[Federal Register Volume 65, Number 72 (Thursday, April 13, 2000)]
[Notices]
[Pages 19944-19950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9181]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24380; File No. 812-11848]


ING Variable Insurance Trust, et al., Notice of Application

April 6, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order of exemption under section 
6(c) of the Investment Company Act of 1940 (``1940 Act'') for 
exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of any current or future series of ING 
Variable Insurance Trust (``Fund'') designed to fund insurance products 
and shares of any other investment company or series thereof now or in 
the future registered under the 1940 Act that is designed to fund 
insurance products and for which ING Mutual Funds Management Co. LLC 
(``Adviser''), or any of its affiliates, may serve as investment 
adviser, administrator, manager, principal underwriter or sponsor (the 
Fund, together with such other investment companies are referred to, 
collectively, as the ``Funds''), to be sold to and held by: (1) 
Variable annuity and variable life insurance separate accounts of both 
affiliated and unaffiliated life insurance companies; (2) qualified 
pension and retirement plans; (3) any investment adviser to a Fund and 
affiliates thereof; and (4) general accounts of any insurance company 
whose separate account holds, or will hold, shares of a Fund.
    Applicants: ING Variable Insurance Trust, ING Mutual Funds 
Management Co. LLC (collectively, ``Applicants'') and certain life 
insurance companies and variable annuity and life insurance separate 
accounts.
    Filing Date: The application was filed on November 5, 1999, and 
amended and restated on March 29, 2000.
    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 on this application by writing 
to the Secretary of the SEC and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on May 1, 2000, and accompanied by proof of 
service on the Applicants in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
your interest, the reason for the request, and the issues you contest. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-
0609. ING Variable Insurance Trust and ING Mutual Funds Management Co. 
LLC, 1475 Dunwoody Drive, West Chester, PA 19380.

FOR FURTHER INFORMATION CONTACT: Ronald A. Holinsky, Attorney or Susan 
M. Olson, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the SEC's Public 
Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 
(tel. (202) 942-8090).

Applicants's Representations

    1. The Fund, an open-end management investment company

[[Page 19945]]

