[Federal Register Volume 65, Number 236 (Thursday, December 7, 2000)]
[Notices]
[Pages 76677-76686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24778; File No. 812-12194]


Advantus Series Fund, Inc., et al.

November 30, 2000.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940, as amended (the ``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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Applicants: Advantus Series Fund, Inc. (``Advantus Fund''), an open-
end, management investment company, and Advantus Capital Management, 
Inc. (``Advantus Capital''), the investment adviser of Advantus Fund.

Summary of Application: Applicants seek an order granting 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, to the 
extent necessary to permit shares of any current or future series of 
the Advantus Fund and of any future open-end investment companies for 
which Advantus Capital or any affiliated person of Advantus Capital 
serves as investment adviser, manager, principal underwriter, or 
sponsor (collectively, ``the Future Funds,'' collectively with Advantus 
Fund, the ``Funds'' or individually a ``Fund'') to be sold to and held 
by (a) separate accounts funding variable annuity and variable life 
insurance contracts issued by both affiliated and unaffiliated life 
insurance companies (the separate accounts, hereinafter ``Separate 
Accounts,'' and the life insurance companies, hereinafter 
``Participating Life Insurance Companies''), and (b) qualified plans 
outside of the separate account context (including, without limitation, 
those trusts, plans, accounts, contracts or annuities described in 
Sections 401(a), 403(a), 403(b), 408(a), 408(b), 414(d), 457(b), 
408(k), or 501(c)(18) of the Internal Revenue Code of 1986, as amended 
(the ``Code'')), and any other trust, plan, account, contract or 
annuity that is determined to be within the scope of Treasury 
Regulation 1.817.5(f)(3)(iii) (``Qualified Plans'' or ``Plans''). 
Applicants request that the exemptive relief being requested apply to 
any series of shares of the Funds that may be created in the future. 
The only registered open-end management investment company that 
currently intends to rely on the requested order is Advantus Fund.
    Filing Date: The application was filed on July 31, 2000, and 
amended and restated on November 15, 2000 and November 28, 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 by writing to the Secretary of 
the Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on December 26, 2000, 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 requester's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, Minnesota Life 
Insurance Company, c/o Donald F. Gruber, Esq., Assistant General 
Counsel, 400 Robert Street North, St. Paul, Minnesota 55101-2098.

FOR FURTHER INFORMATION CONTACT: Ann L. Vlcek, Senior Counsel, or Lorna 
J. MacLeod, Branch Chief, Office of Insurance Products, Division of 
Investment Management at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The 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 (202-942-8090).

Applicants' Representations

    1. Advantus Fund is a no-load, open-end, management investment 
company registered under the 1940 Act. Advantus Fund is organized as a 
Minnesota corporation established under Minnesota law on February 21, 
1985. Prior to a change in Advantus Fund's name in 1997, Advantus Fund 
was known as the MIMLIC Series Fund, Inc.
    2. Advantus Fund is a series company, consisting of nineteen 
separate portfolios, each with its own investment objectives (each a 
``Portfolio''). Each Portfolio issues a

[[Page 76678]]

