Document ID: SEC-2009-0259-0001
Agency: sec
Document Type: Notice
Title: Applications: Mainstay VP Series Fund, Inc.
Posted Date: 2009-02-26T05:00Z

[Federal Register: February 26, 2009 (Volume 74, Number 37)]
[Notices]               
[Page 8820-8829]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26fe09-84]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28619; File No. 812-13515]

 
Mainstay VP Series Fund, Inc.

February 20, 2009.
AGENCY: Securities and Exchange Commission ``SEC'' or ``Commission'').

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

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Applicants: MainStay VP Series Fund, Inc. (the ``Fund'') and New York 
Life Investment Management LLC (``NYLIM'') (together the 
``Applicants'').

Filing Date: The application was filed on April 2, 2008, and amended 
and restated applications were filed on November 20, 2008 and February 
17, 2009.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on March 18, 2009, and should be accompanied by proof of service 
on Applicants, in the form of an affidavit, or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549. Applicants: Marguerite E.H. Morrison, New 
York Life Investment Management LLC, 51 Madison Avenue, New York, NY 
10010, with a copy to Christopher E. Palmer, Goodwin Procter LLP, 901 
New York Avenue, NW., Washington, DC 20001.

FOR FURTHER INFORMATION CONTACT: Patrick Scott, Senior Counsel, at 202-
551-6763, or Zandra Bailes, Branch Chief, Office of Insurance Products, 
Division of Investment Management, Commission SEC at (202) 551-6975.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549 (tel. (202) 551-8090).

SUMMARY OF APPLICATION: Applicants seek exemption of each life 
insurance company separate account supporting variable life insurance 
contracts (``VLI Accounts'') (and its insurance company depositor) that 
may invest in shares of the Fund or a ``future fund'' as defined below, 
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)(l5) (or any comparable provisions 
of a permanent rule that replaces Rule 6e-3(T)(b)(15)) thereunder to 
the extent necessary to permit such VLI Accounts to hold shares of the 
Fund or a future fund when one or more of the following other types of 
investors also hold shares of the Fund or a future fund: (1) Life 
insurance company separate accounts supporting variable annuity 
contracts (``VA Accounts''), whether or not the life insurance company 
is an affiliated person of the insurance company depositor of any VLI 
Account, (2) VLI Accounts supporting scheduled or flexible premium 
variable life insurance contracts, whether or not the life insurance 
company is an affiliated person of the insurance company depositor of 
any other VLI Account, (3) general accounts of insurance company 
depositors of VA Accounts and/or VLI Accounts, (4) the Fund's 
investment adviser or future fund's investment adviser (or an 
affiliated person of the investment adviser), or (5) qualified group 
pension plans and group retirement plans (``Plans'') in accordance with 
Section 817(h) of the Internal Revenue Code (the ``Code'') and the U.S. 
Treasury regulations and Internal Revenue Service guidelines 
thereunder, as described in more detail below, outside the separate 
account context. A ``future fund'' is any investment company (or 
investment portfolio or series thereof), other than the Fund, shares of 
which are sold to VLI Accounts and to which NYLIM or its affiliates may 
in the future serve as investment adviser, investment subadviser, 
investment manager, administrator, principal underwriter or sponsor. 
Investment portfolios or series of the Fund or any future fund are 
referred to herein as ``Insurance Funds.''

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, DC 20549, (202) 551-8090.
    Applicants' Representations:
    1. The Fund was formed as a Maryland corporation on June 3, 1983. 
The Fund was formerly known as the New York Life MFA Series Fund, Inc. 
On August 22, 1996, the Fund's name changed to its present form. The 
Fund is registered under the Act as an open-end management investment 
company (Reg. File No. 811-03833-01). The Fund is a series investment 
company as defined by Rule 18f-2 under the Act and is currently 
comprised of twenty-four series (``Portfolios''): (1) MainStay VP 
Balanced Portfolio, (2) MainStay VP Bond Portfolio, (3) MainStay VP 
Capital Appreciation Portfolio, (4) MainStay VP Cash Management 
Portfolio, (5) MainStay VP Common Stock Portfolio, (6) MainStay VP 
Conservative Allocation Portfolio, (7) MainStay VP Convertible 
Portfolio, (8) MainStay VP Developing Growth Portfolio, (9) MainStay VP 
Floating Rate Portfolio, (10) MainStay VP Government Portfolio, (11) 
MainStay VP Growth Allocation Portfolio, (12) MainStay VP High Yield 
Corporate Bond Portfolio, (13) MainStay VP ICAP Select Equity 
Portfolio, (14) MainStay VP International Equity Portfolio, (15) 
MainStay VP Large Cap Growth Portfolio, (16) MainStay VP Mid Cap Core 
Portfolio, (17) MainStay VP Mid Cap Growth Portfolio, (18) MainStay VP 
Mid Cap Value Portfolio, (19) MainStay VP Moderate Allocation 
Portfolio, (20) MainStay VP Moderate Growth Allocation Portfolio, (21) 
MainStay VP S&P 500 Index Portfolio, (22) MainStay VP Small Cap Growth 
Portfolio, (23) MainStay VP Total Return Portfolio, and (24) MainStay 
VP Value Portfolio. The Fund issues a separate series of shares of 
beneficial interest for each Portfolio and has filed a registration 
statement under the

[[Page 8821]]