organized as a Delaware business trust, currently consists of eight 
separate series, each with its own investment objective and policies. 
Additional series may be established in the future.
    2. ING Funds Distributor, Inc., a registered broker-dealer and 
member of the National Association of Securities Dealers, Inc., serves 
as the principal underwriter of the Fund.
    3. ING Mutual Funds Management Co. LLC serves as the investment 
manager of the Funds. ING has retained certain affiliates that act as 
sub-advisers to the Funds. ING and each of the sub-advisers are 
indirect wholly-owned subsidiaries of ING Group N.V.
    4. The Fund intends to offer shares of its existing and future 
series to: (a) Separate accounts of insurance companies in order to 
fund variable annuity contracts and variable life insurance contracts 
of affiliated and unaffiliated insurance companies, (b) qualified 
pension and retirement plans, (c) the Adviser of the Fund (or a series 
thereof) and its affiliates, and (d) general accounts of participating 
insurance companies. Insurance companies whose separate account(s) owns 
shares of the Fund are referred to herein as Participating Insurance 
Companies''. It is anticipated that Participating Insurance Companies 
will rely on Rules 6e-2 or 6e-3(T) under the 1940 Act, although some 
may rely on individual exemptive orders as well, in connection with 
variable life insurance contracts. The use of a common management 
investment company as the underlying investment medium for both 
variable annuity and variable life insurance separate accounts is 
commonly referred to, and is referred to herein, as ``mixed funding.'' 
The use of a common management investment company as the underlying 
investment medium for separate accounts of unaffiliated insurance 
companies is referred to herein as ``shared funding.''
    5. Each Participating Insurance company will have the legal 
obligation of satisfying all requirements applicable to it under the 
federal securities laws in connection with any variable contract issued 
by such company.
    6. Fund shares may be offered directly to plans described in 
Treasury Regula- tion Sec. 1.817-(f)(3)(iii) (``Plans'').
    7. The Plans may choose the Fund as the sole investment under the 
Plan or as one of the several investments. Plan participants may or may 
not be given the right to select the Fund, depending on the Plan 
itself. Fund shares sold to Plans will be held by the trustees of such 
Plans as required by Section 403(a) of the Employee Retirement Income 
Security Act (``ERISA'').
    8. Fund shares may also be offered to general accounts whose 
separate account holds, or will hold, shares of the Fund and to certain 
related corporations of such life insurance company, pursuant to 
Treasury Regulation Sec. 1.817-5(3)(i).
    9. Fund shares may also be offered to the Adviser and its 
affiliates, pursuant to Treasury Regulation Sec. 1.817-(f)(3)(ii).
    10. Applicants state that the Treasury Department Regulations 
permit such sales as long as the return on shares held by an insurance 
company general account or the Adviser and its affiliates is computed 
in the same manner as for shares held by a separate account, and the 
general account or the Adviser and its affiliates does not intend to 
sell shares of the Fund held by it to the public. An additional 
restriction is imposed by the Regulations on sales to the Adviser and 
its affiliates, who may hold shares only in connection with the 
creation or management of the Fund. Applicants anticipate that sales in 
reliance on these provisions of the Regulations generally will be made 
to the Adviser and its affiliates and generally for the purpose of 
providing necessary capital required by Section 14(a) of the 1940 Act.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order under 
Section 6(c) of the 1940 Act granting exemptive relief from Sections 
9(a), 13(a), 15(a) and 15(b) thereof and Rules 6e-2(b)(15) 6e-
3(T)(b)(15) thereunder, to the extent necessary to: (a) Permit 
``mixed'' and ``shared'' funding as defined below; and (b) allow shares 
of the Fund to be sold to Plans, Advisers and general accounts as 
summarized herein.
    2. Section 6(c) authorizes the Commission to exempt any person, 
security or transaction, or any class or classes of persons, 
securities, or transactions, from the provisions of the 1940 Act, or 
the rules 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 1940 Act.
    3. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust (the ``Trust Account''), 
Rule 6e-2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act. The exemptions granted by Rule 6e-
2(b)(15) are available only where the management investment company 
underlying the Trust Account offers its shares ``exclusively to 
variable life insurance separate accounts of the life insurer or any 
affiliated life insurance company * * *.''
    4. The relief granted by Rule 6e-2(b)(15) is not available with 
respect to a scheduled premium variable life insurance separate account 
that owns shares of an underlying fund that also offers its shares to a 
variable annuity or a flexible premium variable life insurance separate 
account of the same company or of any affiliated company. Therefore, 
Rule 6e-2(b)(15) precludes mixed and shared funding.
    5. Moreover, because the relief granted by Rule 6e-2(b)(15) is 
available only where shares are offered exclusively to separate 
accounts, additional exemptive relief may be necessary if the shares of 
the Funds are also to be sold to Plans, general accounts or Advisers.
    6. In connection with the funding of flexible premium variable life 
insurance contracts issued through a separate account registered under 
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides 
partial exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
1940 Act. The exemptions granted by Rule 6e-3(T)(b)(15) are available 
only where the underlying fund offers its shares ``exclusively to 
separate accounts of the life insurer, or any affiliated life insurance 
company, offering either scheduled contracts or flexible contracts, or 
both, or which also offer their shares to variable annuity separate 
accounts of the life insurer or of an affiliated life insurance 
company, or which offer their shares to any such life insurance company 
in consideration solely for advances made by the life insurer in 
connection with the operation of the separate account * * *.'' Thus, 
while Rule 6e-3(T)(b)(15) permits mixed funding with respect to a 
flexible premium variable life insurance separate account, it does not 
permit shared funding because the relief granted by Rule 6e-3(T)(b)(15) 
is not available with respect to a flexible premium variable life 
insurance separate account that owns shares of an underlying fund that 
also offers its shares to separate accounts of unaffiliated life 
insurance companies. Moreover, because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, or to life insurers in connection with the operation of a 
separate account, additional exemptive relief may be necessary if the 
shares of the Funds are also to be sold to Plans, Advisers or general 
accounts.