separate series of Advantus Fund's common stock. The investment advisor 
of Advantus Fund is Advantus Capital, a Minnesota corporation. Prior to 
May 1, 1997, Advantus Fund obtained advisory services from MIMLIC Asset 
Management Company, formerly the parent company of Advantus Capital.
    3. Advantus Capital commenced its business in June 1994, and 
provides investment advisory services to eleven other Advantus funds 
and various private accounts. Advantus Capital was incorporated in 
Minnesota in June 1994, and is a wholly owned subsidiary of Minnesota 
Life Insurance Company (``Minnesota Life''), a Minnesota corporation 
that formerly was known as The Minnesota Mutual Life Insurance Company.
    4. Shares of Advantus Fund are currently offered to a number of 
Separate Accounts of Minnesota Life to fund benefits under variable 
annuity and variable life insurance contracts issued by it and the 
Separate Accounts. Five of those Separate accounts are registered as 
unit investment trusts under the 1940 Act. Shares of Advantus Fund 
currently are not sold directly to the public. Shares of the Funds may, 
in the future, be sold to other separate accounts or to other issuers 
of variable annuity and variable life insurance contracts. The Separate 
Accounts referred to above invest in shares of the relevant Portfolios 
in accordance with allocation instructions received from the variable 
annuity contract owners or variable life insurance policy owners of 
Minnesota Life.
    5. Advantus Fund intends to offer shares of its existing Portfolios 
and future investment portfolios to Separate Accounts of Participating 
Insurance Companies (defined below), in order to serve as the 
investment vehicle for various types of insurance products which may 
include variable annuity contracts, single premium variable life 
insurance contracts, scheduled premium variable life insurance 
contracts, modified single premium variable life insurance policies, 
and flexible premium variable life insurance contracts (collectively 
referred to herein as ``variable contracts'').\1\ Participating 
Insurance Companies will be those insurance companies that purchase 
shares of the Funds, or of any of their Portfolios or future 
Portfolios, for such purposes. The Funds also may offer shares of their 
existing Portfolios and future investment portfolios directly to 
Qualified Plans outside of the separate account context.
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    \1\ Applicants state that some Separate Accounts to which the 
Fund may offer its shares may be exempt from registration under the 
1940 Act.
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    6. The Participating Insurance Companies will establish their own 
Separate Accounts and design their own variable contracts. Each 
participating Insurance Company will have the legal obligation of 
satisfying all requirements applicable to such insurance company under 
the Federal securities laws. It is anticipated that Participating 
Insurance Companies, in connection with variable life insurance 
contracts, may rely on individual exemptive orders as well. The role of 
each of the Funds, so far as the Federal securities law are applicable, 
will be limited to that of offering its Portfolio shares, as described 
below, to Separate Accounts of various insurance companies and to 
Qualified Plans, and fulfilling any conditions the Commission may 
impose upon granting the order requested herein.
    7. The Separate Accounts of the Participating Insurance Companies 
will invest in shares of the Funds in accordance with allocation 
instructions received from the contract owners of the variable 
contracts (collectively, the ``contract owners''). Additional 
information regarding Advantus Fund is contained in its prospectus and 
statement of additional information, copies of which are included in 
Advantus Fund's registration statement under the Securities Act of 
1933, as amended, and the 1940 Act (File Nos. 2-96990 and 811-4279), 
which is incorporated herein by reference.
    8. As noted above, the Funds may also sell their shares directly to 
Qualified Plans. As described below, changes in the tax law have 
created an opportunity for a Fund to increase its asset base through 
the sale of its shares to such Qualified Plans.
    9. Section 817(h) of the Code imposes certain diversification 
standards on the underlying assets of variable contracts held in 
segregated asset accounts. The Code provides that a variable contract 
shall not be treated as an annuity or life insurance contract for any 
period (and any subsequent period) for which the investments, in 
accordance with regulations prescribed by the Treasury Department, are 
not adequately diversified. The Treasury Department has issued 
regulations (Treas. Reg. 1.817--5) (the ``Treasury Regulations'') which 
establish diversification requirements for the investment portfolios 
underlying variable contracts. The Treasury Regulations provide that, 
in order to rely on certain look-through provisions of the 
diversification requirements, all of the beneficial interests in the 
underlying investment company must be held by the segregated asset 
accounts of one or more insurance companies. The Treasury Regulations, 
however, also contain certain exceptions to this requirement, one of 
which allows shares in the investment company to be held by the trustee 
of a qualified pension or retirement plan without adversely affecting 
the ability of shares in the same investment company also to be held by 
insurance company separate accounts (Treas. Reg. 1.817-5(f)(3)(iii).
    10. The promulgation of Rules 6e-2(b)(15) and 63-3(T)(b)(15) under 
the 1940 Act preceded the issuance of the Treasury Regulations which 
made it possible for shares of an investment company to be held by the 
trustee of a Qualified 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. Applicants submit that the sale of shares of the same 
investment company to Separate Accounts and to Qualified Plans would 
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.
    11. Applicants submit further that the relief requested in the 
order should not be affected by the proposed sale of shares of the 
Funds to Qualified Plans and, in fact, may allow for the development of 
larger pools of assets resulting in greater cost efficiencies. 
Accordingly, Applicants are requesting relief from Sections 9(a), 
13(a), 15(a) and 15(b) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
thereunder, to the extent necessary to permit shares of the Funds to be 
offered and sold to, and held by, Qualified Plans as well as insurance 
company separate accounts.

