When the Qualified 
Plan expressly provides that the trustee(s) are subject to the 
direction of a named fiduciary who is not a trustee, in which case the 
trustees are subject to proper directions made in accordance with the 
terms of the Qualified Plan and not contrary to

[[Page 8212]]

ERISA, and (ii) when the authority to manage, acquire, or dispose of 
assets of the Qualified Plan is delegated to one or more investment 
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the 
above two exceptions stated in Section 403(a) applies, Qualified Plan 
trustees have the exclusive authority and responsibility for voting 
proxies.
    12. Where a named fiduciary to a Qualified Plan appoints an 
investment manager, the investment manager has the responsibility to 
vote the shares held unless the right to vote such shares is reserved 
to the trustees or the named fiduciary. The Qualified Plans may have 
their trustee(s) or other fiduciaries exercise voting rights 
attributable to investment securities held by the Qualified Plans in 
their discretion. Some of the Qualified Plans, however, 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. Similarly, Wilshire Entities and General Accounts 
are not subject to any pass-through voting requirements. Accordingly, 
unlike the case with insurance company separate accounts, the issue of 
resolution of material irreconcilable conflicts with respect to voting 
is not present with Qualified Plans, Wilshire Entities, or General 
Accounts.
    13. Where a Qualified Plan does not provide participants with the 
right to give voting instructions, the trustee or named fiduciary has 
responsibility to vote the shares held by the Qualified Plan. In this 
circumstance, the trustee has a fiduciary duty to vote the shares in 
the best interest of the Qualified Plan participants. Accordingly, even 
if Wilshire or an affiliate of Wilshire were to serve in the capacity 
of trustee or named fiduciary with voting responsibilities, Wilshire or 
its affiliate would have a fiduciary duty to vote those shares in the 
best interest of the Qualified Plan participants.
    14. In addition, even if a Qualified Plan were to hold a 
controlling interest in a Portfolio, Applicants do not believe that 
such control would disadvantage other investors in such Portfolio to 
any greater extent than is the case when any institutional shareholder 
holds a majority of the voting securities of any open-end management 
investment company. In this regard, Applicants submit that investment 
in a Portfolio by a Qualified Plan will not create any of the voting 
complications occasioned by mixed funding or shared funding. Unlike 
mixed funding or shared funding, 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. The purchase of shares of 
Portfolios by Qualified Plans that provide voting rights does not 
present any complications not otherwise occasioned by mixed or shared 
funding.
    16. Shared funding by unaffiliated insurance companies does not 
present any issues that do not already exist where a single insurance 
company is licensed to do business in several or all States. A 
particular State insurance regulatory body could require action that is 
inconsistent with the requirements of other States in which the 
insurance company offers its policies. The fact that different insurers 
may be domiciled in different States does not create a significantly 
different or enlarged problem.
    17. 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) under the 1940 Act 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 insurer will be required to 
withdraw its Separate Account's investment in the affected Trust. This 
requirement will be provided for in agreements that will be entered 
into by Participating Insurance Companies with respect to their 
participation in the relevant Portfolio.
    18. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act give 
the insurance company the right to disregard the voting instructions of 
the contract owners in certain circumstances. Affiliation does not 
eliminate the potential, if any exists, for divergent judgments as to 
the advisability or legality of a change in investment policies, 
principal underwriter, or investment adviser initiated by contract 
owners. The potential for disagreement is limited by the requirements 
in Rules 6e-2 and 6e-3(T) under the 1940 Act that the insurance 
company's disregard of voting instructions be reasonable and based on 
specific good-faith determinations.
    19. A Participating Insurance Company's disregard of voting 
instructions, nevertheless, could conflict with the majority of 
contract owners' voting instructions. The Participating Insurance 
Company's action possibly could be different than the determination of 
all or some of the other insurers (including affiliated insurers) that 
the voting instructions of 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's may be required, at the affected 
Trust's election, to withdraw its Separate Account's investment in such 
Portfolio. No charge or penalty will be imposed as a result of such 
withdrawal. This requirement will be provided for in the agreements 
entered into with respect to participation by the Participating 
Insurance Companies in each Portfolio.
    20. Each Portfolio will be managed to attempt to achieve the 
investment objective or objectives of such Portfolio, and not to favor 
or disfavor any particular Participating Insurance Company or type of 
insurance product. There is no reason to believe that different 
features of various types of contracts, including the ``minimum death 
benefit'' guarantee under certain variable life insurance contracts, 
will lead to different investment policies for different types of 
Variable Contracts. To the extent that the degree of risk may differ as 
between variable annuity contracts and variable life insurance 
policies, the different insurance charges imposed, in effect, adjust 
any such differences and equalize the insurers' exposure in either 
case.
    21. Applicants do not believe that the sale of the shares of the 
Portfolios to Qualified Plans will increase the potential for material 
irreconcilable conflicts of interest between or among different types 
of investors. In particular, Applicants see very little potential for 
such conflicts beyond those which would otherwise exist between 
variable annuity and variable life insurance contract owners. Moreover, 
in considering the appropriateness of the requested relief, Applicants 
have analyzed the following issues to assure themselves that there