[[Page 19946]]

    7. Applicants state that the current tax law permits the Fund to 
increase its asset base through the sale of shares to Plans. Section 
817(h) of the Internal Revenue Code of 1986, as amended (the ``Code''), 
imposes certain diversification standards on the underlying assets of 
the variable contracts. The Code provides that such contracts shall not 
be treated as an annuity contract or life insurance contract for any 
period during which the investments are not adequately diversified in 
accordance with regulations prescribed by the Treasury Department. 
Treasury regulations provide that, to meet the diversification 
requirements, all of the beneficial interests in an investment company 
must be held by the segregated asset accounts of one or more insurance 
companies. The regulations do contain certain exceptions to this 
requirement, however, one of which permits shares of an investment 
company to be held by the trustee of a Plan without adversely affecting 
the ability of shares in the same investment company also to be held by 
the separate accounts of insurance companies in connection with their 
variable contracts (Treas. Reg. Sec. 1.817-5(f)(3)(iii)).
    8. Applicants also state that the current tax law permits the Funds 
to sell shares to Advisers and general accounts subject to certain 
conditions (Treas. Reg. Sec. 1.817-5(f)(3)(i) and (ii)).
    9. Applicants state that the promulgation of Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) preceded the issuance of these Treasury regulations 
which made it possible for shares of a Fund to be held by the trustee 
of a Plan, an Adviser, or general account without adversely affecting 
the ability of shares of the Fund to also be held by the separate 
accounts of insurance companies in connection with their variable life 
insurance contracts. Thus, Applicants assert that the sale of shares of 
a Fund to separate accounts through which variable life insurance 
contracts are issued and Plans, the Adviser or general accounts could 
not have been envisioned at the time of the adoption of Rules 6e-
2(b)(15) and 6e-3(T)(b)(15), given the then-current tax law.
    10. Applicants assert that if the Fund were to sell shares only to 
Plans, Advisers and general accounts, or to separate accounts funding 
variable annuity contracts, no exemptive relief would be necessary. 
Applicants state that none of the relief provided under Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) relates to Plans, Advisers or general 
accounts, or to a registered investment company's ability to sell its 
shares to such purchasers. Exemptive relief is requested in the 
application only because some of the separate accounts that will invest 
in the Funds may themselves be investment companies that rely on Rules 
6e-2 and 6e-3(T) and need to have the relief continue in place.
    11. Section 9(a)(3) of the 1940 Act provides that it is unlawful 
for any company to act as investment adviser to, or principal 
underwriter for, 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 6e-3(T)(b)(15)(i) and (ii) provide partial exemptions from Section 
9(a) under certain circumstances, subject to the limitations on mixed 
and shared funding. These exemptions limit the application of 
eligibility restrictions to affiliated individuals or companies that 
directly participate in the management of the underlying management 
investment company.
    12. Applicants state that the relief provided by Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) permits the life insurer to serve as the underlying 
fund's investment adviser or principal underwriter, provided that none 
of the insurer's personnel who are ineligible pursuant to Section 9(a) 
are participating in the management or administration of the fund. 
