23856 Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 

Dated: April 23, 2007. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8196 Filed 4–30–07; 8:45 am] 

BILLING CODE 8010–01–P 

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. 

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– 


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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 


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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 


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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, noaction 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 


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23860 Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 

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 


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Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 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 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meeting 

Notice is hereby given, pursuant to 

the provisions of the Government in the 

Sunshine Act, Public Law 94–409, that 

the Securities and Exchange 

Commission will hold the following 

meeting during the week of April 30, 

2007: 

A Closed Meeting will be held on 

Thursday, May 3, 2007 at 2 p.m. 

Commissioners, Counsel to the 

Commissioners, the Secretary to the 

Commission, and recording secretaries 

will attend the Closed Meeting. Certain 

staff members who have an interest in 

the matters may also be present. 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (4), (5), (7), (8), (9)(B), 

and (10) and 17 CFR 200.402(a)(3), (4), 

(5), (7), (8), 9(ii) and (10), permit 

consideration of the scheduled matters 

at the Closed Meeting. 

Commissioner Casey, as duty officer, 

voted to consider the items listed for the 

closed meeting in closed session. 

The subject matter of the Closed 

Meeting scheduled for Thursday, May 3, 

2007 will be: 

Formal orders of investigations; 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings of an 

enforcement nature; 

Regulatory matters regarding financial 

institutions; an adjudicatory matter; and 

Other matters related to enforcement 

proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have been 

added, deleted or postponed, please 

contact: The Office of the Secretary at 

(202) 551–5400. 

Dated: April 26, 2007. 

Nancy M. Morris, 

Secretary. 

[FR Doc. E7–8309 Filed 4–30–07; 8:45 am] 

BILLING CODE 8010–01–P 


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