Applicants' Legal Analysis

    1. In connection with the funding of variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a unit investment trust, Rule 6e-2(b)(15) provides partial 
exemptions from Sections 9(a), 13(a), 15(a), and 15(b). Section 9(a) 
provides that it is unlawful for any company to serve as an investment 
advisor or principal underwriter of any registered open-end investment 
company if an affiliated person of that company is subject to a 
disqualification enumerated in Sections 9(a)(1) or (2), Rules 6e-
2(b)(15)(i) and (ii) provide partial exemptions from Section 9(a). Rule 
6e-2(b)(15)(iii) provides a partial exemption from Sections 13(a), 
15(a), and 15(b), to the extent those sections have been deemed by the 
Commission to require ``pass-through'' voting with

[[Page 76679]]

respect to an underlying fund's shares. The exemptions granted to a 
separate account \2\ by Rule 6e-2(b)(15) are available only where all 
of the assets of the separate account consist of the shares of one or 
more registered management investment companies which offer their 
shares ``exclusively to variable life insurance separate accounts of 
the life insurer, or of any affiliated life insurance company'' 
(emphasis supplied). Therefore, the relief granted by Rule 6e-2(b)(15) 
is not available with respect to a variable life insurance separate 
account that owns shares of a management company that also offers its 
shares (a) to a variable annuity separate account of any insurance 
company (i.e., to engage in ``mixed funding''), (b) to a variable life 
insurance or variable annuity separate account of any unaffiliated life 
insurance company (i.e., to engage in ``shared funding''), or (c) 
directly to Qualified Plans.
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    \2\ Applicants state that the exemptions provided by Rule 6e-2 
also are available to the investments advisor, principal 
underwriter, and sponsor or depositor of the separate account.
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    2. Applicants submit that the relief granted by Rule 6e-2(b)(15) is 
in no way affected by the sale of Fund shares in connection with mixed 
or shared funding or by direct sales to Qualified Plans. Applicants, 
therefore, are seeking an order to permit the Participating Insurance 
Companies to rely on the relief granted in Rule 6e-2(b)(15). Applicants 
submit that, if the Funds were to sell their shares only to Qualified 
Plans, that no exemptive relief would be necessary. None of the relief 
provided for in Rule 6e-2(b)(15) relates to qualified pension and 
retirement plans or to a registered investment company's ability to 
sell its shares to such plans. It is only because the Separate Accounts 
investing in the Funds are themselves investment companies which desire 
to rely upon Rule 6e-2 that the Applicants are seeking the order. 
Accordingly, an order is requested exempting variable life insurance 
Separate Accounts (and, to the extent necessary, any principal 
underwriter and depositor of such an account) from Sections 9(a), 
13(a), 15(a), and 15(b), and Rule 6e-2(b)(15) thereunder, to the extent 
necessary to permit the sale of Funds shares to (a) variable annuity 
Separate Accounts and variable life insurance Separate Accounts of the 
same life insurance company or of affiliated life insurance companies; 
(b) Separate Accounts of unaffiliated life insurance companies; and (c) 
Qualified Plans.
    3. In connection with 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 13(a), 15(a), and 15(b) to the extent that 
those sections have been deemed by the Commission to require ``pass-
through'' voting with respect to an underlying fund's shares. In 
addition, Rule 6e-3(T)(b)(15) provides a partial exemption from Section 
9(a) to the extent that such section would render a company ineligible 
to serve an investment advisor or principal underwriter of any 
registered open-end management investment company, where an officer, 