Securities Act of 1933 (the ``1933 Act'') on Form N-1A (Reg. File No. 
002-86082) to register such shares. The Fund may establish additional 
Portfolios in the future and additional classes of shares for such 
Portfolios.
    2. The Fund currently sells its shares to both VLI Accounts and VA 
Accounts (together, ``Accounts'') of affiliated life insurance 
companies in reliance on an order from the Commission. Applicants seek 
relief so that the Fund and future funds may offer each series of their 
shares to: (a) VLI Accounts and VA Accounts of both affiliated and 
unaffiliated life insurance companies; (b) insurance company depositors 
of VLI Accounts and/or VA Accounts investing in one or more Insurance 
Funds through their general accounts; (c) NYLIM and any other 
investment advisers to one or more Insurance Funds (or their 
affiliates); and (d) Plans.
    3. Each VLI Account and VA Account is or will be established as a 
segregated asset account by New York Life Insurance and Annuity 
Corporation (``New York Life''), an insurance company affiliated with 
New York Life, or a life insurance company not affiliated with New York 
Life (New York Life, life insurance companies affiliated with New York 
Life, and life insurance companies not affiliated with New York Life 
are each referred to as a ``Participating Insurance Company'' and 
collectively as the ``Participating Insurance Companies'') pursuant to 
the insurance law of the insurance company's state of domicile. As 
such, the assets of each will be the property of the Participating 
Insurance Company, and that portion of the assets of such an Account 
equal to the reserves and other contract liabilities with respect to 
the Account will not be chargeable with liabilities arising out of any 
other business that the insurance company may conduct. The income, 
gains and losses, realized or unrealized from such an Account's assets 
will be credited to or charged against the Account without regard to 
other income, gains or losses of the Participating Insurance Company. 
If a VLI Account or VA Account is registered as an investment company, 
it will be a ``separate account'' as defined by Rule 0-1(e) (or any 
successor rule) under the Act and will be registered as a unit 
investment trust. For purposes of the Act, the life insurance company 
that establishes such a registered VLI Account or VA Account is the 
depositor and sponsor of the Account as those terms have been 
interpreted by the Commission with respect to variable life insurance 
and variable annuity separate accounts.
    4. Currently, the Fund sells its shares only to certain Accounts of 
New York Life, a wholly-owned subsidiary of New York Life Insurance 
Company. New York Life is an affiliated person of NYLIM and the Fund. 
Currently, the Fund sells its shares to the following VLI Accounts and 
VA Accounts of New York Life: NYLIAC Variable Annuity Separate Account-
I; NYLIAC Variable Annuity Separate Account-II; NYLIAC Variable Annuity 
Separate Account-III; NYLIAC Variable Annuity Separate Account-IV; 
NYLIAC MFA Separate Account-I; NYLIAC MFA Separate Account-II; NYLIAC 
Variable Universal Life Separate Account-I; NYLIAC Corporate Sponsored 
Variable Universal Life Separate Account-I; and New York Life Insurance 
and Annuity Corporation VLI Separate Account. In the future, an 
Insurance Fund may sell its shares to additional separate accounts of 
New York Life and/or separate accounts of other Participating Insurance 
Companies.
    5. NYLIM serves as the investment adviser to the Fund and each of 
its Portfolios. NYLIM is a Delaware limited liability company and is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. NYLIM is a subsidiary of New York Life. Under the supervision 
of the Fund's board of directors, NYLIM is responsible for all 
investment decisions for the Portfolios. Subject to approval of the 
Fund's board of directors, NYLIM may delegate certain advisory 
functions, including securities selection, to one or more subadvisers.
    6. The Fund proposes to offer and sell its shares (and a future 
fund would offer and sell its shares) to VLI Accounts and VA Accounts 
of various Participating Insurance Companies as an investment medium to 
support variable life insurance contracts (``VLI Contracts'') and 
variable annuity contracts (``VA Contracts'') (together, ``Variable 
Contracts'') issued through such Accounts. As described more fully 
below, the Fund (or a future fund) will only sell its shares to 
registered VLI Accounts and registered VA Accounts if each 
Participating Insurance Company sponsoring such a VLI Account or VA 
Account enters into a participation agreement with the Fund (or a 
future fund). The participation agreements will define the relationship 
between the Fund (or a future fund) and a Participating Insurance 
Company and will memorialize, among other matters, the fact that, 
except where the agreement specifically provides otherwise, the 
Participating Insurance Company will remain responsible for 
establishing and maintaining any VLI Account or VA Account covered by 
the agreement and for complying with all applicable requirements of 
state and federal law pertaining to such Accounts and to the sale and 
distribution of Variable Contracts issued through such Accounts. The 
participation agreements also will memorialize, among other matters, 
the fact that, unless the agreement specifically states otherwise, the 
Fund (or a future fund) will remain responsible for establishing and 
maintaining any Insurance Fund covered by the agreement, for complying 
with all applicable requirements of state and federal law pertaining to 
such Insurance Funds and to the offer and sale of its shares to VLI 
Accounts and VA Accounts covered by the agreement, and for compliance 
with the conditions stated in the application.
    7. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for both VLI Accounts and VA 
Accounts of the same Participating Insurance Company, or of two or more 
insurance companies that are affiliated persons of each other, is 
referred to herein as ``mixed funding.'' The use of a common management 
investment company (or investment portfolio thereof) as an investment 
medium for VLI Accounts and/or VA Accounts of two or more Participating 
Insurance Companies that are not affiliated persons of each other, is 
referred to herein as ``shared funding.''
    8. The Fund (or a future fund) may sell its shares directly to the 
Plans. As described below, federal tax law permits investment companies 
such as the Insurance Funds to increase their net assets by selling 
shares to Plans.
    9. Section 817(h) of the Code imposes certain diversification 
standards on the assets underlying Variable Contracts, such as those in 
each Insurance Fund. The Code provides that Variable Contracts will not 
be treated as annuity contracts or life insurance contracts, as the 
case may be, for any period (or any subsequent period) for which the 
underlying assets are not, in accordance with regulations issued by the 
Treasury Department, adequately diversified. On March 2, 1989, the 
Treasury Department issued regulations (Treas. Reg. 1.817-5) that 
established diversification requirements for Variable Contracts, which 
require the separate accounts upon which these Contracts 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

[[Page 8822]]

