[Federal Register Volume 66, Number 113 (Tuesday, June 12, 2001)]
[Notices]
[Pages 31720-31726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14675]



[[Page 31720]]

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SECURITIES AND EXCHANGE COMMISSION

[Docket No. IC-24997; File No. 812-12326]


Met Investors Series Trust, et al.

June 5, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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    Summary of Application: Applicants seek an order to permit shares 
of any current or future series of Met Investors Series Trust (the 
``Trust'') and shares of any other investment company that is designed 
to fund insurance products and for which Met Investors Advisory Corp. 
(``Met Advisory'' or the ``Manager'') or any of its affiliates may in 
the future serve as investment adviser, administrator, manager, 
principal underwriter or sponsor (the Trust and such other investment 
companies collectively, the ``Funds'') to be sold to and held by: (a) 
variable annuity and variable life insurance separate accounts 
(``Participating Separate Accounts'') of both affiliated qualified 
pension and retirement plans outside the separate account context 
(``Plans''); and (c) the investment adviser of any Fund or any of the 
investment adviser's affiliates.
    Applicants: The Trust and Met Advisory.
    Filing Date: The Application was filed on November 21, 2000, and 
amended on March 5, 2001 and June 4, 2001.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, in person or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on July 2, 
2001, and should be accompanied by proof of service on the Applicants 
in the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of the date of a hearing by writing to the Secretary of 
the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, c/o Elizabeth M. Forget, President, Met Investors 
Series Trust, 610 Newport Center Drive, Suite 1400, Newport Beach, 
California 92660.

FOR FURTHER INFORMATION CONTACT: Joyce M. Pickholz, Senior Counsel, or 
Keith E. Carpenter, Branch Chief, Division of Investment Management, 
Office of Insurance Products, at (202) 942-0670.

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, 450 Fifth Street, NW., Washington, 
DC 20549-0102 [tel. (202) 942-8090).

Applicants' Representations

    1. The Trust was organized on July 27, 2000 as a Delaware business 
trust and is registered with the SEC as an open-end investment company. 
The Trust consists of multiple separately managed investment portfolios 
(``Portfolios'') and may in the future issue shares of additional 
Portfolios.
    2. Met Advisory serves as Manager of the Trust. Met Advisory is a 
subsidiary of Met Life Investors Group, Inc. (formerly known as 
Security First Group, Inc.) which in turn is an indirect wholly-owned 
subsidiary of Metropolitan Life Insurance Company. The Manager is 
responsible for providing investment management and certain 
administrative services to the Trust and in the exercise of such 
responsibility selects other affiliated and unaffiliated registered 
investment advisers (``Advisers'') for each of the Portfolios and 
monitors the Advisers' investment programs and results, reviews 
brokerage matters, oversees compliance matters and supervises the 
provision of services by third parties as the Trust's custodian and 
administrator. The Manager will enter into investment advisory 
agreements with the Advisers that will be primarily responsible for the 
day-to-day investment programs of each Portfolio. Met Advisory is 
registered under the Investment Advisers Act of 1940.
    3. The Funds (including the Trust) propose to offer shares of one 
or more of their series to insurance company separate accounts that 
fund variable annuity and variable life insurance to insurance company 
separate accounts that fund variable annuity and variable life 
insurance contracts (the ``Contracts'') established by Participating 
Insurance Companies including Security First Life Insurance Company 
(which is in the process of changing its name to MetLife Investors USA 
Insurance Company) and certain of its affiliates. These separate 
accounts may be registered as investment companies under the Act or 
exempt from registration under the Act. Each Participating Insurance 
Company will enter into a fund participation agreement with the Funds 
in which the Participating Separate Account invests.
    4. The Funds also will offer shares of each series directly to 
Plans outside of the separate account context. The Plans may choose 
from one of several series of any of the Funds as the sole investment 
under the Plan or as one of several investments. Plan participants may 
or may not be given the right to select among Funds, depending on the 
Plans. Plan participants include not only those participants of 
qualified pension or retirement plans as set forth in Treasury 
Regulation Sec. 1.817-5(f)(3)(iii) and Revenue Ruling 94-62, but also 
include the holders of annuity contracts described in Section 403(b) of 
the Code, including Section 403(b)(7); holders of individual retirement 
accounts described in Section 408(b) of the Code; and holders of any 
other trust, account, contract or annuity that is determined to be 
within the scope of Treasury Regulation Sec. 1.817-5(f)(3)(iii).
    5. In addition, shares of a Fund may be offered to the Manager, an 
Adviser, or any of their affiliates for purposes of providing necessary 
capital required by Section 14(a) of the 1940 Act or for other 
investment purposes in compliance with Treasury Regulation 1.817-
5(f)(3)(ii). The return on shares of a Fund purchased by the Manager, 
an Advisor, or their affiliates will be computed in the same manner as 
for shares held by a separate account. Any shares of a Fund purchased 
by such persons will be automatically redeemed if and when their 
investment advisory agreement with a Fund terminates, to the extent 
required to comply with applicable Treasury Regulations.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust (``UIT''), Rule 6e-
2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a) 
and 15(b) of the Act. The relief provided by Rule 6e-2 is available to 
a separate account's investment adviser, principal underwriter, and 
sponsor or depositor. The exemptions granted by Rule 6e-2(b)(15) are 
available only where the management investment company underlying the 
UIT offers its shares ``exclusively to variable life insurance separate 
accounts of the life insurer, or of any affiliated life insurance 
company.'' The use of a