director, employee or affiliated person of such company is subject to a 
disqualification enumerated in Section 9(a), but the individual subject 
to such disqualification does not participate directly in the 
management or administration of the underlying registered management 
investment company. The exemptions granted to a separate account by 
Rule 6e-3(T)(b)(15) are available only where all of the assets of the 
separate account consist of the shares of one or more registered 
management investment companies which offer their shares ``exclusively 
to separate accounts of the life insurer, or of any affiliated life 
insurance company offering either scheduled (premium variable life 
insurance) contracts or flexible (premium variable life insurance) 
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'' (emphasis supplied). Applicants note that, 
therefore, Rule 6e-3(T) permits mixed funding with respect to a 
flexible premium variable life insurance separate account, subject to 
certain conditions, but does not permit shared funding or sales to 
Qualified Plans.
    4. Applicants submit that the relief granted by Rule 6e-3(T)(b)(15) 
is in no way affected by the purchase of shares of the Funds by 
Qualified Plans. However, in that the relief under Rule 6e-3(T)(b)(15) 
is available only where shares are offered exclusively to separate 
accounts, Applicants believe that additional exemptive relief is 
necessary if the shares of the Funds are also to be sold to Qualified 
Plans. Applicants, therefore, are seeking the order to permit the 
Participating Insurance Companies to rely on the relief granted in Rule 
6e-3(T)(b)(15).
    5. Accordingly, Applicants are requesting the order granting 
flexible premium variable life insurance Separate Accounts of 
Participating Insurance Companies (and, to the extent necessary, any 
principal underwriter and depositor of such an account) and the 
Applicants from Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act, 
and Rule 6e-3(T)(b)(15) thereunder, to the extent necessary to permit 
the sale of Fund shares to (a) variable annuity Separate Accounts and 
variable life insurance Separate Accounts of the same life insurance 
company or of affiliated life insurance companies; (b) Separate 
Accounts of affiliated life insurance companies; and (c) Qualified 
Plans.
    6. Applicants state that, consistent with the Commission's 
authority under Section 6(c) of the 1940 Act to grant exemptive orders 
to a class or classes or persons and transactions, their application 
requests relief for the class consisting of insurers and Separate 
Accounts' investing in the Funds (and principal underwriters and 
depositors of such accounts). Applicants maintain that there is ample 
precedent, in a variety of contexts, for granting exemptive relief not 
only to the applicants in a given case, but also to members of the 
class not currently identified that may be similarly situated in the 
future. The Applicants state that the Commission has granted class 
exemptions in the context of mixed and shared funding similar to the 
class relief requested herein where the underlying mutual fund used for 
funding variable contracts also would be sold to qualified pension and 
retirement plans.
    7. Section 6(c) of the 1940 Act provides, in part, that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision of the 1940 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 1940 
Act.
    8. Applicants represent that they are not aware of any stated 
rationale for excluding Participating Insurance Companies and Separate 
Accounts from the exemptive relief requested herein because the Funds 
also may sell their shares to Qualified Plans. Applicants maintain 
that, if the Funds were to sell their shares only to Qualified Plans, 
no exemptive relief would be necessary. Applicants state that the 
relief provided under Rules 6e-2(b)(15) and 6e-3(T)(b)(15) does not 
relate to qualified pension and retirement plans or to a registered 
investment company's ability