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 permits shares in 
an investment company to be held by a 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.
    10. Plans may invest in shares of an investment company as the sole 
investment under the Plan, or as one of several investments. Plan 
participants may or may not be given an investment choice depending on 
the terms of the Plan itself. The trustees or other fiduciaries of a 
Plan may vote investment company shares held by the Plan in their own 
discretion or, if the applicable Plan so provides, vote such shares in 
accordance with instructions from participants in such Plans. 
Applicants have no control over whether trustees or other fiduciaries 
of Plans, rather than participants in the Plans, have the right to vote 
under any particular Plan. Each Plan must be administered in accordance 
with the terms of the Plan and as determined by its trustees or other 
fiduciaries. To the extent permitted under applicable law, NYLIM or an 
affiliated person of NYLIM may act as investment adviser or trustee to 
Plans that purchase shares of any Insurance Fund.
    11. Applicants propose that any Insurance Fund also be permitted to 
sell shares to its investment adviser or an affiliate. The Treasury 
Regulations permit such sales as long as the return on shares held by 
the adviser or affiliate is computed in the same manner as shares held 
by VLI Accounts and VA Accounts, the adviser or affiliate does not 
intend to sell the shares to the public, and sales to an adviser or 
affiliate are only made in connection with the creation of the 
Insurance Fund.
    12. Applicants propose that any Insurance Fund also be permitted to 
sell shares to the general account of a Participating Insurance 
Company. The Treasury Regulations also permit such sales as long as the 
return on shares held by general accounts are computed in the same 
manner as shares held by VLI Accounts and VA Accounts, and the 
Participating Insurance Company does not intend to sell the shares to 
the public.
    13. The promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
preceded the issuance of the Treasury Regulations permitting the shares 
of Insurance Funds to be held by a Plan, an adviser for the Fund, or 
the general account of a Participating Insurance Company without 
adversely affecting the ability of the VLI Account to also hold shares.
    14. The use of a common management investment company (or 
investment portfolio thereof) as an investment medium for VLI Accounts, 
VA Accounts, Plans, investment advisers and general accounts of 
Participating Insurance Companies is referred to herein as ``extended 
mixed funding.''
    Applicants' Legal Analysis:
    1. Section 9(a)(2) of the Act makes it unlawful for any company to 
serve as an investment adviser or principal underwriter of any 
investment company, including a unit investment trust, if an affiliated 
person of that company is subject to disqualification enumerated in 
Section 9(a)(1) or (2) of the Act. Sections 13(a), 15(a), and 15(b) of 
the Act have been deemed by the Commission to require ``pass-through'' 
voting with respect to an underlying investment company's shares.
    2. Rule 6e-2(b)(15) under the Act provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI Accounts 
supporting scheduled premium VLI Contracts and to their life insurance 
company depositors. The exemptions granted by the Rule are available, 
however, only where an Insurance Fund offers its shares exclusively to 
VLI Accounts of the same Participating Insurance Company and/or of 
Participating Insurance Companies that are affiliated persons of the 
same Participating Insurance Company and then, only where scheduled 
premium VLI Contracts are issued through such VLI Accounts. Therefore, 
VLI Accounts, their depositors and their principal underwriters may not 
rely on the exemptions provided by Rule 6e-2(b)(15) if shares of the 
Insurance Fund are held by a VLI Account through which flexible premium 
VLI Contracts are issued, a VLI Account of an unaffiliated 
Participating Insurance Company, an unaffiliated investment adviser, 
any VA Account or a Plan. In other words, Rule 6e-2(b)(15) does not 
permit a scheduled premium VLI Account to invest in shares of a 
management investment company that serves as a vehicle for mixed 
funding, extended mixed funding or shared funding.
    3. Accordingly, Applicants request an order of the Commission 
granting exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
Act, and Rule 6e-2(b)(15) thereunder, to the extent necessary to permit 
a scheduled premium VLI Account to hold shares of Insurance Funds when 
one or more of the following types of investors also hold shares of the 
Insurance Funds: (1) VA Accounts, (2) VLI Accounts supporting flexible 
premium VLI Contracts, (3) VA Accounts or VLI Accounts of Participating 
Insurance Companies that are not affiliated persons of the depositor of 
the scheduled premium VLI Account, (4) general accounts of 
Participating Insurance Companies, (5) investment advisers (or 
affiliated persons of an investment adviser) of an Insurance Fund, or 
(6) Plans.
    4. Rule 6e-3(T)(b)(15) under the Act provides partial exemptions 
from Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI Accounts 
supporting flexible premium variable life insurance contracts and their 
life insurance company depositors. The exemptions granted by the Rule 
are available, however, only where an Insurance Fund offers its shares 
exclusively to VLI Accounts (through which either scheduled premium or 
flexible premium VLI Contracts are issued) of the same Participating 
Insurance Company and/or of Participating Insurance Companies that are 
affiliated persons of the same Participating Insurance Company, VA 
Accounts of the same Participating Insurance Company or of affiliated 
Participating Insurance Companies, or the general account of the same 
Participating Insurance Company or of affiliated Participating 
Insurance Companies. Therefore, VLI Accounts, their depositors and 
their principal underwriters may not rely on the exemptions provided by 
Rule 6e-3(T)(b)(15) if shares of the Insurance Fund are held by a VLI 
Account of an unaffiliated Participating Insurance Company, a VA 
Account of an unaffiliated Participating Insurance Company, the general 
account of an unaffiliated Participating Insurance Company, an 
unaffiliated investment adviser, or a Plan. In other words, Rule 6e-
3(T)(b)(15) permits VLI Accounts supporting flexible premium VLI 
Contracts to invest in shares of a management investment company that 
serves as a vehicle for mixed funding but does not permit such a VLI 
Account to invest in shares of a management investment company that 
serves as a vehicle for extended mixed funding or shared funding.

[[Page 8823]]

    5. Accordingly, Applicants request an order of the Commission 
granting exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 
Act and Rule 6e-3(T)(b)(15) (and any comparable permanent rule) 
thereunder, to the extent necessary to permit a flexible premium VLI 
Account to hold shares of Insurance Funds when one or more of the 
following types of investors also hold shares of the Insurance Funds: 
(1) VA Accounts or VLI Accounts of Participating Insurance Companies 
that are not affiliated persons of the depositor of the flexible 
premium VLI Account, (2) general accounts of Participating Insurance 
Companies, (3) investment advisers (or affiliated persons of an 
investment adviser) of an Insurance Fund, or (4) Plans.
    6. As explained below, Applicants maintain that there is no public 
policy reason why VLI Accounts and their Participating Insurance 
Company depositors (or principal underwriters) should not be able to 
rely on the exemptions provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
just because shares of Insurance Funds held by the VLI Accounts are 
also held by a Fund's investment adviser (or affiliated person), the 
general account of the Participating Insurance Company (or another 
Participating Insurance Company), or a Plan (``Eligible 817(h) 
Purchasers''). Rather, Applicants assert that the proposed sale of 
Insurance Fund shares to Plans may allow for the development of larger 
pools of assets, resulting in the potential for greater investment and 
diversification opportunities and decreased expenses at higher asset 
levels. Similarly, Applicants believe that the proposed sale of 
Insurance Fund shares to investment advisers (or their affiliates) and 
to general accounts of Participating Insurance Companies may result in 
the creation of more Insurance Funds as investment options for certain 
VA Contracts and VLI Contracts than would otherwise be the case.
    7. Applicants understand that the reason the Commission did not 
grant more extensive relief in the area of mixed and shared funding 
when it adopted Rule 6e-3(T) is because of the Commission's uncertainty 
in this area with respect to issues such as conflicts of interest. 
Applicants believe, however, that the Commission's concern in this area 
is not warranted here. For the reasons explained below, Applicants have 
concluded that investment by Eligible 817(h) Purchasers in the 
Insurance Funds should not increase the risk of material irreconcilable 
conflicts between owners of VLI Contracts and other types of investors 
or between owners of VLI Contracts issued by unaffiliated Participating 
Insurance Companies.
    8. Consistent with the Commission's authority under Section 6(c) of 
the Act to grant exemptive orders to a class or classes of persons and 
transactions, Applicants request exemptions for a class of parties 
consisting of VLI Accounts, their Participating Insurance Company 
depositors and their principal underwriters. There is ample precedent, 
in a variety of contexts, for the Commission to grant exemptions to a 
carefully defined class of persons or parties where the specific 
identities of all such persons or parties cannot be ascertained at the 
time an application for the exemptions is filed. Likewise, there is 
ample precedent for parties not seeking to rely on the exemptions to 
apply for such exemptions in order to further their reasonable business 
purposes.
    9. In the context of mixed funding, extended mixed funding and 
shared funding, the Commission has granted numerous orders of exemption 
covering a class composed of registered VLI Accounts, their insurance 
company depositors and principal underwriters. The order sought is 
largely identical to these precedents with respect to the scope of the 
exemptions and the conditions proposed by the Applicants. Applicants 
believe that the same policies and considerations that led the 
Commission to grant such exemptions to other similarly situated 
applicants are present here.
    10. Section 6(c) of the Act provides, in part, that the Commission, 
by order upon application, may conditionally or unconditionally exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions, from any provision or provisions 
of the Act, or any rule or regulation thereunder, if and to the extent 
that such exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. The Applicants submit 
that the exemptions requested are appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.
    11. Section 9(a)(3) of the Act provides, among other things, that 
it is unlawful for any company to serve as investment adviser or 
principal underwriter of any registered open-end investment company if 
an affiliated person of that company is subject to a disqualification 
enumerated in Sections 9(a)(1) or (2). Rules 6e-2(b)(15)(i) and (ii) 
and Rules 6e-3(T)(b)(15)(i) and (ii) under the Act provide exemptions 
from Section 9(a) under certain circumstances, subject to the 
limitations discussed above on mixed funding, extended mixed funding 
and shared funding. These exemptions limit the application of the 
eligibility restrictions to affiliated individuals or companies that 
directly participate in management of the underlying investment 
company.
    12. The relief provided by Rules 6e-2(b)(15)(i) and 6e-
3(T)(b)(15)(i) permits a person that is disqualified under Sections 
9(a)(1) or (2) of the Act to serve as an officer, director, or employee 
of the life insurance company, or any of its affiliates, as long as 
that person does not participate directly in the management or 
administration of the underlying investment company. The relief 
provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) under the Act 
permits the life insurance company to serve as the underlying 
investment company's investment adviser or principal underwriter, 
provided that none of the insurer's personnel who are ineligible 
pursuant to Section 9(a) participates in the management or 
administration of the investment company.
    13. In effect, the partial relief granted in Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) under the Act from the requirements of Section 9 of the 
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 Act to apply the provisions of Section 
9(a) to all 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 Act to the many individuals in various 
unaffiliated insurance companies (or affiliated companies of 
Participating Insurance Companies) that may utilize the Insurance Funds 
as investment vehicles for VLI Accounts and VA Accounts. There is no 
regulatory purpose served in extending the monitoring requirements to 
embrace a full application of Section 9(a) eligibility restrictions 
because of mixed funding, extended mixed funding or shared funding. The 
Participating Insurance Companies and Plans are not expected to play 
any role in the management of the Insurance Funds. Those individuals 
who participate in the management of the Insurance Funds will remain 
the same regardless of