Applicants state that the partial relief from Section 9(a) provided by 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount of 
monitoring necessary to ensure compliance with Section 9 to that which 
is appropriate in light of the policy and purposes of Section 9. 
Applicants assert that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the 1940 Act to apply the provisions of Section 9(a) to the many 
individuals in an insurance company complex, most of whom typically 
will have no involvement in matters pertaining to investment companies 
in that organization. Applicants assert that it also is unnecessary to 
apply the restrictions of Section 9(a) to the many individuals in 
various unaffiliated insurance companies (or affiliated companies of 
participating insurance companies) that may utilize the Funds as a 
funding medium for variable contracts.
    13. Applicants further state that there is no regulatory purpose in 
extending the monitoring requirements to embrace a full application of 
Section 9(a)'s eligibility restrictions because of mixed or shared 
funding.
    14. Applicants submit that Sections 13(a), 15(a) and 15(b) of the 
1940 Act require ``pass through'' voting with respect to management 
investment company shares held by a separate account to permit the 
insurance company to disregard the voting instructions of its contracts 
holders in certain limited circumstances. For example, Applicants state 
that subparagraph (b)(15)(iii)(B) of Rules 6e-2 and 6e-3(T) under the 
1940 Act provide that the insurance company may disregard contract 
owners' voting instructions if the contract owners initiate any changes 
in the investment company's investment policies, principal underwriter 
or investment adviser, provided that disregarding such voting 
instructions is reasonable and complies with the other provisions of 
Rules 6e-2 and 6e-3(T).
    15. Applicants state that Rule 6e-2 recognizes that a variable life 
insurance contract has important elements unique to insurance contracts 
and is subject to extensive state regulation of insurance. Applicants 
assert that in adopting Rule 6e-2(b)(15)(iii), the Commission expressly 
recognized that state insurance regulators have authority to disapprove 
or require changes in investment policies, investment advisers, or 
principal underwriters. Applicants also maintain that the Commission 
has expressly recognized that state insurance regulators have authority 
to require an insurer to draw from its general account to cover costs 
imposed upon the insurer by a change approved by contract owners over 
the insurer's objection. Applicants state that the Commission deemed 
such exemptions necessary to assure the solvency of the life insurer 
and the performance of its contractual obligations by enabling an 
insurance regulatory authority or the life insurer to act when certain 
proposals reasonably could be expected to increase the risks undertaken 
by the life insurer. Applicants further state that in this respect, 
flexible premium variable life insurance contracts are identical to 
schedule premium variable life insurance contracts, and that therefore 
corresponding provisions of Rule 6e-3(T) were adopted in recognition of 
the same considerations as the Commission applied in adopting Rule 6e-
2.
    16. Applicants further represent that the sale of Fund shares to 
Plans, Advisers, or general accounts should not affect the relief 
requested. Shares of the Funds sold to Plans would be held by the 
trustees of such Plans as mandated by Section 403(a) of ERISA. Section 
403(a) also provides that the trustees must have exclusive authority 
and discretion to manage and control the Plan with two exceptions: (a) 
when the Plan expressly provides that the