[[Page 8213]]

were either no conflicts of interest or that there existed the ability 
by the affected parties to resolve the issues without harm to the 
contract owners in the Separate Accounts or to the participants under 
the Qualified Plans.
    22. Applicants considered whether there are any issues raised under 
the Internal Revnue Code of l986, as amended, (the ``Code''), the 
regulations issued by the Treasury Department (the ``Regulations''), or 
the revenue rulings issued by the Internal Revenue Service (the 
``Revenue Rulings''), if Qualified Plans, variable annuity separate 
accounts, and variable life insurance separate accounts all invest in 
the same underlying fund. Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of Variable 
Contracts held in an underlying mutual fund. The Code provides that a 
Variable Contract shall not be treated as an annuity contract or life 
insurance, as applicable, for any period (and any subsequent period) 
for which the investments are not, in accordance with regulations 
prescribed by the Treasury Department, adequately diversified.
    23. Regulations issued under Section 817(h) provide that, in order 
to meet the statutory diversification requirements, all of the 
beneficial interests in the investment company must be held by the 
segregated asset accounts of one or more insurance companies. However, 
the Regulations contain certain exceptions to this requirement, one of 
which allows shares in an underlying mutual fund to be held by the 
trustees of a qualified pension or retirement plan without adversely 
affecting the ability of such shares also to be held by separate 
accounts of insurance companies in connection with their Variable 
Contracts. Thus, the Regulations specifically permit ``qualified 
pension or retirement plans'' and separate accounts to invest in the 
same underlying fund. For this reason, Applicants have concluded that 
neither the Code, nor Regulations, nor Revenue Rulings thereunder, 
present any inherent conflicts of interest if the Qualified Plans and 
Separate Accounts all invest in the same Portfolio.
    24. Applicants note that while there are differences in the manner 
in which distributions from Variable Contracts and Qualified Plans are 
taxed, these differences will have no impact on the Trusts. When 
distributions are to be made, and a Separate Account or Qualified Plan 
is unable to net purchase payments to make the distributions, the 
Separate Account and Qualified Plan will redeem shares of the relevant 
Portfolio at their respective net asset value in conformity with Rule 
22c-1 under the 1940 Act (without the imposition of any sales charge) 
to provide proceeds to meet distribution needs. A Participating 
Insurance Company then will make distributions in accordance with the 
terms of its Variable Contract, and a Qualified Plan then will make 
distributions in accordance with the terms of the Qualified Plan.
    25. In connection with any meeting of shareholders, the soliciting 
Trust will inform each shareholder, including each Separate Account, 
Qualified Plan, Wilshire Entities, and General Account, of information 
necessary for the meeting, including their respective share of 
ownership in the relevant Portfolio. Each Participating Insurance 
Company then will solicit voting instructions in accordance with Rules 
6e-2 and 6e-3(T), as applicable, and its agreement with the Trusts 
concerning participation in the relevant Portfolio. Shares of a 
Portfolio that are held by Wilshire Entities and any General Account 
will be voted in the same proportion as all Variable Contract owners 
having voting rights with respect to that Portfolio. However, Wilshire 
Entities and any General Account will vote their shares in such other 
manner as the Commission may require. Shares held by Qualified Plans 
will be voted in accordance with applicable law. The voting rights 
provided to Qualified Plans with respect to shares of a Portfolio would 
be no different from the voting rights that are provided to Qualified 
Plans with respect to shares of funds sold to the general public. 
Furthermore, 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 affected Trust, to withdraw its 
investment in such Portfolio, and no charge or penalty will be imposed 
as a result of such withdrawal.
    26. Applicants reviewed whether a ``senior security,'' as such term 
is defined under Section 18(g) of the 1940 Act, is created with respect 
to any Variable Contract owner as opposed to a participant under a 
Qualified Plan, Wilshire Entities, or a General Account. Applicants 
concluded that the ability of the Trusts to sell shares of their 
Portfolios directly to Qualified Plans, Wilshire Entities, or a General 
Account does not create a senior security. ``Senior security'' is 
defined under Section 18(g) of the 1940 Act to include ``any stock of a 
class having priority over any other class as to distribution of assets 
or payment of dividends.'' As noted above, regardless of the rights and 
benefits of participants under Qualified Plans, or contract owners 
under Variable Contracts, the Qualified Plans, Wilshire Entities, 
General Accounts and the Separate Accounts only have rights with 
respect to their respective shares of the Portfolio. They only can 
redeem such shares at net asset value. No shareholder of a Portfolio 
has any preference over any other shareholder with respect to 
distribution of assets or payment of dividends.

