Document ID: SEC-2013-1677-0001
Agency: sec
Document Type: Notice
Title: Applications: Variable Insurance Trust, et al.
Posted Date: 2013-09-30T04:00Z

[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Notices]
[Pages 59985-59991]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23687]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30700; File No. 812-14108]

Variable Insurance Trust, et al.; Notice of Application

September 24, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an exemption pursuant to Section 6(c) 
of the Investment Company Act of 1940, as amended (the ``Act''), 
seeking exemptions 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.

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Applicants: Variable Insurance Trust (the ``Fund'') and MFund Services 
LLC (``MFund'') (collectively, ``Applicants'').

SUMMARY: Summary of Application: Applicants request an order pursuant 
to Section 6(c) of the Act granting 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 in cases where a life insurance company 
separate account supporting variable life insurance contracts (``VLI 
Accounts'') holds shares of an existing portfolio of the Fund or any 
other ``Insurance Fund,'' as defined below (collectively, the 
``Insurance Funds''), and one or more of the following other types of 
investors also hold shares of the Insurance Funds: (i) Separate 
accounts registered as investment companies or separate accounts that 
are not registered as investment companies under the Act pursuant to 
exemptions from registration under Section 3(c) of the Act that fund 
variable annuity contracts (``VA Accounts'') and VLI Accounts (VA 
Accounts and VLI Accounts together ``Separate Accounts'') issued by 
both affiliated life insurance companies and unaffiliated life 
insurance companies (``Participating Insurance Companies''); (ii) 
trustees of qualified group pension or group retirement plans 
(``Qualified Plans'') outside the Separate Account context; (iii) 
investment adviser(s) or affiliated person(s) of the investment 
adviser(s) to a series of an Insurance Fund (the ``Adviser''), for the 
purpose of providing seed capital to a series of an Insurance Fund; and 
(iv) any general account of an insurance company depositor of VA 
Accounts and/or VLI Accounts (``General Accounts''). An Insurance Fund 
is any investment company (or investment portfolio or series thereof), 
including an existing portfolio of the Fund, designed to be sold to VA 
Accounts and/or VLI Accounts and to which an Applicant or its 
affiliates serve or may serve in the future as investment advisers, 
investment subadvisers, investment managers, administrators, principal 
underwriters or sponsors.

DATES: Filing Date: The application was filed on January 7, 2013, and 
amended and restated on July 23, 2013.

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 Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or

[[Page 59986]]

by mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 21, 2013, 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 may request notification of a hearing by writing to 
the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicants: Jerry Szilagyi, MFund 
Services LLC, 22 High Street, Huntington, NY 11743 and Jerry Szilagyi, 
Variable Insurance Trust, 5 Abbington Drive, Lloyd Harbor, NY 11743. 
Copy to JoAnn Strasser, Esq., Thompson Hine LLP, 41 South High Street, 
Suite 1700, Columbus, OH 43215.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Michael 
Kosoff, Branch Chief, Insured Investments Office, Division of 
Investment Management at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search.htm, 
or by calling (202) 551-8090.