[[Page 31721]]

common management investment company as the underlying investment 
medium for both variable annuity and variable life insurance separate 
accounts of a single insurance company (or of two or more affiliated 
insurance companies) is referred to as ``mixed funding.'' The use of a 
common management investment company as the underlying investment 
medium for variable annuity and variable life insurance separate 
accounts of unaffiliated insurance companies is referred to as ``shared 
funding.'' ``Mixed and shared funding'' denotes the use of a common 
management investment company to fund the variable annuity and variable 
life insurance separate accounts of affiliated and unaffiliated 
insurance companies. The relief granted by Rule 6e-2(b)(15) is not 
available with respect to a scheduled premium variable life insurance 
separate account that owns shares of an underlying fund that offers its 
shares to a variable annuity separate account of the same company or of 
any other affiliated or unaffiliated life insurance company. Therefore, 
Rule 6e-2(b)(15) precludes mixed funding as well as shared funding.
    2. Applicants state that because the relief under Rule 6e-2(b)(15) 
is available only where shares are offered exclusively to separate 
accounts of insurance companies, additional exemptive relief is 
necessary if shares of the Funds also are to be sold to Plans, the 
Manager, an Adviser or any of their affiliates.
    3. 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 Act. The exemptions 
granted to a separate account by Rule 6e-3(T)(b)(15) are available only 
where all of the assets of the separate account consist of the shares 
of one or more registered management investment companies which offer 
their shares ``exclusively to separate accounts of the life insurer, or 
of any affiliated life insurance company, offering either scheduled 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.'' Thus, Rule 6e-3(T) permits mixed 
funding, but does not permit shared funding.
    4. Applicants state that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, additional relief is necessary if shares of the Funds also 
are to be sold to Plans, the Manager, an Adviser or any of their 
affiliates. Applicants assert that the relief granted by paragraph 
(b)(15) of Rules 6e-2 and 6e-3(T) should not be affected by the 
proposed sale of Fund shares to Plans, the Manager, an Adviser or any 
of their affiliates. 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 
assert that if the Funds were to sell shares only to Plans, the 
Manager, an Adviser or their affiliates and/or separate accounts 
funding variable annuity contracts, no exemptive relief would be 
necessary. None of the relief provided for in Rule 6e-2(b)(15) and 6e-
3(T)(b)(15) relates to Plans, the Manager, an Adviser or their 
affiliates, or to a registered investment company's ability to sell its 
shares to such purchasers. It is only because some of the separate 
accounts that may invest in the Funds may themselves be investment 
companies that rely upon Rules 6e-2 and 6e-3(T) and that desire to have 
the relief continue in place, that the Applicants are applying for the 
requested relief. If and when an irreconcilable material conflict 
between the separate accounts arises in this context, the Participating 
Insurance Companies must take whatever steps necessary to remedy or 
eliminate the conflict, including eliminating the Funds as an eligible 
investment. Applicants have concluded that the inclusion of Plans as 
eligible shareholders should not increase the risk of irreconcilable 
material conflicts among shareholders. However, Applicants further 
assert that even if an irreconcilable material conflict involving Plans 
arose, the Plans, unlike the separate accounts, can redeem their shares 
and make alternative investments. Because shares of the Funds will be 
sold without either a front-end or a contingent deferred sales load, 
such redemption is at the net asset value of these shares. Further, the 
Manager, an Adviser or their affiliates that purchases Fund shares will 
agree to vote its shares of the Fund in the same proportion as all 
Contract owners having voting rights with respect to that Fund or in 
such other manner as may be required by the SEC or its staff. 
Applicants thus argue that allowing investment by Plans, the Manager, 
an Adviser and their affiliates in the Funds should not increase the 
opportunity for conflicts of interest.
    5. Applicants state that current tax law permits the Funds to sell 
their shares to Plans, the Manager, an Adviser or any of their 
affiliates. Applicants state that Section 817(h) of the Internal 
Revenue Code of 1986, as amended (the ``Code''), imposes certain 
diversification requirements on the underlying assets of the Contracts 
held in the Funds. The Code provides that such Contracts shall not be 
treated as an annuity contract or life insurance contract for any 
period in 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 
regulations that established diversification requirements for the 
investment portfolios underlying variable contracts [Treas. Reg. 
Sec. 1.817-5 (1989)]. The regulations provide that, to meet the 
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. The regulations do, however, contain 
certain exceptions to this requirement, one of which allows shares in 
an investment company to be held by a qualified pension or retirement 
plan without adversely affecting the ability of shares in the same 
investment company to also be held by the separate accounts of 
insurance companies in connection with their variable contracts [Treas. 
Reg. Sec. 1.817-5(f)(3)(iii)].
    6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the Act preceded the issuance of these Treasury regulations. 
Applicants assert that, given the then current tax law, the sale of 
shares of the same investment company to separate accounts and Plans 
could not have been envisioned at the time of the adoption of Rules 6e-
2(b)(15) and 6e-3(T)(b)(15).
    7. Applicants therefore request relief from Sections 9(a), 13(a), 
15(a) and 15(b) of the Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder, to the extent necessary to permit shares of the Funds to be 
offered and sold in connection with both mixed and shared funding, and 
to be sold directly to Plans, the Manager, an Adviser or any of their 
affiliates. Relief is requested for a class or classes of persons and 
transactions consisting of Participating Insurance Companies and their 
scheduled premium variable life insurance separate accounts and 
flexible premium variable life insurance separate accounts (and, to the 
extent necessary, any investment adviser, principal underwriter and 
depositor of such separate accounts) investing in any of the Funds.
    8. Section 9(a) of the 1940 Act provides that it is unlawful for 
any company to serve as an investment adviser to or principal 
underwriter for