[[Page 8824]]

which VA Accounts, VLI Accounts, Plans or other Eligible 817(h) 
Purchasers invest in the Insurance Funds. Applying the monitoring 
requirements of Section 9(a) of the Act because of investment by VLI 
Accounts would be unjustified and would not serve any regulatory 
purpose. Furthermore, the increased monitoring costs could reduce the 
net rates of return realized by owners of VLI Contracts and Plan 
participants.
    14. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the Act 
provide exemptions from pass-through voting requirements with respect 
to several significant matters, assuming the limitations on mixed 
funding, extended mixed funding and shared funding are observed. Rules 
6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that the 
insurance company may disregard the voting instructions of its variable 
life insurance contract owners with respect to the investments of an 
underlying investment company, or any contract between such an 
investment company and its investment adviser, when required to do so 
by an insurance regulatory authority (subject to the provisions of 
paragraphs (b)(5)(i) and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T)).
    15. 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 
owners of its variable life insurance contracts if such owners initiate 
any change in an underlying 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)(5)(ii), (b)(7)(ii)(B) and 
(b)(7)(ii)(C) of Rules 6e-2 and 6e-3(T)).
    16. In the case of a change in the investment policies of the 
underlying investment company, the insurance company, in order to 
disregard contract owner voting instructions, must make a good faith 
determination that such a change either would: (1) violate state law, 
or (2) result in investments that either (a) would not be consistent 
with the investment objectives of its separate account, or (b) would 
vary from the general quality and nature of investments and investment 
techniques used by other separate accounts of the company, or of an 
affiliated life insurance company with similar investment objectives.
    17. Both Rule 6e-2 and Rule 6e-3(T) generally recognize that a 
variable life insurance contract is primarily a life insurance contract 
containing many important elements unique to life insurance contracts 
and subject to extensive state insurance regulation. In adopting 
subparagraph (b)(15)(iii) of these Rules, the Commission implicitly 
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.
    18. The sale of Insurance Fund shares to Plans will not have any 
impact on the provisions of Rules 6e-2 and 6e-3(T) relating to pass-
through voting and an insurance company's ability to disregard voting 
instructions in certain circumstances. Shares sold to Plans will be 
held by such Plans, not insurance companies. The exercise of voting 
rights by Plans, whether by trustees, other fiduciaries, participants, 
beneficiaries, or investment managers engaged by the Plans, does not 
raise the type of issues respecting disregard of voting rights that are 
raised by VLI Accounts. With respect to Plans, which are not registered 
as investment companies under the Act, there is no requirement to pass 
through voting rights to Plan participants. Indeed, to the contrary, 
applicable law expressly reserves voting rights associated with Plan 
assets to certain specified persons. For example, for many Plans, under 
Section 403(a) of the Employee Retirement Income Security Act of 1974 
(``ERISA''), shares of a portfolio of an investment company sold to a 
Plan must be held by the trust(s) funding the Plan. Section 403(a) also 
provides that the trustee(s) of such trusts must have exclusive 
authority and discretion to manage and control the Plan, with two 
exceptions: (1) When the Plan expressly provides that the trustee(s) 
are subject to the direction of a named fiduciary who is not a trustee, 
in which case the trustee(s) are subject to proper directions made in 
accordance with the terms of the Plan and not contrary to ERISA, and 
(2) 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) of ERISA. For such Plans, unless one of the above two 
exceptions stated in Section 403(a) applies, Plan trustees have the 
exclusive authority and responsibility for voting investment company 
shares (or related proxies) held by their Plan.
    19. If a named fiduciary to a Plan appoints an investment manager, 
the investment manager has the responsibility to vote the shares held, 
unless the right to vote such shares is reserved to the trustee(s) or 
another named fiduciary. The Plans may have their trustee(s) or other 
fiduciaries exercise voting rights attributable to investment 
securities held by the Plans in their discretion. Some Plans, however, 
may provide for the trustee(s), an investment adviser (or advisers), or 
another named fiduciary to exercise voting rights in accordance with 
instructions from Plan participants.
    20. Where a Plan does not provide participants with the right to 
give voting instructions, Applicants do not see any potential for 
material irreconcilable conflicts of interest between or among the 
Variable Contract owners and Plan participants with respect to voting 
of the respective Insurance Fund shares. Accordingly, unlike the 
circumstances surrounding VLI Accounts and VA Accounts, because Plans 
are not required to pass through voting rights to participants, the 
issue of resolution of material irreconcilable conflicts of interest 
should not arise with respect to voting Insurance Fund shares.
    21. In addition, if a 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 shares of any open-end management investment company. 
In this regard, Applicants submit that investment in an Insurance Fund 
by a Plan will not create any of the voting complications occasioned by 
VLI Account investments in the Fund. Unlike VLI Account investments, 
Plan voting rights cannot be frustrated by veto rights of Participating 
Insurance Companies or state insurance regulators.
    22. Where a Plan provides participants with the right to instruct 
the trustee(s) as to how to vote Insurance Fund shares, Applicants see 
no reason why such participants generally or those in a particular 
Plan, either as a single group or in combination with participants in 
other Plans, would vote in a manner that would disadvantage VLI 
Contract owners. The purchase of shares by Plans that provide voting 
rights does not present any complications not otherwise occasioned by 
mixed or shared funding.
    23. Similarly, an investment adviser to an Insurance Fund (or its 
affiliates) and the general accounts of Participating Insurance 
Companies are not subject to any pass-through voting requirements. 
Accordingly, unlike the circumstances surrounding VLI Account and VA 
Account investments in Insurance Fund shares, investment in such shares 
by Eligible 817(h) Purchasers should not raise issues of resolution of 
material irreconcilable conflicts of interest with respect to voting.
    24. Applicants recognize that the Commission's primary concern with