Applicants' Representations

    1. The Fund is registered under the Act as an open-end management 
investment company (File No. 811-22512) and is currently comprised of 
four portfolios, one of which, the Vice Fund Portfolio, is registered 
under the Securities Act of 1933 on Form N-1A. The Fund may establish 
additional portfolios and classes of shares of each portfolio in the 
future. Shares of the Fund will not be offered to the general public.
    2. MFund provides management and administrative services to the 
Fund and other portfolios, subject to the supervision of the applicable 
Board.
    3. The Fund proposes, and other Insurance Funds may in the future, 
offer and sell Shares to Separate Accounts of various Participating 
Insurance Companies as an investment medium to support variable life 
contracts (``VLI Contracts'') and variable annuity contracts (``VA 
Contracts'') (collectively, ``Variable Contracts'') issued through such 
Separate Accounts. Each Separate Account is, or will be, established as 
a segregated asset account by a Participating Insurance Company 
pursuant to the insurance law of the insurance company's state of 
domicile. If a Separate Account is registered as an investment company 
under the Act, or is exempt from such registration under Section 3(c) 
of the Act, it will be a ``separate account'' as defined in Rule 0-1(e) 
(or any successor rule) under the Act. For purposes of the Act, the 
Participating Insurance Company that establishes such a Separate 
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. Each Participating 
Insurance Company may rely on Rule 6e-2 or Rule 6e- 3(T) under the Act.
    4. The Insurance Funds will sell shares to Separate Accounts only 
if each Participating Insurance Company sponsoring a Separate Account 
enters into a participation agreement (a ``Participation Agreement'') 
with such Insurance Fund. The Participation Agreement will govern 
participation by the Participating Insurance Company in such Insurance 
Fund and will memorialize, among other matters, the fact that the 
Participating Insurance Company will remain responsible for 
establishing and maintaining any Separate Account covered by the 
Participation 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 role of the Insurance Funds under this arrangement 
insofar as federal securities laws are applicable, will consist of 
offering shares to the Separate Accounts and fulfilling any conditions 
that the Commission may impose upon granting the requested order.
    5. 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 that are affiliated persons of each other, is 
referred to 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 the two or more 
Participating Insurance Companies that are not affiliated persons of 
each other, is referred to as ``shared funding.''
    6. Applicants propose that the Insurance Funds also be permitted to 
offer and/or sell Shares directly to Qualified Plans and to the 
Insurance Fund's Adviser or General Account of Participating Insurance 
Companies.
    8. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for VLI Accounts, VA 
Accounts, investment advisers, a General Account and Qualified Plans 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. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the Act provide 
partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
Act to VLI Accounts supporting certain VLI Contracts and to their life 
insurance company depositors under limited circumstances, as described 
in the application. VLI Accounts, their depositors and their principal 
underwriters may not rely on the exemptions provided by Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) if shares of the Fund are held by a VLI 
Account through which certain VLI Contracts are issued, a VLI Account 
of an unaffiliated Participating Insurance Company, an unaffiliated 
Adviser, any VA Account, a Qualified Plan or a General Account. 
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 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, in cases where VLI 
Account holds Shares of an Insurance Fund and one or more of the 
following types of investors also hold such Shares: (i) VA Accounts and 
VLI Accounts issued by both affiliated and unaffiliated Participating 
Insurance Companies; (ii) Qualified Plans; (iii) a portfolio's Adviser 
for the purpose of providing seed capital to a portfolio; and (iv) 
General Accounts.
    3. Applicants maintain that there is no policy reason for the sale 
of Shares to Qualified Plans, Advisers and General Accounts to prohibit 
or otherwise limit a VLI Account and its Participating Insurance 
Company depositor from relying on the relief provided by Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) just because Shares are held

[[Page 59987]]