[[Page 31722]]

any registered open-end investment company if an affiliated person of 
that company is subject to a disqualification enumerated in Section 
9(a)(1) and (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide 
exemptions from Section 9(a) under certain circumstances, subject to 
the limitations on mixed and shared funding. The relief provided by 
Rules 6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person 
disqualified under Section 9(a) to serve as an officer, director or 
employee of the life insurer, or any of its affiliates, so long as that 
person does not participate directly in the management or 
administration of the underlying fund. The relief provided by Rules 6e-
2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the life insurer to serve 
as the underlying fund's investment adviser or principal underwriter, 
provided that none of the insurer's personnel who are ineligible 
pursuant to Section 9(a) participate in the management or 
administration of the fund.
    9. Applicants state that the partial relief from Section 9(a) found 
in Rules 6e2-(b)(15) and 6e-3(T)(b)(15), in effect, 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 that 
Section. Applicants state that 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 Act to apply the 
provisions of Section 9(a) to the many individuals employed by the 
Participating Insurance Companies, most of whom will have no 
involvement in matters pertaining to investment companies within that 
organization. Applicants note that the Participating Insurance 
Companies are not expected to play any role in the management or 
administration of the Funds. Therefore, applicants assert, applying the 
restrictions of Section 9(a) serves no regulatory purpose. Applicants 
state that the relief requested should not be affected by the proposed 
sale of shares of the Funds to the Plans because the Plans are not 
investment companies and are not, therefore, subject to Section 9(a). 
Nor is there a regulatory purpose in extending the Section 9(a) 
monitoring requirements because the Funds may also sell their shares to 
the Manager, an Adviser, or their affiliates. Rules 6e-2 and 6e-3(T) 
provides relief from the eligibility restrictions of Section 9(a) only 
for officers, directors or employees of Participating insurance 
Companies or their affiliates. The eligibility restrictions of Section 
9(a) will still apply to any officers, directors or employees of the 
Manager, an Adviser or an affiliate who participate directly in the 
management or administration of a Fund. Furthermore, there is no reason 
why the monitoring requirements should extend to all officers, 
directors and employees of the Participating Insurance Companies and 
their affiliates simply because the Funds sell certain shares to the 
Manager, an Adviser or their affiliates. This monitoring would not 
benefit Contract owners and Plan participants and would only increase 
costs, thus reducing net rates of return.
    10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the Act 
assume the existence of a pass-through voting requirement with respect 
to management investment company shares held by a separate account. 
Applicants represent that the Participating Insurance Companies will 
provide pass-through voting privileges to all Contract owners so long 
as the SEC interprets the Act to require such privileges.
    11. Rules 6e-2(b)(15)(iii) and 6e-3(b)(15)(iii) under the Act 
provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming observance of the 
limitations on mixed and shared funding imposed by the Act and the 
rules thereunder. 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 a fund and its investment 
adviser, when required to do so by an insurance regulatory authority. 
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that the 
insurance company may disregard voting instructions of its Contract 
owners if the Contract owners initiate any change in the investment 
company'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)(15)(ii) and (b)(7)(ii)(B) and (C) of each Rule.
    12. Applicants state that the Funds' sale of shares to Plans, the 
Manager, an Adviser and their affiliates will not have any impact on 
the relief requested in this regard. Shares of the Funds sold to Plans 
will be held by the trustees of such Plans as required by Section 
403(a) of ERISA. Section 403(a) also provides that the trustees must 
have exclusive authority and discretion to manage and control the Plan 
with two exceptions: (a) When the Plan expressly provides that the 
trustees 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 Plan and not contrary to 
ERISA; and (b) when the authority to manage, acquire or dispose of 
assets of the Plan is delegated to one or more investment managers 
pursuant to Section 402(c)(3) or ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, Plan trustees have the 
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary 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 to the named fiduciary. In 
any event, there is no pass-through voting to the participants in such 
Plans. Accordingly, Applicants note that, unlike the case with 
insurance company separate accounts, the issue of the resolution of 
irreconcilable material conflicts with respect to voting is not present 
with Plans because the Plans are not entitled to pass-through voting 
privileges. Applicants further assert that investments in the Funds by 
Plans will not create any of the voting complications occasioned by 
mixed and shared funding because Plan investor voting rights cannot be 
frustrated by veto rights of insurers or state regulators.
    13. Applicants state that some Plans may provide participants with 
the right to give voting instructions. Applicants submit that there is 
no reason to believe that participants in Plans generally, or those in 
a particular Plan, either as a single group or in combination with 
other Plans, would vote in a manner that would disadvantage Contract 
owners. Accordingly, Applicants assert that the purchase of Fund shares 
by Plans that provide voting rights to participants does not present 
any complications not otherwise occasioned by mixed and shared funding. 
Similarly, the exercise of voting rights by the Manager, an Adviser and 
their affiliates does not present the type of issues respecting the 
disregard of voting rights that are presented by variable life separate 
accounts.
    14. Applicants state that no increased conflicts of interest would 
be present by the granting of the requested relief. Applicants assert 
that shared funding does not present any issues that do not already 
exist where a single insurance company is licensed to do business in 
several states. Applicants note that where different Participating 
Insurance Companies are domiciled in different states, it is possible 
that the state insurance regulatory body in a state in which one 
Participating Insurance

[[Page 31723]]