[[Page 8825]]

respect to mixed funding, extended mixed funding and shared funding 
issues is the potential for irreconcilable conflicts between the 
interests of owners of variable life insurance contracts and those of 
other investors in an open end investment company serving as an 
investment vehicle for such contracts. The prohibitions on mixed and 
shared funding might reflect concern regarding possible different 
investment motivations among investors. When Rule 6e-2 was first 
adopted, variable annuity separate accounts could invest in mutual 
funds whose shares were also offered to the general public. Therefore, 
the Commission staff may have been concerned with the potentially 
different investment motivations of public shareholders and owners of 
variable life insurance contracts. There also may have been some 
concern with respect to the problems of permitting a state insurance 
regulatory authority to affect the operations of a publicly available 
mutual fund and the investment decisions of public shareholders.
    25. For reasons unrelated to the Act, however, Revenue Ruling 81-
225 (Sept. 25, 1981) effectively deprived variable annuity contracts 
funded by publicly available mutual funds of their tax-benefited 
status. The Tax Reform Act of 1984 codified the prohibition against the 
use of publicly available mutual funds as an investment vehicle for 
both variable annuity contracts and variable life insurance contracts. 
In particular, Section 817(h) of the Code, in effect, requires that the 
investments made by both variable annuity and variable life insurance 
separate accounts be ``adequately diversified.'' If such a separate 
account is organized as part of a ``two-tiered'' arrangement where the 
account invests in shares of an underlying open-end investment company 
(i.e., an underlying fund), the diversification test will be applied to 
the underlying fund (or to each of several underlying funds), rather 
than to the separate account itself, but only if ``all of the 
beneficial interests'' in the underlying fund ``are held by one or more 
insurance companies (or affiliated companies) in their general account 
or in segregated asset accounts.'' Accordingly, a separate account that 
invests in a publicly available mutual fund will not be adequately 
diversified for these purposes. As a result, any underlying fund, 
including any Insurance Fund that sells shares to VA Accounts or VLI 
Accounts, would, in effect, be precluded from also selling its shares 
to the public. Consequently, the Insurance Funds may not sell their 
shares to the public.
    26. The rights of an insurance company or a state insurance 
regulator to disregard the voting instructions of owners of Variable 
Contracts is not inconsistent with either mixed funding or shared 
funding. The National Association of Insurance Commissioners Variable 
Life Insurance Model Regulation (the ``NAIC Model Regulation'') 
suggests that it is unlikely that insurance regulators would find an 
underlying fund's investment policy, investment adviser or principal 
underwriter objectionable for one type of Variable Contract but not 
another type. The NAIC Model Regulation has long permitted the use of a 
single underlying fund for different separate accounts. Moreover, the 
NAIC Model Regulation does not distinguish between scheduled premium 
and flexible premium variable life insurance contracts. The NAIC Model 
Regulation, therefore, reflects the NAIC's apparent confidence that 
such combined funding is appropriate and that state insurance 
regulators can adequately protect the interests of owners of all 
variable contracts.
    27. Shared funding by unaffiliated insurance companies does not 
present any issues that do not already exist where a single insurance 
company is licensed to do business in several or all states. A 
particular state insurance regulator could require action that is 
inconsistent with the requirements of other states in which the 
insurance company offers its contracts. However, the fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem.
    28. Shared funding by unaffiliated insurers, in this respect, is no 
different than the use of the same investment company as the funding 
vehicle for affiliated insurers, which Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) permit. Affiliated insurers may be domiciled in different 
states and be subject to differing state law requirements. Affiliation 
does not reduce the potential, if any exists, for differences in state 
regulatory requirements. In any event, the conditions set forth below 
are designed to safeguard against, and provide procedures for 
resolving, any adverse effects that differences among state regulatory 
requirements may produce. If a particular state insurance regulator's 
decision conflicts with the majority of other state regulators, then 
the affected Participating Insurance Company will be required to 
withdraw its separate account investments in the relevant Insurance 
Fund. This requirement will be provided for in the Participation 
Agreement that will be entered into by Participating Insurance 
Companies with the relevant Insurance Fund.
    29. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give the Participating 
Insurance Company the right to disregard the voting instructions of VLI 
Contract owners in certain circumstances. This right derives from the 
authority of state insurance regulators over VLI Accounts and VA 
Accounts. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), a Participating 
Insurance Company may disregard VLI Contract owner voting instructions 
only with respect to certain specified items. Affiliation does not 
eliminate the potential, if any exists, for divergent judgments as to 
the advisability or legality of a change in investment policies, 
principal underwriter or investment adviser initiated by such Contract 
owners. The potential for disagreement is limited by the requirements 
in Rules 6e-2 and 6e-3(T) that the Participating Insurance Company's 
disregard of voting instructions be reasonable and based on specific 
good faith determinations.
    30. A particular Participating Insurance Company's disregard of 
voting instructions, nevertheless, could conflict with the voting 
instructions of a majority of VLI Contract owners. The Participating 
Insurance Company's action possibly could be different than the 
determination of all or some of the other Participating Insurance 
Companies (including affiliated insurers) that the voting instructions 
of VLI Contract owners should prevail, and either could preclude a 
majority vote approving the change or could represent a minority view. 
If the Participating Insurance Company's judgment represents a minority 
position or would preclude a majority vote, then the Participating 
Insurance Company may be required, at the relevant Insurance Fund's 
election, to withdraw its VLI Accounts' and VA Accounts' investments in 
the relevant Insurance Fund. No charge or penalty will be imposed as a 
result of such withdrawal. This requirement will be provided for in the 
Participation Agreement entered into by the Participating Insurance 
Companies with the relevant Insurance Fund.
    31. There is no reason why the investment policies of an Insurance 
Fund would or should be materially different from what these policies 
would or should be if the Insurance Fund supported only VA Accounts or 
VLI Accounts, whether flexible premium or scheduled premium VLI