Applicants' Conditions

    Applicants and the Wilshire Entities agree that the order granting 
the requested relief shall be subject to the following conditions which 
shall apply to the Trust as well as any Future Trust that relies on the 
order:
    1. A majority of the Board of Trustees (the ``Board'') of the Trust 
will consist of persons who are not ``interested persons'' of the 
Trust, as defined by Section 2(a)(19) of the 1940 Act, and the rules 
thereunder, and as modified by any applicable orders of the Commission, 
except that if this condition is not met by reason of the death, 
disqualification, or bona fide resignation of any trustee or trustees, 
then the operation of this condition will be suspended: (a) For a 
period of 90 days if the vacancy or vacancies may be filled by the 
Board; (b) for a period of 150 days if a vote of shareholders is 
required to fill the vacancy or vacancies; or (c) for such longer 
period as the Commission may prescribe by order upon application or by 
future rule.
    2. The Board will monitor the Trust 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 such Trust, and determine what action, if any, should be 
taken in response to such conflicts. A material irreconcilable conflict 
may arise for a variety of reasons, including: (a) An action by any 
State insurance regulatory authority; (b) a change in applicable 
Federal or State insurance tax, or securities laws or regulations, or a 
public ruling, private letter ruling, no-action or interpretative 
letter, or any similar action by insurance, tax, or securities 
regulatory authorities; (c) an administrative or judicial decision in 
any relevant proceeding; (d) the manner in which the investments of 
such Trust are being managed; (e) a difference in voting instructions 
given by variable annuity contract owners, variable life insurance

[[Page 8214]]

contract owners, and trustees of the Qualified Plans; (f) a decision by 
a Participating Insurance Company to disregard the voting instructions 
of contract owners; or (g) if applicable, a decision by a Qualified 
Plan to disregard the voting instructions of Qualified Plan 
participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of general account assets in a 
Portfolio), Wilshire Entities, and any Qualified Plan that executes a 
participation agreement upon becoming an owner of 10 percent or more of 
the assets of any Portfolio (collectively, ``Participants'') will 
report any potential or existing conflicts to the Board. Participants 
will be responsible for assisting the Board in carrying out the Board's 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This responsibility includes, but is not limited to, an 
obligation 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 Qualified Plan 
to inform the Board whenever it has determined to disregard Qualified 
Plan participant voting instructions. The responsibility to report such 
information and conflicts, and to assist the Board, will be a 
contractual obligation of all Participating Insurance Companies under 
their participation agreements with the Trust, 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 with participation agreements, 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, or a majority of 
the disinterested trustees of the Board, that a material irreconcilable 
conflict exists, then the relevant Participant will, at its expense and 
to the extent reasonably practicable (as determined by a majority of 
the disinterested trustees), take whatever steps are necessary to 
remedy or eliminate the material irreconcilable conflict, up to and 
including: (a) Withdrawing the assets allocable to some or all of the 
Separate Accounts from the relevant Portfolio and reinvesting such 
assets in a different investment vehicle including another Portfolio, 
or in the case of Participating Insurance Company Participants 
submitting the question as to whether such segregation should be 
implemented to a vote of all affected contract owners and, as 
appropriate, segregating the assets of any appropriate group (i.e., 
annuity contract owners or life insurance contract owners of one or 
more Participating Insurance Companies) that votes in favor of such 
segregation, or offering to the affected contract owners the option of 
making such a change; (b) establishing a new registered management 
investment company or managed separate account; and (c) withdrawing the 
assets allocable to some or all of the Qualified Plans from the 
affected Portfolio or Participating Insurance Company and reinvesting 
those assets in a different investment medium. If a material 
irreconcilable conflict arises because of a decision by a Participating 
Insurance Company to disregard contract owner voting instructions, and 
that decision represents a minority position or would preclude a 
majority vote, then the insurer may be required, at the election of the 
Trust, to withdraw such insurer's Separate Account's investment in the 
Trust, 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 Trust, to withdraw its 
investment in the Trust, and no charge or penalty will be imposed as a 
result of such withdrawal. The responsibility to take remedial action 
in the event of a Board determination of a material irreconcilable 
conflict and to bear the cost of such remedial action will be a 
contractual obligation of all Participants under their agreements 
governing participation in the Trust, and these responsibilities will 
be carried out with a view only to the interests of contract owners and 
Qualified Plan participants.
    For purposes of this Condition 4, a majority of the disinterested 
members of the Board will determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but, in no 
event will the Trust or Wilshire, as relevant, be required to establish 
a new funding vehicle for any Variable Contract. No Participating 
Insurance Company will be required by this Condition 4 to establish a 
new funding vehicle for any Variable Contract if any offer to do so has 
been declined by vote of a majority of the contract owners materially 
and adversely affected by the material irreconcilable conflict. 
Further, no Qualified Plan will be required by this Condition 4 to 
establish a new funding vehicle for the Qualified Plan if: (a) A 
majority of the Qualified Plan participants materially and adversely 
affected by the irreconcilable material conflict vote to decline such 
offer, or (b) pursuant to documents governing the Qualified Plan, the 
Qualified Plan makes such decision without a Qualified Plan participant 
vote.
    5. The Board's determination of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participants.
    6. As to Variable Contracts issued by Separate Accounts registered 
under the 1940 Act, Participating Insurance Companies will provide 
pass-through voting privileges to all Variable Contract owners as 
required by the 1940 Act as interpreted by the Commission. However, as 
to Variable Contracts issued by unregistered Separate Accounts, pass-
through voting privileges will be extended to contract owners to the 
extent granted by the issuing insurance company. Accordingly, such 
Participants, where applicable, will vote shares of the applicable 
Portfolio held in their Separate Accounts in a manner consistent with 
voting instructions timely received from Variable Contract owners. 
Participating Insurance Companies will be responsible for assuring that 
each Separate Account investing in a Portfolio calculates voting 
privileges in a manner consistent with other Participants.
    The obligation to calculate voting privileges as provided in this 
Application will be a contractual obligation of all Participating 
Insurance Companies under their agreement with the Trusts governing 
participation in a Portfolio. Each Participating Insurance Company will 
vote shares for which it has not received timely voting instructions, 
as well as shares it owns through 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, Wilshire Entities and any 
General Account will vote their respective shares of any Portfolio in 
the same proportion of all variable contract owners having voting 
rights with respect to that Portfolio; provided;