[[Page 76680]]

to sell its shares to such plans. Applicants note that exemptive relief 
is requested in this application only because the Separate Accounts 
investing in the Funds are themselves investment companies seeking 
relief under Rules 6e-2 and 6e-3(T) and do not wish to be denied such 
relief if the Funds sell their shares to Qualified Plans.
    9. Applicants submit that the same policies and considerations that 
led the Commission to grant such exemptions to other applicants are 
present here. Moreover, for the reasons stated below, 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 
1940 Act. Applicants, therefore, request that the Commission issue an 
order under Section 6(c) of the 1940 Act granting the exemptions 
requested.
    10. Section 9(a) provides that it is unlawful for any company to 
serve as investment advisor or principal underwriter of any registered 
open-end investment company if an affiliated person of that company is 
subject to a disqualification enumerated in Section 9(a)(1) or (2). 
Rules 6e-2(b)(15)(i) and (ii) and Rules 6e-3(T)(b)(15)(i) and (ii) 
provide exemptions from Section 9(a) under certain circumstances, 
subject to the limitations discussed above on mixed and shared funding 
imposed by the 1940 Act and the rules thereunder. These exemptions 
limit the application of the eligibility restrictions to affiliated 
individuals or companies that directly participate in the management of 
the underlying management company.
    11. Rules 6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) provide, in effect, 
that the fact that an individual disqualified under Section 9(a)(1) or 
Section 9(a)(2) is an officer, director, or employee of an insurance 
company, or any of its affiliates, would not, by virtue of Section 
9(a)(3), disqualify the insurance company or any of its affiliates from 
serving in any capacity with respect to an underlying investment 
company, provided that the disqualified individual did not participate 
directly in the management or administration of the underlying 
investment company.
    12. Similarly, Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) 
provide, in effect, that the fact that any company disqualified under 
Section 9(a)(1) or Section 9(a)(2) is affiliated with the insurance 
company would not, by virtue of Section 9(a)(3), disqualify the 
insurance company from serving in any capacity with respect to an 
underlying investment company, provided that the disqualified company 
did not participate directly in the management or administration of the 
investment company.
    13. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e- 3(T)(b)(15) from the requirements of Section 9, 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 maintain that these 1940 Act rules 
recognize that it is not necessary to apply the provisions of Section 
9(a) to individuals in a large insurance company complex, most of whom 
will have no involvement in matters pertaining to investment companies 
in that organization. Applicants also state that these 1940 Act rules 
further recognize that it is also unnecessary to apply Section 9(a) to 
individuals in various unaffiliated insurance companies (or affiliated 
companies of Participating Insurance Companies) that may utilize the 
Funds as funding media for variable contracts. Applicants submit that 
there is no regulatory purpose in extending the Section 9(a) monitoring 
requirements because of mixed or shared funding. Applicants represent 
that the Participating Insurance Companies are not expected to play any 
role in the management or administration of the Funds, and that those 
individuals who participate in the management or administration of 
Advantus Fund and, it is expected, of any Future Fund, will remain the 
same regardless of which Separate Accounts or insurance companies use 
such Funds. Applicants submit that applying the monitoring requirements 
of Section 9(a) because of investment by Separate Accounts of other 
insurers would be unjustified and would not serve any regulatory 
purpose. Applicants also state that the increased monitoring costs 
would reduce the net rates of return realized by contract owners.
    14. With respect to Qualified Plans, Applicants submit that the 
relief requested herein from Section 9(a) in no way will be affected by 
the proposed additional use of the shares of the Funds in connection 
with Qualified Plans. Applicants maintain that the insulation of the 
Funds from those individuals who are disqualified under 1940 Act 
remains in place. Applicants state that, since the Qualified Plans are 
not investment companies and will not be deemed to be affiliated solely 
by virtue of their shareholdings, no additional relief from Section 
9(a), with respect to Qualified Plans, is necessary.
    15. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) assume the existence of a pass-through voting 
requirement with respect to management investment company shares held 
by a separate account. Applicants represent that pass-through voting 
privileges will be provided by Participating Insurance Companies with 
respect to all variable contract owners so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
variable contract owners.
    16. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide exemptions from the pass-through voting 
requirement with respect to several significant matters, assuming the 
limitations discussed above on mixed and shared funding are observed.
    17. Applicants furthermore state that Rules 6e-2(b)(15)(iii)(A) and 
6e-3(T)(b)(15)(iii)(A) provide that the insurance company may disregard 
the voting instructions of its contract owners with respect to the 
investments of an underlying fund, or any contract between a fund and 
its investment advisor, 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 Rule 6e-2 and 6e-3(T)).
    18. Applicants state that Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that, with respect to registered 
management investment companies whose shares are held by a separate 
account of an insurance company, the insurance company may disregard 
voting instructions of contract owners if the contract owners initiate 
any change in such investment company's investment policies, principal 
underwriter, or any investment advisor (provided that disregarding such 
voting instructions is reasonable and subject to the other provisions 
of paragraphs (b)(5)(ii), (b)(7)(ii)(B), and (b)(7)(ii)(C) of Rules 6e-
2 and 6e-3(T)).
    19. Applicants note that, in the case of such a change in the 
investment company's investment policies, the insurance company, in 
order to disregard contract owner voting instructions, must make a 
good-faith determination that such a change either would: (a) Violate 
state law, or (b) result in investments that either (i) would not be 
consistent with the investment objectives of the separate account or 
(ii) would vary from the general quality and nature of investments and 
investment techniques used by other separate accounts of the company or 
of an affiliated life insurance company with similar investment 
objectives. Applicants state that voting instructions with respect to a 
change in an investment advisor or principal underwriter may be 
disregarded only if

[[Page 76681]]