by Qualified Plans, Advisers or General Accounts. Notwithstanding, Rule 
6e-2 and Rule 6e-3(T) each specifically provide that the relief granted 
thereunder is available only where shares of the underlying fund are 
offered exclusively to insurance company separate accounts. In this 
regard, Applicants request exemptive relief to the extent necessary to 
permit Shares to be sold to Qualified Plans, Advisers and General 
Accounts while allowing Participating Insurance Companies and their VA 
Accounts and VLI Accounts to enjoy the benefits of the relief granted 
under Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15). Applicants note that if 
the Insurance Funds were to sell their shares only to Qualified Plans, 
exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be 
necessary. The relief provided for under Rule 6e-2(b)(15) and Rule 6e-
3(T)(b)(15) does not relate to qualified pension and retirement plans 
or to a registered investment company's ability to sell its shares to 
such plans.
    4. Applicants are not aware of any reason for excluding separate 
accounts and investment companies engaged in shared funding from the 
exemptive relief provided under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), 
or for excluding separate accounts and investment companies engaged in 
mixed funding from the exemptive relief provided under Rule 6e-
2(b)(15). Similarly, Applicants are not aware of any reason for 
excluding Participating Insurance Companies from the exemptive relief 
requested because the Insurance Funds also may sell their Shares to 
Qualified Plans, Advisers and General Accounts. Rather, Applicants 
assert that the proposed sale of Shares to these purchasers, in fact, 
may allow for the development of larger pools of assets resulting in 
the potential for greater investment and diversification opportunities, 
and for decreased expenses at higher asset levels resulting in greater 
cost efficiencies.
    5. Applicants have concluded, as explained in more detail below, 
that investment by Qualified Plans, Advisers and General Accounts 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.
    6. 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 consisting of 
VLI Accounts investing in shares of existing and future portfolios of 
Insurance Funds, their Participating Insurance Company depositors and 
their principal underwriters that currently invest in or in the future 
will invest in the Fund.
    7. 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 class or classes of any person, 
security or transaction from any provision or provisions of the Act, or 
the rules or regulations 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 and in the public 
interest, consistent with the protection of investors, and consistent 
with the purposes fairly intended by the policy and provisions of the 
Act.
    8. 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 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.
    9. 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)).
    10. The Applicants represent that the sale of Shares to Qualified 
Plans, the Adviser or General Account will not have any impact on the 
exemptions requested herein regarding the disregard of pass-through 
voting rights. Shares sold to Qualified Plans will be held by such 
Plans, not insurance companies. The exercise of voting rights by 
Qualified Plans, whether by trustees, other fiduciaries, participants, 
beneficiaries, or investment managers engaged by the Qualified Plans, 
does not raise the type of issues respecting disregard of voting rights 
that are raised by VLI Accounts. With respect to Qualified Plans, which 
are not registered as investment companies under the Act, there is no 
requirement to pass through voting rights to Qualified Plan 
participants. Indeed, to the contrary, applicable law expressly 
reserves voting rights associated with Qualified Plan assets to certain 
specified persons as discussed in the application.
    11. Similarly, the Adviser to an Insurance Fund 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 portfolio shares, 
Applicants represent that investment in such shares by Qualified Plans 
would not raise issues respecting resolution of material irreconcilable 
conflicts of interest with respect to voting. Consequently, the Funds 
may not sell their shares to the public.
    12. Applicants assert that the rights of an insurance company on 
its own initiative or on instructions from a state insurance regulator 
to disregard the voting instructions of owners of Variable Contracts is 
not inconsistent with either mixed funding or shared funding. 
Applicants state that 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.
    13. Applicants assert that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. A particular state insurance regulatory body could require 
action that is inconsistent with the requirements of other states in 
which the insurance company offers its contracts. However,

[[Page 59988]]