[[Page 19947]]

trustees are subject to the direction of a named fiduciary who is not a 
trustee, in which case the trustees are subject to proper directions 
made in accordance with the terms of the Plan and not contrary to 
ERISA; and (b) when the authority to manage, acquire or dispose of 
assets of the Plan is delegated to one or more investment managers 
pursuant to Section 402(c)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, the Plan trustees have 
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary appoints an investment manager, the investment manager 
has the responsibility to vote the shares held unless the right to vote 
such shares is reserved to the trustees or the named fiduciary. In any 
event, there is no pass-through voting to the participants in such 
Plans. Similarly, Advisers and general accounts are not subject to any 
pass-through voting requirements. Accordingly, Applicants assert that, 
unlike the case with the insurance company separate accounts, the issue 
of the resolution of material irreconcilable conflicts with respect to 
voting is not present with Plans, Advisers or general accounts.
    17. Applicants note that Section 817(h) of the Code in effect 
requires that the investments made by variable annuity and variable 
life insurance separate accounts be ``adequately diversified.'' 
Applicants state that if a separate account is organized as a unit 
investment trust that invests in a single fund or series, the separate 
account will not be diversified. In this situation, however, Applicants 
state that Section 817(h) provides, in effect, that the diversification 
test will be applied at the underlying fund level rather than the 
separate account level, 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 * * *.'' Applicants state that Treasury Regulation 
1.817-5, which established diversification requirements for such funds, 
specifically permits, among other things, investment company managers, 
insurance company general accounts, ``qualified pension or retirement 
plans'' and separate accounts to share the same underlying investment 
company. Therefore, Applicants have concluded that neither the Code, 
the Treasury regulations nor the revenue rulings thereunder present any 
inherent conflicts of interest if Advisers, general accounts, Plans, 
variable annuity separate accounts and variable life separate accounts 
all invest in the same management investment company.
    18. Applicants state that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, the tax consequences do 
not raise any conflicts of interest. When distributions are to be made, 
and the separate account or the Plan cannot net purchase payments to 
make the distributions, the separate account or the Plan will redeem 
shares of the Funds at their net asset value. The Plan will then make 
distributions in accordance with the terms of the Plan and the 
insurance company will make distributions in accordance with the terms 
of the variable contract.
    19. Applicants state that there are no conflicts of interest 
between the contract owners of the separate accounts and the 
participants under the Plans with respect to the state insurance 
commissioners' veto powers over investment objectives. The state 
insurance commissioners have been given the veto power in recognition 
of the fact that insurance companies cannot simply redeem their 
separate accounts out of one Fund and invest in another. To accomplish 
such redemptions and transfers, complex and time consuming transactions 
must be undertaken. Conversely, trustees of Plans can make the decision 
quickly and implement redemption of shares from a Fund and reinvest the 
moneys in another funding vehicle without the same regulatory 
impediments or, as is the case with most Plans, even hold cash pending 
suitable investment. Based on the foregoing, Applicants represent that 
even should the interests of contract owners and the interests of Plans 
conflict, the conflicts can be almost immediately resolved because the 
trustees of the Plans can, independently, redeem shares out of the 
Funds.
    20. Applicants submit that shared funding by unaffiliated insurance 
companies does not present any conflict of interest issues that do not 
already exist where a single insurance company is licensed to do 
business in several or all states. Applicants note that a particular 
state insurance regulatory body could require action that is 
inconsistent with the requirements of other states in which the 
insurance company offers its policies. Applicants state that if a 
particular state insurance regulator's decision conflicts with a 
majority of other insurance regulators, the affected insurer may be 
required to withdraw its separate account's investment in a Fund. 
Applicants submit that the fact that different insurers may be 
domiciled in different states does not create a significantly different 
or enlarged problem.
    21. Applicants further submit that affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. In any event, the conditions discussed below are designed 
to safeguard against, and provide procedures for resolving, any adverse 
effects that these differences may produce.
    22. Applicants also argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgment as to when an 
insurance company can disregard contract owners' voting instructions. 
Potential disagreement is limited by the requirements that the 
insurance company's disregard of voting instructions be reasonable and 
based on specific good faith determinations. However, if a particular 
insurance company's decision to disregard voting instructions 
represents a minority position or would preclude a majority vote, the 
insurance company may be required, at a Fund's election, to withdraw 
its separate account's investment in that fund. No charge or penalty 
will be imposed as a result of such a withdrawal.
    23. Applicants submit that there is no reason why the investment 
policies of a Fund, or a series thereof, would or should be materially 
different from what they would or should be if such Fund or series 
funded only variable annuity contracts or variable life insurance 
policies, whether flexible premium or scheduled premium policies. 
Applicants state that each type of insurance product is designed as a 
long-term investment program, and Applicants represent that each Fund, 
or series thereof, will be managed to attempt to achieve its investment 
objective, and not to favor or disfavor any particular Participating 
Insurance Company or type of insurance product.
    24. Applicants argue that the ability of the Funds to sell their 
respective shares directly to Plans, Advisers, and general accounts 
does not create a ``senior security'' as such term is defined under 
Section 18(g) of the 1940 Act, with respect to any contract owner as 
opposed to a participant under a Plan, an Adviser, or an insurer. 
Regardless of the rights and benefits of participants under the Plans 
or contract owners, the Plans, Advisers, general accounts and the 
separate accounts have rights only with respect to their respective 
shares of the Funds. They only can redeem such shares at their net 
asset value. No shareholder of any of the Funds has any preference over 
any other shareholder

[[Page 19948]]