[[Page 8215]]

however, that any Wilshire Entity or any insurance company General 
Account shall vote its shares in such other manner as may be required 
by the Commission or its staff.
    8. The Trust will comply with all provisions of the 1940 Act 
requiring voting by shareholders, which for these purposes, shall be 
the persons having a voting interest in the shares of the respective 
Portfolio, and, in particular, the Trust will either provide for annual 
meetings (except to the extent that the Commission may interpret 
Section 16 of the 1940 Act not to require such meetings) or comply with 
Section 16(c) of the 1940 Act (although the Trust is not one of the 
funds of the type described in the 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, the Trust will act in 
accordance with the Commission's interpretation of the requirements of 
Section 16(a) with respect to periodic elections of trustees and with 
whatever rules the Commission may promulgate with respect thereto.
    9. The Trust will notify all Participants that Separate Account 
prospectus disclosure or Qualified Plan prospectuses or other Qualified 
Plan disclosure documents regarding potential risks of mixed and shared 
funding may be appropriate. The Trust will disclose in its prospectus 
that (a) Shares of the Trust may be offered to Separate Accounts of 
both variable annuity and variable life insurance contracts and, if 
applicable, to Qualified Plans; (b) due to differences in tax treatment 
and other considerations, the interests of various contract owners 
participating in the Trust and the interests of Qualified Plans 
investing in the Trust, if applicable, may conflict; and (c) the 
Trust'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.
    10. 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 the 
Trust and/or Participating Insurance Companies, as appropriate, shall 
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), or Rule 6e-3, as such rules are applicable.
    11. The Participants, at least annually, will submit to the Board 
such reports, materials, or data as a Board reasonably may request so 
that the trustees of the Board may fully carry out the obligations 
imposed upon the Board by the conditions contained in this application. 
Such reports, materials, and data will be submitted more frequently if 
deemed appropriate by the Board. The obligations of the Participants to 
provide these reports, materials, and data to the Board, when it so 
reasonably requests, will be a contractual obligation of all 
Participants under their agreements governing participation in the 
Portfolios.
    12. All reports of potential or existing conflicts received by the 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants of a conflict, and determining 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the Board or other appropriate 
records, and such minutes or other records shall be made available to 
the Commission upon request.
    13. The Trust will not accept a purchase order from a Qualified 
Plan if such purchase would make the Qualified Plan shareholder an 
owner of 10 percent or more of the assets of such Portfolio unless such 
Qualified Plan executes an agreement with the Trust governing 
participation in such Portfolio that includes the conditions set forth 
herein to the extent applicable. A Qualified Plan or Qualified Plan 
participant will execute an application containing an acknowledgment of 
this condition at the time of its initial purchase of shares of any 
Portfolio.
    14. A Portfolio will make its shares available under a Variable 
Contract and/or Qualified Plan at or about the same time as it accepts 
any seed capital from any Wilshire Entity or any General Account of a 
Participating Insurance Company.

Conclusions

    Applicants submit, based on the grounds summarized above, that the 
exemptions requested are necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-3068 Filed 2-22-07; 8:45 am]
BILLING CODE 8010-01-P