the fact that different insurers may be domiciled in different states 
does not create a significantly different or enlarged problem. Shared 
funding by unaffiliated insurers, in this respect, is no different than 
the use of the same investment company as the funding vehicle for 
affiliated insurers, which Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under 
the Act permit. Applicants note that 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 portfolio. This requirement will be provided for in the 
Participation Agreement that will be entered into by Participating 
Insurance Companies with an Insurance Fund.
    14. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the Act give 
Participating Insurance Companies the right to disregard the voting 
instructions of VLI Contract owners in certain circumstances. This 
right derives from the authority of state insurance regulator 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. Applicants 
state that 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) under the Act 
that the Participating Insurance Company's disregard of voting 
instructions be reasonable and based on specific good faith 
determinations.
    15. Applicants state that 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 
Insurance Fund's election, to withdraw its VLI Accounts and VA 
Accounts' investments in the relevant portfolio. 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 between the 
Participating Insurance Company and the Insurance Fund.
    16. Applicants assert that there is no reason why the investment 
policies of a portfolio would or should be materially different from 
what these policies would or should be if the portfolio supported only 
VLI Accounts or VA Accounts, whether flexible premium or scheduled 
premium VLI Contracts.
    17. Applicants represent that each portfolio 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 contact. 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 Separate Accounts. The 
sale of all Variable Contracts and ultimate success of all Separate 
Accounts depends, at least in part, on satisfactory investment 
performance, which provides an incentive for each Participating 
Insurance Company to seek optimal investment performance.
    18. Furthermore, Applicants state that 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. A portfolio 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 portfolios. Mixed 
and shared funding will broaden the base of potential Variable Contract 
owners, which may facilitate the establishment of additional portfolios 
serving diverse goals.
    19. Applicants do not believe that the sale of the Shares to 
Qualified Plans, Advisers or General Accounts 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 potential 
conflicts consistent with the best interests of Variable Contract 
owners and participants in Qualified Plans.
    20. Applicants considered whether there are any issues raised under 
the Internal Revenue Code, Treasury Regulations, or Revenue Rulings 
thereunder, if Qualified Plans, VLI Accounts, VA Accounts, Advisers and 
General Accounts all invest in the same portfolio. Applicants have 
concluded that neither the Code, nor the Treasury Regulations nor 
Revenue Rulings thereunder, present any inherent conflicts of interest 
if Qualified Plans, Advisers, General Accounts, VLI Accounts and VA 
Accounts all invest in the same portfolio. Applicants note that, while 
there are differences in the manner in which distributions from VLI 
Accounts and Qualified Plans are taxed, these differences have no 
impact on the portfolios.
    21. Applicants considered whether it is possible to provide an 
equitable means of giving voting rights to VLI Contract owners and to 
Qualified Plans. In connection with any meeting of an Insurance Fund 
shareholders, the relevant transfer agent will inform each 
Participating Insurance Company, Adviser and Qualified Plan 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 Rules 6e-2 and 6e-3(T), or Section 12(d)(1)(E)(iii)(aa) of the Act, 
as applicable, and its Participation Agreement with an Insurance Fund. 
Shares held by a General Account of a Participating Insurance Company 
will be voted by the Participating Insurance Company in the same 
proportion as shares for which it receives voting instructions from its 
Variable Contract owners. Shares held by Qualified Plans will be voted 
in accordance with applicable law. The voting rights provided to 
Qualified Plans with respect to the shares would be no different from 
the voting rights that are provided to Qualified Plans with respect to 
shares of mutual funds sold to the general public. Furthermore, if a 
material irreconcilable conflict arises because of a Qualified Plan's

[[Page 59989]]

decision to disregard Qualified Plan participant voting instructions, 
if applicable, and that decision represents a minority position or 
would preclude a majority vote, the Qualified Plan may be required, at 
the election of the Insurance Fund, to withdraw its investment in a 
portfolio, and no charge or penalty will be imposed as a result of such 
withdrawal.
    22. Applicants do not believe that the ability of an Insurance Fund 
to sell Shares directly to its Adviser, Qualified Plans, or a 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 Qualified 
Plans and owners of VLI Contracts, VLI Accounts, VA Accounts, 
Participating Insurance Companies, Qualified Plans, General Accounts 
and the Adviser, only have, or will only have, rights with respect to 
their respective Shares. These parties can only redeem such Shares at 
net asset value. No shareholder of a portfolio has any preference over 
any other shareholder with respect to distribution of assets or payment 
of dividends.
    23. Applicants do not believe that the veto power of state 
insurance commissioners over certain potential changes to portfolio 
investment objectives approved by owners of VLI Contracts creates 
conflicts between the interests of such owners and the interests of 
Qualified 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.
    24. Although Participating Insurance Companies may have to overcome 
regulatory impediments in redeeming shares of a portfolio held by their 
VLI Accounts, the Qualified Plans and the participants in participant-
directed Qualified Plans can make decisions quickly and redeem their 
Shares and reinvest in another investment company or other funding 
vehicle without impediments, or as is the case with most Qualified 
Plans, hold cash pending suitable investment. As a result, conflicts 
between the interests of VLI Contract owners and the interests of 
Qualified Plans and Qualified Plan participants can usually be resolved 
quickly since the Qualified Plans can, on their own, redeem their 
Shares.
    25. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
and Qualified 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 participants in the 
Qualified Plans and VLI Contract owners (or for that matter, VA 
Contract owners) and Qualified Plan participants from future changes in 
the federal tax laws than that which already exists between Variable 
Contract owners.
    26. Applicants believe that the discussion contained in the 
application demonstrates that the sale of shares to Qualified Plans 
does not increase the risk of material irreconcilable conflicts of 
interest between the interests of Qualified Plan participants and VLI 
Contract owners or other investors. Further, Applicants submit that the 
use of a portfolio with respect to Qualified Plans is not substantially 
dissimilar from each portfolio's current and anticipated use, in that 
Qualified Plans, like VLI Accounts, are generally long-term investors.
    27. Applicants assert that permitting an Insurance Fund to sell 
Shares to its Adviser (for the purpose of obtaining seed capital) or to 
the General Account of a Participating Insurance Company will enhance 
management of the Insurance Fund without raising significant concerns 
regarding material irreconcilable conflicts among different types of 
investors.
    28. 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 insurers 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 
a portfolio as a common investment vehicle for VLI Accounts would 
reduce or eliminate these concerns. Mixed and shared funding should 
also provide several benefits to VLI Contract owners by eliminating a 
significant portion of the costs of establishing and administering 
separate underlying funds.
    29. Applicants state that Participating Insurance Companies will 
benefit not only from the investment expertise of the Adviser, 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 a 
portfolio, thereby promoting economies of scale, by permitting 
increased safety through greater diversification, or by making the 
addition of new portfolios more feasible. Therefore, making the 
portfolios 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.
    30. Applicants also submit that, regardless of the type of 
shareholder in a portfolio, the Adviser is or would be contractually 
and otherwise obligated to manage the portfolio solely and exclusively 
in accordance with that portfolio's investment objectives, policies and 
restrictions, as well as any guidelines established by the Board.
    31. Applicants assert that sales of Shares as described above will 
not have any adverse federal income tax consequences to other investors 
in the portfolios.
    32. In addition, Applicants assert that granting the exemptions 
requested in the application 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 order granting the requested relief shall 
be subject to the following conditions, which shall apply to each 
Insurance Fund:
    1. A majority of the Board will consist of persons who are not 
``interested persons'' of an 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 59990]]