with respect to distribution of assets or payment of dividends.
    25. Applicants assert that with respect to voting rights, it is 
possible to provide an equitable means of giving such voting rights to 
contract owners and to Plans, Advisers, and general accounts. The 
transfer agent will inform each Participating Insurance Company of its 
share ownership in each separate account, as well as inform the 
trustees of Plans, Advisers and insurers of their holdings. The 
Participating Insurance Company will then solicit voting instructions 
in accordance with Rules 6e-2 and 6e-3(T).
    26. Applicants assert that permitting a Fund to sell its shares to 
its Adviser(s) or to the general account of a Participating Insurance 
Company in compliance with Treasury Regulation Sec. 1.817-5 will 
enhance Fund management without raising significant concerns regarding 
material irreconcilable conflicts. Applicants state that unlike the 
circumstances of many investment companies that serve as underlying 
investment media for variable insurance products, the Fund may be 
deemed to lack an insurance company ``promoter'' for purposes of Rule 
14a-2 under the 1940 Act. Applicants state that they anticipate that 
many other Funds may lack an insurance company promoter. Accordingly, 
Applicants state that such Funds will be subject to the requirements of 
Section 14(a) of the 1940 Act, which generally requires that an 
investment company have a net worth of $100,000 upon making a public 
offering of its shares.
    27. Applicants assert that given the condition of Treas. Reg. 
Sec. 1.817-5(f)(3) and the ``harmony of interest'' between a Fund and 
its Adviser or a Participating Insurance Company, little incentive for 
overreaching exists. Applicants also argue that such investments should 
not implicate the concerns discussed above regarding the creation of 
material irreconcilable conflicts. Instead, Applicants represent that 
permitting investment by Advisers or general accounts will permit the 
orderly and efficient creation and operation of Funds, or series 
thereof, and reduce the expense and uncertainty of using outside 
parties at the early stages of Fund operations.
    28. Applicants state that various factors have limited the number 
of insurance companies that offer variable contracts. These factors 
include the cost of organizing and operating a funding medium, the lack 
of expertise with respect to investment management (principally with 
respect to stock and money market investments) and the lack of name 
recognition by the public of certain insurers as investment experts. In 
particular, a number of 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. 
Applicants state that use of the Funds as a common investment medium 
for variable contracts and Plans would help alleviate these concerns 
for smaller life insurance companies because participating insurance 
companies and Plans will benefit not only from the investment and 
administrative expertise of ING and its affiliates but also from the 
cost efficiencies and investment flexibility afforded by a large pool 
of funds. Therefore, making the Funds available for mixed and shared 
funding and permitting the purchase of fund shares by Plans may 
encourage more life insurance companies to offer variable contracts. 
Applicants submit that this should result in increased competition with 
respect to both variable contract design and pricing, which can be 
expected to result in more product variation and lower charges.
    29. Applicants assert that mixed and shared funding also should 
benefit variable contract owners by eliminating a significant portion 
of the costs of establishing and administering separate funds. 
Furthermore, granting the requested relief should result in an 
increased amount of assets available for investment by the Funds. 
Applicants assert that this also may benefit variable contract owners 
by promoting economies of scale, by permitting increased safely through 
greater diversification, or by making the addition of new portfolios 
more feasible.
    30. Applicants believe that mixed and shared funding and sales of 
Fund shares to Plans, Advisers, and general accounts will have no 
adverse federal income tax consequences.

Applicants' Conditions

    Applicants consent to the following conditions if the application 
is granted:
    1. A majority of the Board of Trustees or Board of Directors 
(``Board'') of the Fund shall consist of persons who are not 
``interested persons'' of the Fund, as defined by Section 2(a)(19) of 
the 1940 Act and the rules thereunder and as modified by any applicable 
orders of the Commission, except that if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
trustee or director, then the operation of this condition shall be 
suspended: (a) For a period of 45 days if the vacancy or vacancies may 
be filled by the Board, (b) for a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (c) for 
such longer period as the Commission may prescribe by rule, or by order 
upon application.
    2. The Fund's Board will monitor the Fund for the existence of any 
material irreconcilable conflict among the interests of the contract 
owners of all separate accounts investing in the Fund and of Plan 
participants investing in the Fund. A material irreconcilable conflict 
may arise for a variety of reasons, including: (a) An action by any 
state insurance regulatory authority; (b) a change in applicable 
federal or state insurance, tax, or securities laws or regulations, or 
a public ruling, private letter ruling, no-action or interpretative 
letter, or any similar action by insurance, tax, or securities 
regulatory authorities; (c) an administrative or judicial decision in 
any relevant proceeding; (d) the manner in which the investments of any 
Fund or series are being managed; (e) a difference in voting 
instructions given by variable annuity contract owners and variable 
life insurance contract owners; (f) a decision by an insurer to 
disregard the voting instructions of contract owners; or (g) if 
applicable, a decision by a Plan to disregard voting instructions of 
Plan participants.
    3. In the event that a Plan shareholder should become an owner of 
10% or more of the assets of a Fund selling its shares in reliance on 
the requested exemptive relief, such Plan shareholder will execute a 
fund participation agreement providing for the conditions of this 
Application (to the extent applicable) with such Fund. A Plan 
shareholder will execute an application containing an acknowledgment of 
this condition at the time of its initial purchase of shares of a Fund.
    4. Participating Insurance Companies (on their own behalf as well 
as by virtue of any investment of general account assets in a Fund), 
the Adviser and its affiliates, and any Plan that executes a fund 
participation agreement (collectively ``Participants'') will report any 
potential or existing conflicts to the Board. Participants will be 
responsible for assisting the Board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This responsibility includes, but is not limited to, an 
obligation by each Participating Insurance Company to inform the Board 
whenever contract owner voting instructions are disregarded. The 
responsibility to report such information and conflicts and to assist 
the Board will be a contractual