[[Page 8826]]

Contracts. Each type of insurance contract is designed as a long-term 
investment program.
    32. Each Insurance Fund will be managed to attempt to achieve its 
specified investment objective, and not favor or disfavor any 
particular Participating Insurance Company or type of insurance 
contract. There is no reason to believe that different features of 
various types of Variable Contracts will lead to different investment 
policies for each or for different VLI Accounts and VA Accounts. The 
sale of Variable Contracts and ultimate success of all VA Accounts and 
VLI Accounts depends, at least in part, on satisfactory investment 
performance, which provides an incentive for each Participating 
Insurance Company to seek optimal investment performance.
    33. Furthermore, no single investment strategy can be identified as 
appropriate to a particular Variable Contract. Each ``pool'' of VLI 
Contract and VA Contract owners is composed of individuals of diverse 
financial status, age, insurance needs and investment goals. An 
Insurance Fund supporting even one type of Variable Contract must 
accommodate these diverse factors in order to attract and retain 
purchasers. Permitting mixed and shared funding will provide economic 
support for the continuation of the Insurance Funds. Mixed and shared 
funding will broaden the base of potential Variable Contract owner 
investors, which may facilitate the establishment of additional 
Insurance Funds serving diverse goals.
    34. Applicants do not believe that the sale of the shares to 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 owners of VLI Contracts and VA 
Contracts. Applicants submit that either there are no conflicts of 
interest or that there exists the ability by the affected parties to 
resolve such conflicts consistent with the best interests of VLI 
Contract owners, VA Contract owners and Plan participants.
    35. Applicants considered whether there are any issues raised under 
the Code, Treasury Regulations, or Revenue Rulings thereunder, if 
Plans, VA Accounts, and VLI Accounts all invest in the same Insurance 
Fund. Section 817(h) of the Code is the culmination of a series of 
Revenue Rulings aimed at the control of investments by owners of 
Variable Contracts. Section 817(h) is the only Section of the Code that 
discusses insurance company separate accounts. Treasury Regulation 
1.817-5(f)(3)(iii), which establishes the diversification requirements 
for underlying funds, specifically permits, among other things, 
``qualified pension or retirement plans,'' and separate accounts to 
invest in the same underlying fund. For this reason, Applicants have 
concluded that neither the Code, nor the Treasury Regulations nor 
Revenue Rulings thereunder, present any inherent conflicts of interest 
if Plans, VLI Accounts, and VA Accounts all invest in the same 
Insurance Fund.
    36. Applicants note that, while there are differences in the manner 
in which distributions from VLI Accounts and Plans are taxed, these 
differences have no impact on the Insurance Funds. When distributions 
are to be made, and a VLI Account or Plan is unable to net purchase 
payments to make distributions, the VLI Account or Plan will redeem 
shares of the relevant Insurance Fund at its net asset values in 
conformity with Rule 22c-l under the Act (without the imposition of any 
sales charge) to provide proceeds to meet distribution needs. A 
Participating Insurance Company will then make distributions in 
accordance with the terms of its VLI Contract and a Plan will then make 
distributions in accordance with the terms of the Plan.
    37. Applicants considered whether it is possible to provide an 
equitable means of giving voting rights to VLI Contract owners and 
Plans. In connection with any meeting of Insurance Fund shareholders, 
the Insurance Fund's transfer agent will inform each Participating 
Insurance Company and other Eligible 817(h) Purchaser of their share 
holdings and provide other information necessary for such shareholders 
to participate in the meeting (e.g., proxy materials). Each 
Participating Insurance Company then will solicit voting instructions 
from owners of VLI Contracts and VA Contracts as required by either 
Rules 6e-2 or 6e-3(T), or Section 12(d)(1)(E)(iii)(aa) of the Act, as 
applicable, and its Participation Agreement with the relevant Insurance 
Fund. Shares held by a Participating Insurance Company general account 
will be voted by the Participating Insurance Company in the same 
proportion of shares for which it receives voting instructions from its 
Variable Contract owners. Shares held by Plans will be voted in 
accordance with applicable law. The voting rights provided to Plans 
with respect to the shares would be no different from the voting rights 
that are provided to Plans with respect to shares of mutual funds sold 
to the general public. Furthermore, if a material irreconcilable 
conflict arises because of a Plan's decision to disregard Plan 
participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude a majority vote, the 
Plan may be required, at the election of the relevant Insurance Fund, 
to withdraw its investment in the Insurance Fund, and no charge or 
penalty will be imposed as a result of such withdrawal.
    38. Applicants do not believe that the ability of an Insurance Fund 
to sell its shares to its investment adviser (or an affiliated person 
of the adviser), to Plans, or to the general account of a Participating 
Insurance Company gives rise to a senior security. ``Senior Security'' 
is defined in Section 18(g) of the Act to include ``any stock of a 
class having priority over any other class as to distribution of assets 
or payment of dividends.'' As noted above, regardless of the rights and 
benefits of participants under Plans and owners of VLI Contracts, VLI 
Accounts, VA Accounts, Participating Insurance Companies, Plans, and 
investment advisers (or their affiliates), only have, or will only 
have, rights with respect to their respective shares of an Insurance 
Fund. These parties can only redeem such shares at net asset value. No 
shareholder of an Insurance Fund has any preference over any other 
shareholder with respect to distribution of assets or payment of 
dividends.
    39. Applicants do not believe that the veto power of state 
insurance commissioners over certain potential changes to Insurance 
Fund investment objectives approved by owners of VLI Contracts creates 
conflicts between the interests of such owners and the interests of 
Plan participants. Applicants note that a basic premise of corporate 
democracy and shareholder voting is that not all shareholders may agree 
with a particular proposal. Their interests and opinions may differ, 
but this does not mean that inherent conflicts of interest exist 
between or among such shareholders or that occasional conflicts of 
interest that do occur between or among them are likely to be 
irreconcilable.
    40. Although Participating Insurance Companies may have to overcome 
regulatory impediments in redeeming shares of an Insurance Fund held by 
their VLI Accounts, the Plans and the participants in participant-
directed Plans can make decisions quickly and redeem their shares in a 
Fund and reinvest in another investment company or other funding 
vehicle without impediments, or as is the case with most Plans, hold 
cash pending suitable investment. As a result, conflicts