    2. The Board will monitor an 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 Qualified Plans investing in the Insurance Fund, and determine what 
action, if any should be taken in response to such conflicts. A 
material irreconcilable conflict may arise for a variety of reasons, 
including: (a) An action by any state insurance regulatory authority; 
(b) a change in applicable federal or state insurance, tax, or 
securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of an Insurance Fund are being managed; 
(e) a difference in voting instructions given by VA Contracts owners, 
VLI Contact owners, and Qualified Plans or Qualified 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 Qualified Plan to disregard the voting instructions of 
Qualified Plan participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of General Account assets in a portfolio 
of an Insurance Fund), an adviser and its affiliates, and any Qualified 
Plan that executes a Participation Agreement upon becoming an owner of 
10 percent or more of the assets of a portfolio (collectively, 
``Participants'') will report any potential or existing conflicts to 
the Board. 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 Trustee for a Qualified Plan to 
inform the Board whenever it has determined to disregard Qualified Plan 
participant voting instructions. The responsibility to report such 
information and conflicts, and to assist the Board, will be a 
contractual obligation of all Participating Insurance Companies under 
their Participation Agreement with the relevant Insurance Fund, and 
these responsibilities will be carried out with a view only to the 
interests of the Variable Contract owners. The responsibility to report 
such information and conflicts, and to assist the Board, also will be 
contractual obligations of all Qualified Plans under their 
Participation Agreement with the relevant Insurance Fund, and such 
agreements will provide that these responsibilities will be carried out 
with a view only to the interests of Qualified Plan participants.
    4. If it is determined by a majority of the Board, or a majority of 
the disinterested 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 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 relevant portfolio 
and reinvesting such assets in a different investment vehicle including 
another portfolio, (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 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; (c) withdrawing the assets allocable to some or all of the 
Qualified Plans or Separate Accounts from the affected portfolio or 
Participating Insurance Company 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 VLI Account and VA Account 
investments in a portfolio, and no charge or penalty will be imposed as 
a result of such withdrawal. If a material irreconcilable conflict 
arises because of a Qualified Plan's decision to disregard Qualified 
Plan participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude a majority vote, the 
Qualified Plan may be required, at the election of the Insurance Fund, 
to withdraw its investment in the portfolio, 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, Qualified Plan 
participants.
    For purposes of this Condition 4, a majority of the disinterested 
trustees of the Board will determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but, in no 
event, will an Insurance Fund or its Adviser, as relevant, be required 
to establish a new funding vehicle for any Variable Contract or 
Qualified 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 Variable Contract owners materially and adversely affected by 
the material irreconcilable conflict. Further, no Qualified Plan will 
be required by this Condition 4 to establish a new funding vehicle for 
the Qualified Plan if: (a) A majority of the Qualified Plan 
participants materially and adversely affected by the irreconcilable 
material conflict vote to decline such offer, or (b) pursuant to 
documents governing the Qualified Plan, the Qualified Plan trustee 
makes such decision without a Qualified Plan participant vote.
    5. The determination by the Board 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 VLI Accounts or VA Accounts, 
not registered as investment companies under the Act, pass-through 
voting privileges will be extended to Variable Contract owners to the 
extent granted by the Participating Insurance Company. Accordingly, 
such Participating Insurance Companies,