[[Page 19949]]

obligation of all insurers investing in a Fund under their agreements 
governing participation in the Fund, as well as a contractual 
obligation of any Plan that executes such a participation agreement, 
and such agreements shall provide that such responsibilities will be 
carried out with a view only to the interests of the contract owners 
or, as appropriate, Plan participants.
    5. If it is determined by a majority of the Board, or a majority of 
its disinterested trustees or directors, that a material irreconcilable 
conflict exists, the relevant Participating Insurance Companies and 
Plans, at their expense and to the extent reasonably practicable (as 
determined by a majority of the disinterested trustees or directors), 
shall take whatever steps are necessary to remedy or eliminate the 
material irreconcilable conflict. Such steps could include: (a) 
Withdrawing the assets allocable to some or all of the separate 
accounts from the Fund or any series thereof and reinvesting such 
assets in a different investment medium which may include another 
series of the Fund; (b) submitting the question as to whether such 
segregation should be implemented to a vote of all affected contract 
owners and, as appropriate, segregating the assets of any appropriate 
group (i.e., annuity or life insurance contract owners, or variable 
contract owners of one or more participating insurance companies) that 
votes in favor of such segregation, or offering to the affected 
contract owners the option of making such a change; and (c) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of an insurer's decision to disregard contract owner voting 
instructions and that decision represents a minority position or would 
preclude a majority vote, the insurer may be required, at the election 
of the Fund, to withdraw its separate account's investment in the 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 decisions represents a minority position or would 
preclude a majority vote, the Plan may be required, at the election of 
the Fund, to withdraw its investment in the 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 shall be a contractual obligation of all 
Participating Insurance Companies and Plans that have executed 
participation agreements under their agreements governing participation 
in the Fund. These responsibilities will be carried out with a view 
only to the interests of the contract owners and Plan participants, as 
appropriate.
    6. For the purposes of Condition 5, a majority of the disinterested 
members of the Board shall determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict. In no event 
will the Fund be required to establish a new funding medium for any 
variable contract. No Participating Insurance Company or Plan shall be 
required by Condition 5 to establish a new funding medium for any 
variable contract if a majority of contract owners materially and 
adversely affected by the material irreconcilable conflict vote to 
decline such offer.
    7. Participants will be informed promptly in writing of a Board's 
determination of the existence of a material irreconcilable conflict 
and its implications.
    8. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners whose contracts are 
funded through a registered separate account so long as the Commission 
continues to interpret the 1940 Act as requiring pass-through voting 
privileges for variable contract owners. Accordingly, Participating 
Insurance Companies will vote shares of the Fund or series thereof held 
in their registered separate accounts in a manner consistent with 
timely voting instructions received from contract owners.
    In addition each Participating Insurance Company will vote shares 
of the Fund, or series thereof, held in its registered separate 
accounts for which it has not received timely voting instructions as 
well as shares it owns, in the same proportion as those shares for 
which it has received voting instructions. Participating Insurance 
Companies will be responsible for assuring that each of their 
registered separate accounts participating in a Fund calculates voting 
privileges in a manner consistent with other Participating Insurance 
Companies. The obligation to calculate voting privileges in a manner 
consistent with all other registered separate accounts investing in a 
Fund shall be a contractual obligation of all Participating Insurance 
Companies under the agreements governing their participation in the 
Fund. Each Plan will vote as required by applicable law and governing 
Plan documents.
    9. The Fund will notify all Participating Insurance Companies and 
Plans that prospectus or plan document disclosure regarding potential 
risks of mixed and shared funding may be appropriate. The Fund shall 
disclose in its prospectus that: (a) Its shares are offered to 
insurance company separate accounts which fund both annuity and life 
insurance contracts, (b) differences in tax treatment or other 
considerations may cause, the interest of various contract owners 
participating in the Fund to conflict, and (c) the Board will monitor 
for any material conflicts and determine what action, if any, should be 
taken.
    10. All reports of potential or existing conflicts of interest 
received by the Board, and all Board action with regard to: (a) 
Determining the existence of a conflict; (b) notifying Participants of 
a conflict; and (c) determining whether any proposed action adequately 
remedies a conflict, will be properly recorded in the minutes of the 
Board or other appropriate records. Such minutes or other records shall 
be made available to the Commission upon request.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or 
Rule 6e-3 under the 1940 Act is adopted, to provide exemptive relief 
from any provision of the 1940 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 by Applicants, then 
the Fund and/or Participating Insurance Companies, as appropriate, 
shall take such steps as may be necessary to comply with Rule 6e-2 and 
Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such 
rules are applicable.
    12. The Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (for these purposes, the persons 
having a voting interest in the shares of the Fund). In particular, the 
Fund will either provide for annual meetings (except to the extent that 
the Commission may interpret Section 16 of the 1940 Act not to require 
such meetings) or comply with Section 16(c) of the 1940 Act (although 
the Fund is not one of the trusts described in Section 16(c) of the 
1940 Act) as well as with Section 16(a) and, if and when applicable, 
Section 16(b) of the 1940 Act. Further, the Fund will act in accordance 
with the Commission's interpretation of the requirements of Section 
16(a) with respect to periodic elections of directors (or trustees) and 
with whatever rules the Commission may promulgate with respect thereto.