Company is domiciled could require action that is inconsistent with the 
requirements of insurance regulators in one or more other states in 
which other Participating Insurance Companies are domiciled. Applicants 
submit that this possibility is no different or greater than exists 
where a single insurer and its affiliates offer their insurance 
products in several
    15. Applicants further submit that affiliation does not reduce the 
potential for differences in state regulatory requirements. In any 
event, the conditions (adapted from the conditions included in Rule 6e-
3(T)(b)(15) discussed below) are designed to safeguard against any 
adverse effects that these differences may produce. If a particular 
state insurance regulator's decision conflicts with the majority of 
other state regulators, the affected insurer may be required to 
withdraw its separate account's investment in the relevant Funds.
    16. Applicants argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to when a 
Participating Insurance Company could disregard Contract owner voting 
instructions. Potential disagreement is limited by the requirements 
that the Participating Insurance Company's disregard of voting 
instructions be both reasonable and based on specified good faith 
determinations. However, if a Participating Insurance Company's 
decision to disregard Contract owner instructions represents a minority 
position or would preclude a majority vote approving a particular 
change, such Participating Insurance Company may be required, at the 
election of the relevant Fund, to withdraw its separate account's 
investment in that Fund. No charge or penalty will be imposed as a 
result of such a withdrawal.
    17. Investments by the Manager, an Adviser or an affiliate will 
similarly present no conflict. The Manager, Adviser or affiliate, as 
applicable, will agree to vote its shares of the Fund in the same 
proportion as all Contract owners having voting rights with respect to 
that Fund or in such other manner as may be required by the SEC or its 
staff. This ``echo'' voting requirement is similar to the requirements 
imposed by the SEC on the voting of shares of an underlying fund held 
directly by a Participating Insurance Company through a registered 
separate account. Should the SEC no longer interpret the Act as 
requiring pass-through voting privileges for Contract owners, the 
Manager, Adviser or affiliate will no longer be required to vote their 
shares in this manner. Because the Manager, Adviser or affiliate will 
``echo'' the vote of Contract owners, there will be no conflict among 
them.
    18. Applicants submit that there is no reason why the investment 
policies of a Fund with mixed funding would, or should, be materially 
different from what those policies would, or should, be if such 
investment company or series thereof funded only variable annuity or 
variable life insurance contracts. Applicants therefore argue that 
there is no reason to believe that conflicts of interest would result 
from mixed funding. Moreover, Applicants represent that the funds will 
not be managed to favor or disfavor any particular insurer or type of 
Contract.
    19. Section 817(h) of the Code imposes certain diversification 
requirements on the underlying assets of variable annuity and variable 
life insurance contracts held in the portfolios of management 
investment companies. Treasury Regulation Sec. 1.817-5(f)(3)(iii), 
which established diversification requirements for such portfolios, 
specifically permits ``qualified pension or retirement plans'' and 
separate accounts to share the same underlying management investment 
company. Therefore, Applicants have concluded that neither the Code, 
the Treasury regulations, nor the revenue rulings thereunder present 
any inherent conflicts of interest if Plans, variable annuity and 
variable life insurance separate accounts all invest in the same 
management investment company.
    20. Applicants submit that while there are differences in the 
manner in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, these tax consequences do 
not raise any conflicts of interest. When distributions are to be made, 
and a Participating Separate Account or a Plan is unable to net 
purchase payments to make the distributions, the Participating Separate 
Account or the Plan will redeem shares of the Funds at their respective 
net asset values. The Plan will then make distributions in accordance 
with the terms of the Plan. The life insurance company will make 
distributions in accordance with the terms of the variable contract.
    21. Applicants state that they do not see any greater potential for 
irreconcilable material conflicts arising between the interests of 
participants under the Plans and owners of the Contracts issued by the 
Participating Separate Accounts of Participating Insurance Companies 
from possible future changes in the federal tax laws than that which 
already exists between variable annuity contract owners and variable 
life insurance contract owners.
    22. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving such voting rights to 
Contract owners and to Plans. Applicants represent that a Fund will 
inform each shareholder, including each separate account and Plan, of 
information necessary for the shareholder meeting, including their 
respective share ownership in the Fund. A Participating Insurance 
Company will then solicit voting instructions in accordance with the 
``pass-through'' voting requirements of Rules 6e-2 and 6e-3(T).
    23. Applicants argue that the ability of the Funds to sell their 
respective shares directly to Plans, the Manager, an Adviser and their 
affiliates does not create a ``senior security,'' as such term is 
defined under Section 18(g) of the Act, with respect to any Contract 
owner as opposed to a participant under a Plan or the Manager, an 
Adviser or their affiliates. Regardless of the rights and benefits of 
participants and Contract owners under the respective Plans and 
Contracts, the Plans, the Manager, an Adviser and its affiliates and 
the separate accounts have rights only with respect to their shares of 
the funds. Such shares may be redeemed only at net asset value. No 
shareholder of any of the Funds has any preference over any other 
shareholder with respect to distributions of assets or payment of 
dividends.
    24. Applicants state there are no conflicts of interest between 
Contract owners and participants under the Plans with respect to the 
state insurance commissioners' veto powers over investment objectives. 
The state insurance commissioners have been given the veto power to 
prevent insurance companies indiscriminately redeeming their separate 
accounts out of one fund and investing those monies in another fund. 
Generally, to accomplish such redemptions and transfers, complex and 
time consuming transactions must be undertaken. Conversely, trustees of 
Plans or the participants in participant-directed Plans can make the 
decision quickly and implement redemption of shares from a Fund and 
reinvest the monies in another funding vehicle without the same 
regulatory impediments or, as is the case with most Plans, even hold 
cash pending a suitable investment. Based on the foregoing, Applicants 
represent that even should there arise issues where the interests of 
Contract owners and the interests of Plans and Plan participants 
conflict, the issues can be almost immediately resolved in that