[[Page 59991]]

where applicable, will vote the shares of each portfolio 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 
their VLI Accounts and VA Accounts investing in the relevant portfolio 
calculate voting privileges in a manner consistent with all other 
participants.
    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 an 
Insurance Fund. Each Participating Insurance Company will vote Shares 
held in its VLI Accounts or VA Accounts for which it has not received 
timely voting instructions, as well as Shares held in its General 
Account or otherwise attributed to it, in the same proportion as those 
shares for which it has received voting instructions. Each Qualified 
Plan will vote as required by applicable law, governing Qualified 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 Adviser or any General Account will vote 
their respective Shares in the same proportion as all votes cast on 
behalf of all Variable Contract owners having voting rights; provided, 
however, that the Adviser or General Account will 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, 
an 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 trustees and with whatever 
rules the Commission may promulgate thereto.
    9. An Insurance Fund will make available Shares under a Variable 
Contract and/or Qualified Plan at or about the time it accepts any seed 
capital from the Adviser 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 Qualified Plan documents. Each Insurance Fund will 
disclose, in its prospectus that: (a) Shares may be offered to VLI 
Accounts and VA Accounts funding both VA Contracts and VLI Contracts 
and, if applicable, to Qualified Plans; (b) due to differences in tax 
treatment and other considerations, the interests of various Variable 
Contract owners participating in an Insurance Fund and the interests of 
Qualified Plans investing in an Insurance Fund, if applicable, may 
conflict; and (c) the 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 that Rule 6e-2 and Rule 6e-3(T) under the 
Act are amended, or proposed Rule 6e-3 under the Act is adopted, to 
provide exemptive relief from any provision of the Act, or the rules 
promulgated thereunder, with respect to mixed or shared funding, on 
terms and conditions materially different from any exemptions granted 
in the order requested in this Application, then an 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, 
on behalf of an Insurance Fund, such reports, materials or data as the 
Board reasonably may request so that the trustees 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. 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 
an Insurance Fund.
    13. All reports of potential or existing conflicts received by the 
Board, on behalf of an Insurance Fund, and all Board action with regard 
to determining the existence of a conflict, notifying Participants of a 
conflict and determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
Board or other appropriate records, and such minutes or other records 
shall be made available to the Commission upon request.
    14. Each Insurance Fund will not accept a purchase order from a 
Qualified Plan if such purchase would make the Qualified Plan an owner 
of 10 percent or more of the assets of a portfolio unless the Qualified 
Plan executes an agreement with an Insurance Fund governing 
participation in the portfolio that includes the conditions set forth 
in the Application to the extent applicable. A Qualified Plan will 
execute an application containing an acknowledgement of this condition 
at the time of its initial purchase of shares.

Conclusion

    Applicants submit, for all the reasons explained above, 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2013-23687 Filed 9-27-13; 8:45 am]
BILLING CODE 8011-01-P