[[Page 19950]]

    13. As long as the Commission continues to interpret the 1940 Act 
as requiring pass-through voting privileges for variable contract 
owners, the Advisory and insurance company general account will vote 
its shares in the same proportion as all contract owners having voting 
rights with respect to the Fund; provided, however, that the Adviser or 
insurance company general account shall vote its shares in such other 
manner as may be required by the Commission or its staff.
    14. No less than annually, the Participants shall submit to the 
Board of a Fund such reports, materials or data as the Board may 
reasonably request so that such Board may carry out fully the 
obligations imposed upon it 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 
Participating Insurance Companies and Plans to provide these reports, 
materials and data upon reasonable request of a Board shall be a 
contractual obligation of all Participating Insurance Companies and any 
Plan that has executed a participation agreement under the agreements 
governing their participation in the Fund.
    15. Any shares of a Fund purchased by the Adviser or its affiliates 
will be automatically redeemed if and when the Adviser's investment 
advisory agreement terminates, to the extent required by applicable 
Treasury regulations. Neither the Adviser nor its affiliates will sell 
such shares of the Fund to the public.
    16. A Participating Insurance Company, or any affiliate, will 
maintain at its home office, available to the Commission: (a) A list of 
its officers, directors and employees who participate directly in the 
management or administration of the Funds or any variable annuity or 
variable life insurance separate account, organized as a unit 
investment trust, that invests in the Funds and/or (b) a list of its 
agents who, as registered representatives, offer and sell the variable 
annuity and variable life contracts funded through such a separate 
account. These individuals will continue to be subject to the automatic 
disqualification provisions of Section 9(a).

Conclusion

    For the reasons and upon the facts 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 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9181 Filed 4-12-00; 8:45 am]
BILLING CODE 8010-01-M