[[Page 8827]]

between the interests of VLI Contract owners and the interests of Plans 
and Plan participants can usually be resolved quickly since the Plans 
can, on their own, redeem their Insurance Fund shares.
    41. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
and Plans created by future changes in the tax laws. Applicants do not 
see any greater potential for material irreconcilable conflicts arising 
between the interests of VLI Contract owners (or, for that matter, VA 
Contract owners) and Plan participants from future changes in the 
federal tax laws than that which already exists between VLI Contract 
owners and VA Contract owners.
    42. Applicants recognize that the foregoing is not an all-inclusive 
list, but rather is representative of issues that they believe are 
relevant to this Application. Applicants believe that the discussion 
contained herein demonstrates that the sale of Insurance Fund shares to 
Plans trustees would not increase the risk of material irreconcilable 
conflicts between the interests of Plan participants and VLI Contract 
owners or other investors. Further, Applicants submit that the use of 
the Insurance Funds with respect to Plans is not substantially 
dissimilar from each Insurance Fund's anticipated use, in that Plans, 
like VLI Accounts, are generally long-term investors.
    43. Applicants assert that permitting an Insurance Fund to sell its 
shares to its investment adviser (or the adviser's affiliates) 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 among different types of 
investors.
    44. A potential source of initial capital is an Insurance Fund's 
investment adviser or a Participating Insurance Company. Either of 
these parties may have an interest in making a capital investment and 
in assisting 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).
    45. Given the conditions of Treasury Regulation 1.817-5(f)(3) and 
the harmony of interest between an Insurance Fund, on the one hand, and 
its investment adviser (or affiliates) or a Participating Insurance 
Company, on the other, Applicants assert that little incentive for 
overreaching exists. Furthermore, such investment should not implicate 
the concerns discussed above regarding the creation of material 
irreconcilable conflicts. Instead, permitting investments by an 
investment adviser (or its affiliates), or by general accounts of 
Participating Insurance Companies, will permit the orderly and 
efficient creation and operation of an Insurance Fund, and reduce the 
expense and uncertainty of using outside parties at the early stages of 
the Insurance Fund's operations.
    46. Various factors have limited the number of insurance companies 
that offer Variable Contracts. These factors include the costs of 
organizing and operating a funding vehicle, certain insurers' lack of 
experience with respect to investment management, and the lack of name 
recognition by the public of certain insurance companies as investment 
experts. In particular, some smaller life insurance companies may not 
find it economically feasible, or within their investment or 
administrative expertise, to enter the Variable Contract business on 
their own. Use of an Insurance Fund as a common investment vehicle for 
VLI Accounts would reduce or eliminate these concerns. Mixed and shared 
funding should also provide several benefits to owners of VLI Contracts 
by eliminating a significant portion of the costs of establishing and 
administering separate underlying funds.
    47. Participating Insurance Companies will benefit not only from 
the investment and administrative expertise of NYLIM and its 
affiliates, but also from the potential cost efficiencies and 
investment flexibility afforded by larger pools of funds. Mixed and 
shared funding also would permit a greater amount of assets available 
for investment by an Insurance Fund, thereby promoting economies of 
scale, by permitting increased safety through greater diversification, 
or by making the addition of new Insurance Funds more feasible. 
Therefore, making the Insurance Funds available for mixed and shared 
funding will encourage more insurance companies to offer VLI Accounts. 
This should result in increased competition with respect to both VLI 
Account design and pricing, which can in turn be expected to result in 
more product variety. Applicants also assert that sale of shares in an 
Insurance Fund to Plans, in addition to VLI Accounts and VA Accounts, 
will result in an increased amount of assets available for investment 
in an Insurance Fund. This may benefit VLI Account owners by promoting 
economies of scale, permitting increased safety of investments through 
greater diversification, and making the addition of new Insurance Funds 
more feasible.
    48. Applicants also submit that, regardless of the type of 
shareholder in an Insurance Fund, its investment adviser (and the 
adviser's affiliates) are or would be contractually and otherwise 
obligated to manage the Insurance Fund solely and exclusively in 
accordance with that Fund's investment objectives, policies and 
restrictions, as well as any guidelines established by the its board of 
directors or trustees (a ``Board''). Thus, each Insurance Fund will be 
managed in the same manner as any other mutual fund.
    49. Applicants see no significant legal impediment to permitting 
mixed funding, extended mixed funding and shared funding. VLI Accounts 
historically have been employed to accumulate shares of mutual funds 
that are not affiliated with the depositor or sponsor of the VLI 
Account. In particular, Applicants assert that sales of Insurance Fund 
shares to Eligible 817(h) Purchasers, as described above, will not have 
any adverse federal income tax consequences to other investors in such 
a Fund.
    50. In addition, Applicants note that the Commission has issued 
numerous orders permitting mixed funding, extended mixed funding and 
shared funding. Therefore, granting the exemptions requested herein is 
in the public interest and, as discussed above, will not compromise the 
regulatory purposes of Sections 9(a), 13(a), 15(a), or 15(b) of the Act 
or Rules 6e-2 or 6e-3(T) thereunder.
    Applicants' Conditions:
    Applicants agree that the Commission order requested herein shall 
be subject to the following conditions which shall apply to the Fund 
and any future trusts:
    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 Act, and the rules thereunder, and 
as modified by any applicable orders of the Commission, except that if 
this condition is not met by reason of death, disqualification or bona 
fide resignation of any trustee or trustees, then the operation of this 
condition will be suspended: (a) For a period of 90 days if the vacancy 
or vacancies may be filled by the Board, (b) for a period of 150 days 
if a vote of shareholders is required to fill the vacancy or vacancies, 
or (c) for such longer period as the Commission may prescribe by order 
upon application, or by future rule.

[[Page 8828]]