[[Page 31724]]

trustees of the Plans can, indpendently, redeem shares out of the 
Funds.
    25. Applicants assert that permitting a Fund to sell its shares to 
the Manager or Adviser of a Fund, or a series thereof, or to an 
affiliate of the Manager or Adviser, in compliance with Treas. Reg. 
1.817-5 will enhance Fund management without raising significant 
concerns regarding irreconcilable material conflicts. Section 14(a) of 
the 1940 Act generally requires that an investment company have a net 
worth of $100,000 upon making a public offering of its shares. Fund 
also will require more limited amounts of initial capital in connection 
with the creation of new series and the voting of initial shares of 
such series on matters requiring the approval of shareholders. In 
addition, the Funds may wish to purchase a substantial portfolio of 
securities upon commencement of operations and will require capital to 
do so. A potential source of the requisite initial or additional 
capital is the Manager, Adviser or an affiliate. These parties may have 
an interest in making the requisite capital expenditure, and in 
participating with the Fund in its organization. However, provision of 
seed capital or the purchase of shares in connection with the 
management of a Fund by its Manager, Adviser or any of their affiliates 
may be deemed to violate the exclusivity requirement of Rule 6e-
2(b)(15) and/or Rule 6e-3(T)(b)(15).
    26. Applicants anticipate that such investments by the Manager, an 
Adviser or their affiliates generally will be limited in scope and 
duration, and will be made only in connection with the operation of the 
Funds. Given the conditions of Treas. Reg. 1.817-5(f)(3) and the 
harmony of interest between a Fund, on the one hand, and its Manager or 
Adviser, on the other, Applicants assert that little incentive for 
overreaching exists. Furthermore, such limited investments should not 
implicate the concerns discussed above regarding the creation of 
irreconcilable material conflicts. Instead, permitting investment by 
the Manager, an Adviser or their affiliates will permit the orderly and 
efficient creation and operation of Funds, or series thereof, and 
reduce the expense and uncertainty of using outside parties at the 
early stages of Fund operations.
    27. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. According to Applicants, these factors include: 
the cost of organizing and operating an investment funding medium; the 
lack of expertise with respect to investment managers (principally with 
respect to stock and money market investments); and the lack of public 
name recognition as investment experts. Specifically, Applicants state 
that smaller life insurance companies may not find it economically 
feasible, or within their investment or administrative expertise, to 
enter the Contract business on their own. Applicants argue the use of 
the Funds as common investment media for the Contracts would ease these 
concerns. Participating Insurance Companies would benefit not only from 
the investment and administrative expertise of Met Advisory and the 
Advisers, but also from the cost efficiencies and investment 
flexibility afforded by a large pool of funds. Applicants state that 
making the Funds available for mixed and shared funding may encourage 
more insurance companies to offer variable contracts such as the 
Contracts, which may then increase competition with respect to both the 
design and the pricing of variable contracts. Applicants submit that 
this can be expected to result in greater product variation and lower 
charges. Thus, Applicants argue that Contract owners would benefit 
because mixed and shared funding will eliminate a significant portion 
of the costs of establishing and administering separate funds. 
Moreover, Applicants assert that sales of shares of the Funds to Plans 
should increase the amount of assets available for investment by such 
Funds. This should, in turn, promote economies of scale, permit 
increased safety of investments through greater diversification, and 
make the addition of new portfolios more feasible.
    28. Applicants state that, regardless of the types of Fund 
shareholders, Met Advisory is legally obligated to manage the Funds in 
accordance with each Fund's investment objectives, policies and 
restrictions as well as any guidelines established by the relevant 
Board of Directors or Trustees of the Funds. Applicants assert that Met 
Advisory works with a pool of money without consideration for the 
identity of shareholders, and, thus, manages the Funds in the same 
manner as any other mutual fund.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. A majority of the Board of Trustees or Board of Directors (each, 
a ``Board'') of each Fund will consist of persons who are not 
``interested persons'' thereof, as defined by Section 2(a)(19) of the 
Act and the Rules thereunder and as modified by any applicable orders 
of the SEC, except that if this condition is not met by reason of 
death, disqualification, or bona fide resignation of any trustee(s) or 
director(s), then the operation of this condition shall be suspended: 
(a) for a period of 45 days if the vacancy or vacancies may be filled 
by the Board; (b) for a period of 60 days if a vote of shareholders is 
required to fill the vacancy or vacancies; or (c) for such longer 
period as the SEC may prescribe by order upon application.
    2. The Board will monitor their respective Funds for the existence 
of any irreconcilable material conflict between the interests of 
Contract owners of all Participating Separate Accounts and of Plan 
Participants and Plans investing in the Funds, and determine what 
action, if any, should be taken in response to such conflicts. An 
irreconcilable material conflict may arise for a variety of reasons, 
which may include: (a) An action by any state insurance regulatory 
authority; (b) a change in applicable federal or state insurance, tax, 
or securities laws or regulations, or a public ruling, private letter 
ruling, no action or interpretive letter or any similar action by 
insurance, tax, or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Funds are being managed; (e) a 
difference in voting instructions given by variable annuity and 
variable life insurance Contract owners or trustees of Eligible Plans; 
(f) a decision by a Participating Insurance Company to disregard the 
voting instructions of Contract owners; and (g) if applicable, a 
decision by a Plan to disregard the voting instructions of Plan 
participants.
    3. The Manager, Advisers (or any other investment adviser of a 
Fund), any Participating Insurance Company and any Plan that executes a 
fund participation agreement upon becoming an owner of 10% or more of 
the issued and outstanding shares of a Fund (such Plans referred to 
hereafter as ``Participating Plans'') will report any potential or 
existing conflicts to the Board of any relevant Fund. The Manager, 
Advisers (or any other investment adviser of a Fund), Participating 
Insurance Companies and Participating Plans will be responsible for 
assisting the appropriate Board in carrying out its responsibilities 
under these conditions by providing the Board with all information 
reasonably necessary for the Board to consider any issues raised. This 
includes, but is not limited to, an obligation by a Participating 
Insurance Company to inform the Board whenever it has determined to 
disregard Contract owner