    2. The Board of each Insurance Fund will monitor the Insurance Fund 
for the existence of any material irreconcilable conflict between and 
among the interests of the owners of all VLI Contracts and VA Contracts 
and participants of all Plans investing in the Insurance Fund, and 
determine what action, if any, should be taken in response to such 
conflicts. A material irreconcilable conflict may arise for a variety 
of reasons, including: (a) An action by any state insurance regulatory 
authority, (b) a change in applicable federal or state insurance, tax, 
or securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax or securities regulatory authorities, (c) an 
administrative or judicial decision in any relevant proceeding, (d) the 
manner in which the investments of the Insurance Fund are being 
managed, (e) a difference in voting instructions given by VA Contract 
owners, VLI Contract owners, and Plans or Plan participants, (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of contract owners; or (g) if applicable, a decision by a 
Plan to disregard the voting instructions of Plan participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of general account assets in an 
Insurance Fund), an adviser and its affiliates, and any Plan that 
executes a Participation Agreement upon its becoming an owner of 10% or 
more of the net assets of an Insurance Fund (collectively, 
``Participants'') will report any potential or existing conflicts to 
the Board of the Insurance Fund. Net assets of an Insurance Fund will 
be defined and calculated in accordance with the prospectus and as 
reflected in the financial statements of the Insurance Fund. Each 
Participant will be responsible for assisting the Board in carrying out 
the Board's responsibilities under these conditions by providing the 
Board with all information reasonably necessary for the Board to 
consider any issues raised. This responsibility includes, but is not 
limited to, an obligation by each Participating Insurance Company to 
inform the Board whenever Variable Contract owner voting instructions 
are disregarded, and, if pass-through voting is applicable, an 
obligation by each Plan to inform the Board whenever it has determined 
to disregard Plan participant voting instructions. The responsibility 
to report such information and conflicts, and to assist the Board, will 
be a contractual obligation of all Participating Insurance Companies 
under their Participation Agreement with an Insurance Fund, and these 
responsibilities will be carried out with a view only to the interests 
of the Variable Contract owners. The responsibility to report such 
information and conflicts, and to assist the Board, also will be 
contractual obligations of all Plans under their Participation 
Agreement with an Insurance Fund, and such agreements will provide that 
these responsibilities will be carried out with a view only to the 
interests of Plan participants.
    4. If it is determined by a majority of the Board 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 VLI 
Accounts or VA Accounts from the Insurance Fund and reinvesting such 
assets in a different investment vehicle including another Insurance 
Fund, (b) in the case of a Participating Insurance Company, submitting 
the question as to whether such segregation should be implemented to a 
vote of all affected Variable Contract owners and, as appropriate, 
segregating the assets of any appropriate group (i.e., VA Contract 
owners or VLI Contact owners of one or more Participating Insurance 
Companies) that votes in favor of such segregation, or offering to the 
affected Contract owners the option of making such a change, (c) 
withdrawing the assets allocable to some or all of the Plans from the 
affected Insurance Fund and reinvesting them in a different investment 
medium, and (d) establishing a new registered management investment 
company or managed separate account. If a material irreconcilable 
conflict arises because of a decision by a Participating Insurance 
Company to disregard Variable Contract owner voting instructions, and 
that decision represents a minority position or would preclude a 
majority vote, then the Participating Insurance Company may be 
required, at the election of the Insurance Fund, to withdraw such 
Participating Insurance Company's VA Account and VLI 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 Plan's decision to disregard Plan 
participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude a majority vote, the 
Plan may be required, at the election of the Insurance Fund, 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 an Insurance Fund, and these 
responsibilities will be carried out with a view only to the interests 
of Variable Contract owners or, as applicable, Plan participants. For 
purposes of this Condition 4, a majority of the disinterested 
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 
its investment adviser be required to establish a new funding vehicle 
for any Variable Contract or Plan. No Participating Insurance Company 
will be required by this Condition 4 to establish a new funding vehicle 
for any Variable Contract if any offer to do so has been declined by 
vote of a majority of the Contract owners materially and adversely 
affected by the material irreconcilable conflict. Further, no Plan will 
be required by this Condition 4 to establish a new funding vehicle for 
the Plan if: (a) A majority of the Plan participants materially and 
adversely affected by the irreconcilable material conflict vote to 
decline such offer, or (b) pursuant to documents governing the Plan, 
the Plan trustee makes such decision without a Plan participant vote.
    5. The Board of each Insurance Fund's determination of the 
existence of a material irreconcilable conflict and its implications 
will be made known in writing promptly to all Participants.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Variable Contract owners whose Contracts are 
issued through registered VLI Accounts or registered VA Accounts for as 
long as required by the Act as interpreted by the Commission. However, 
as to Variable Contracts issued through VA Accounts or VLI Accounts not 
registered as investment companies under the Act, pass-through voting 
privileges will be extended to owners of such Contracts to the extent 
granted by the Participating Insurance Company. Accordingly, such 
Participating Insurance Companies,

[[Page 8829]]

where applicable, will vote the shares of each Insurance Fund held in 
their VLI Accounts and VA Accounts in a manner consistent with voting 
instructions timely received from Variable Contract owners. 
Participating Insurance Companies will be responsible for assuring that 
each of their VLI and VA Accounts investing in an Insurance Fund 
calculates voting privileges in a manner consistent with all other 
Participating Insurance Companies investing in that Fund. The 
obligation to calculate voting privileges as provided in this 
Application shall be a contractual obligation of all Participating 
Insurance Companies under their Participation Agreement with the 
Insurance Fund. Each Participating Insurance Company will vote shares 
of each Insurance Fund held in its VLI or VA Accounts for which no 
timely voting instructions are received, as well as shares held by its 
general account or otherwise attributed to it, in the same proportion 
as those shares for which voting instructions are received. Each Plan 
will vote as required by applicable law, governing Plan documents and 
as provided in this application.
    7. As long as the Act requires pass-through voting privileges to be 
provided to Variable Contract owners or the Commission interprets the 
Act to require the same, an Insurance Fund investment adviser (or its 
affiliates) or any general account will vote their shares of the 
Insurance Fund in the same proportion as all votes cast on behalf of 
all Variable Contract owners having voting rights; provided, however, 
that such an investment adviser (or affiliates) 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 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in its shares), and, in 
particular, the Insurance Fund will either provide for annual meetings 
(except to the extent that the Commission may interpret Section 16 of 
the Act not to require such meetings) or comply with Section 16(c) of 
the Act (although each Insurance Fund is not, or will not be, one of 
those trusts of the type described in Section 16(c) of the Act), as 
well as with Section 16(a) of the Act and, if and when applicable, 
Section 16(b) of the Act. Further, each 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 VLI 
Accounts, VA Accounts, and Plans at or about the time it accepts any 
capital from its investment adviser (or affiliates) or from a general 
account of a Participating Insurance Company.
    10. Each Insurance Fund has notified, or will notify, all 
Participants that disclosure regarding potential risks of mixed and 
shared funding may be appropriate in VLI Account and VA Account 
prospectuses or Plan documents. Each Insurance Fund will disclose, in 
its prospectus that: (a) Shares of the Fund may be offered to both VA 
Accounts and VLI Accounts and, if applicable, to Plans, (b) due to 
differences in tax treatment and other considerations, the interests of 
various Variable Contract owners participating in the Insurance Fund 
and the interests of Plan participants 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 conflicts.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the Act 
are amended, or Rule 6e-3 under the Act is adopted, to provide 
exemptive relief from any provision of the Act, or the rules 
thereunder, with respect to mixed or shared funding, on terms and 
conditions materially different from any exemptions granted in the 
order requested in this Application, then each 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), as 
amended, or Rule 6e-3, to the extent such rules are applicable.
    12. Each Participant, at least annually, shall submit to the Board 
of each 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 shall 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, shall be a contractual obligation of all 
Participants under their Participation Agreement with the 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 
Plan if such purchase would make the Plan an owner of 10 percent or 
more of the net assets of the Insurance Fund unless the 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 Plan will execute an application containing an 
acknowledgement of this condition at the time of its initial purchase 
of shares.
    15. Each Insurance Fund will make its shares available through an 
Account at or about the same time that the Insurance Fund receives any 
seed money from the general account of a Participating Insurance 
Company.
    Conclusion:
    For the reasons summarized above, applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-4064 Filed 2-25-09; 8:45 am]

BILLING CODE 8011-01-P