[[Page 31725]]

voting instructions and, if pass-through voting is applicable, an 
obligation by a Participating Plan to inform the Board whenever it has 
determined to disregard Plan participant voting instructions. The 
responsibility to report such information and conflicts and to assist 
the Boards will be contractual obligations of all Participating 
Insurance Companies and Participating Plans investing in Funds under 
their agreements governing participation in the Funds, and such 
agreements shall provide that these responsibilities will be carried 
out with a view only to the interests of Contract owners and if 
applicable, Plan participants.
    4. If a majority of the Board of a Fund, or a majority of its 
disinterested trustees or directors, determine that an irreconcilable 
material conflict exists, the relevant Participating Insurance 
Companies and Participating Plans, at their expense and to the extent 
reasonably practical (as determined by a majority of the disinterested 
trustees or directors), will take whatever steps are necessary to 
remedy or eliminate the irreconcilable material conflict. Such steps 
could include: (a) Withdrawing the assets allocable to some or all of 
Participating Separate Accounts from the Fund or any series and 
reinvesting such assets in a different investment medium, which may 
include another series of a Fund or another Fund; (b) submitting the 
question of whether such segregation should be implemented to a vote of 
all affected Contract owners and, as appropriate, segregating the 
assets of any appropriate group (i.e., variable annuity or variable 
life insurance Contract owners of one or more Participating Insurance 
Companies) that votes in favor of such segregation, or offering to the 
affected Contract owners the option of making such a change; and (c) 
establishing a new registered management investment company or managed 
separate account. If an irreconcilable material 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, the Participating 
Insurance Company may be required, at the election of the Fund, to 
withdraw its separate account's investment in such Fund, and no charge 
or penalty will be imposed as a result of such withdrawal. If an 
irreconcilable material conflict arises because of a Participating 
Plan's decision to disregard Plan participant voting instructions, if 
applicable, and that decision represents a minor position or would 
preclude a majority vote, the Participating Plan may be required, at 
the election of the Fund, to withdraw its investment in such Fund, and 
no charge or penalty will be imposed as a result of such withdrawal. To 
the extent permitted by applicable law, the responsibility of taking 
remedial action in the event of a Board determination of an 
irreconcilable material conflict and bearing the cost of such remedial 
action will be a contractual obligation of all Participating Insurance 
Companies and Participating Plans under their agreements governing 
participation in the Funds,and these responsibilities will be carried 
out with a view only to the interests of Contract owners and Plan 
participants, as applicable.
    For purposes of this Condition 4, a majority of the disinterested 
members of the applicable Board will determine whether or not any 
proposed action adequately remedies any irreconcilable material 
conflict, but in no event will a Fund, Manager, or Advisers (or any 
other investment adviser of the Funds) be required to establish a new 
funding medium for any Contract. No Participating Insurance Company 
shall be required by this Condition 4 to establish a new funding medium 
for any Contract if a majority of Contract owners materially and 
adversely affected by the irreconcilable material conflict, vote to 
decline such offer. No Participating Plan shall be required by this 
Condition 4 to establish a new funding medium for such plan if (a) a 
majority of Plan participants materially and adversely affected by the 
irreconcilable material conflict vote to decline such offer, or (b) 
pursuant to governing plan documents and applicable law, the 
Participating Plan makes such decision without Plan participant vote.
    5. Manager, Advisers, all Participating Insurance Companies and 
Participating Plans will be promptly informed in writing of any Board's 
determination that an irreconcilable material conflict exists, and its 
implications.
    6. As to Contracts issued by Participating Separate Accounts under 
the Act, Participating Insurance Companies will provide pass-through 
voting privileges to all Contract owners so long as the SEC interprets 
the Act to require pass-through voting privileges for Contract owners. 
However, as to Contracts issued by unregistered Participating Separate 
Accounts, pass-through voting privileges will be extended to Contract 
owners to the extent granted by the issuing insurance company. 
Accordingly, the Participating Insurance Companies will vote shares of 
a Fund held in their Participating Separate Accounts in a manner 
consistent with voting instructions received from Contract owners. 
Participating Insurance Companies will be responsible for assuring that 
each of their Participating Separate Accounts calculates voting 
privileges in a manner consistent with all other Participating 
Insurance Companies. The obligation to calculate voting privileges in a 
manner consistent with all other Participating Separate Accounts 
investing in the Fund will be a contractual obligation of all 
Participating Insurance Companies under the agreements governing 
participation in the Fund. Each Participating Insurance Company will 
vote shares for which it has not received voting instructions as well 
as shares attributable to it in the same proportion as it votes shares 
for which it has received instructions. Each Participating Plan will 
vote as required by applicable law and governing Plan documents.
    7. As long as the SEC continues to interpret the Act as requiring 
pass-through voting privileges for Contract owners whose Contracts are 
funded through a registered separate account, the Manager, Adviser of, 
if applicable, any of their affiliates will vote the shares of any Fund 
or series thereof in the same proportion as all Contract owners having 
voting rights with respect to that Fund or series thereof, provided, 
that the Manager, Adviser or any such affiliates shall vote its shares 
in such other manner as may be required by the SEC or its staff.
    8. All reports of potential or existing conflicts of interest 
received by a Board, and all Board action with regard to determining 
the existence of a conflict, notifying the Manager, Advisers, 
Participating Insurance Companies and Participating Plans of a 
conflict, and determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
appropriate Board or other appropriate records, and such minutes or 
other records shall be made available to the SEC upon request.
    9. Each Fund will notify all Participating Insurance Companies and 
all Participating Plans that disclosure in separate account 
prospectuses or any Qualified Plan Prospectuses or other Plan 
disclosure documents regarding potential risks of mixed and shared 
funding may be appropriate. Each Fund will disclose in its prospectus 
that: (a) Shares of the Fund may be offered to insurance company 
separate accounts of both annuity and life insurance variable 
contracts, and to Plans; (b) due to differences of tax treatment and 
other considerations, the interests of various Contract owners 
participating in the Fund and the interests of Plans

[[Page 31726]]

investing in the Fund may conflict; and (c) the Board will monitor 
events in order to identify the existence of any material conflicts of 
interest and to determine what action, if any, should be taken in 
response to any such conflict.
    10. Each Fund will comply with all the provisions of the Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the Funds) and in 
particular, each such Fund will either provide for annual meetings 
(except to the extent that the SEC may interpret Section 16 of the Act 
not to require such meetings) or comply with Section 16(c) of the Act 
(although the Funds are not within the trusts described in Section 
16(c) of the Act) as well as Section 16(a) and, if applicable, Section 
16(b) of the Act. Further, each Fund will act in accordance with the 
SEC's interpretation of the requirements of Section 16(a) with respect 
to periodic elections of directors (or trustees) and with whatever 
rules the SEC may promulgate with respect thereto.
    11. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or if Rule 6e-3 under the Act is adopted) to provide exemptive relief 
from any provisions of the Act or the rules promulgated thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Funds, the Participating Insurance Companies and 
Participating Plans, as appropriate, shall take such steps as may be 
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 
6e-3, as adopted, to the extent applicable.
    12. No less than annually, the Manager, Advisers (or any other 
investment adviser of a Fund), the Participating Insurance Companies 
and Participating Plans shall submit to the Boards such reports, 
materials, or data as such Boards may reasonably request so that the 
Boards may carry out fully the obligations imposed upon them by the 
conditions contained in the application. Such reports, materials and 
data shall be submitted more frequently if deemed appropriate by the 
applicable Boards. The obligations of the Manager, Advisers (or any 
other investment adviser of a Fund), Participating Insurance Companies 
and Participating Plans to provide these reports, materials and data to 
the Boards shall be a contractual obligation of the Manager, Advisers 
(or any other investment adviser of a Fund), Participating Insurance 
Companies and Participating Plans under the agreements governing their 
participation in the Funds.
    13. If a Plan or Plan participant shareholder should become an 
owner of 10% or more of the issued and outstanding shares of a Fund, 
such Plan will execute a participation agreement with such Fund 
including the conditions set forth herein to the extent applicable. A 
Plan or Plan participant shareholder will execute an application 
containing an acknowledgment of this condition at the time of its 
initial purchase of shares of the Fund.

Conclusion

    For the reasons summarized above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-14675 Filed 6-11-01; 8:45 am]
BILLING CODE 8010-01-M