the insurance company makes a good-faith determination that: (a) The 
advisor's fee would exceed the maximum rate that may be charged against 
the separate account's assets; (b) the proposed advisor may be expected 
to employ investment techniques that vary from the general techniques 
used by the current advisor; or (c) the proposed advisor may be 
expected to manage the investment company's investments in a manner 
that would be inconsistent with the investment company's investment 
objectives or in a manner that would result in investments that vary 
from certain standards.
    20. Applicants state that Rule 6e-2 recognizes that a variable life 
insurance contract, as an insurance contract, has important elements 
unique to insurance contracts and is subject to extensive state 
regulation of insurance. Applicants believe that, in adopting Rule 6e-
2(b)(15)(iii), the Commission expressly recognized that state insurance 
regulators have authority, pursuant to state insurance laws or 
regulations, to disapprove or require changes in investment policies, 
investment advisors, or principal underwriters. Applicants maintain 
that the Commission also expressly has recognized that state insurance 
regulators have authority to require an insurer to draw from its 
general account to cover costs imposed upon the insurer by a change 
approved by contract owners over the insurer's objection. The 
Applicants note that the Commission, therefore, deemed such exemptions 
necessary ``to ensure the solvency of the life insurer and performance 
of its contractual obligation 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.'' \3\ Applicants state that, in this respect, flexible premium 
variable life insurance contracts are identical to scheduled premium 
variable life insurance contracts. Applicants therefore maintain that 
the corresponding provisions of Rule 6e-3(T) (which apply to flexible 
premium insurance contracts and which permit mixed funding) undoubtedly 
were adopted in recognition of the same considerations as the 
Commission applied in adopting Rule 6e-2.
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    \3\ Investment Company Act Release No. 9104 (December 30, 1975) 
(proposing Rule 6e-2 under the 1940 Act).
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    21. Applicants believe that these considerations are no less 
important or necessary when an insurance company funds its separate 
accounts in connection with mixed and shared funding. Applicants not 
that such mixed and shared funding does not compromise the goals of the 
insurance regulatory authorities or of the Commission. Applicants state 
that, while the Commission may have wished to reserve wide latitude 
with respect to the once unfamiliar variable annuity product, that 
product is now familiar and there appears to be no reason for the 
maintenance of prohibitions against mixed and shared funding 
arrangements. Applicants further state that, indeed, by permitting such 
arrangements, the Commission eliminates needless duplication of start-
up and administrative expenses and potentially increases an investment 
company's assets, thereby making effective portfolio management 
strategies that are easier to implement and promoting other economies 
of scale.
    22. Applicants maintain that their proposal also to sell shares of 
the Funds to Qualified Plans will not have any impact on the relief 
requested in this regard. Applicants represent that shares of the Funds 
would be held by the trustees of Qualified Plans as mandated by Section 
403(a) of ERISA. Applicants note that Section 403(a) also provides that 
the trustee(s) of a qualified pension or retirement plan must have 
exclusive authority and discretion to manage and control the plan with 
two exceptions: (a) when the plan expressly provides that the 
trustee(s) is subject to the direction of a named fiduciary who is not 
a trustee, in which case the trustee is 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 mangers 
pursuant to Section 402(c)(3) of ERISA. Applicants state that, unless 
one of the two exceptions stated in Section 403(a) applies, qualified 
pension and retirement plan trustees have the exclusive authority and 
responsibility for voting proxies. Applicants further state that, when 
a named fiduciary appoints an investment manger, the investment manager 
has the responsibility to vote the shares held by the plan unless the 
right to vote such shares is reserved to the trustees or the named 
fiduciary and that, in any event, there is no pass-through voting to 
the participants in such qualified pension and retirement plans.
    23. Accordingly, since Qualified Plan participants are not entitled 
to pass-through voting privileges, Applicants submit that, unlike the 
case with insurance company separate accounts, the issue of the 
resolution of material irreconcilable conflicts with respect to voting 
is not present with respect to Qualified Plans.
    24. Applicants state that the prohibitions on mixed and shared 
funding might reflect concern regarding possible different investment 
motivations among investors. Applicants note that when Rule 6e-2 was 
adopted, variable annuity separate accounts could invest in mutual 
funds whose shares also were offered to the general public. Applicants 
maintain that, at the time of the adoption of Rule 6e-2, the 
Commissions staff therefore contemplated underlying funds with public 
shareholders, as well as with variable life insurance separate account 
shareholders. Applicants state that the Commission staff may have been 
concerned with the potentially different investment motivations of 
public shareholders and variable life insurance contract owners, and 
that there also may have been some concern with respect to the problems 
of permitting a state insurance regulatory authority to affect the 
operations of a publicly-available mutual fund and to affect the 
investment decisions of public shareholders. Applicants maintain that, 
for reasons unrelated to the 1940 Act, however, Internal Revenue 
Service Revenue Ruling 81-225 (September 25, 1981) effectively deprived 
variable annuities funded by publicly-available mutual funds of their 
tax-benefited status. The Tax Reform Act of 1984 codified the 
prohibition against the use of publicly-available mutual funds as an 
investment medium for variable contracts (including variable life 
contracts). Applicants state that Section 817(h) of the Code of 1986, 
in effect, requires that the investment made by variable annuity and 
variable life insurance separate accounts be ``adequately 
diversified.'' If a separate account is organized as a unit investment 
trust that invests in a single fund or series, then the separate 
account will not be diversified. Applicants note that, in this 
situation, however, Section 817(h) of the Code, in effect, provides 
that the diversification test will be applied at the underlying fund 
level, rather than at 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, 
accordingly, a unit investment trust separate account that invests 
solely in a publicly-available mutual fund will not be adequately 
diversified. In addition, Applicants state that any

[[Page 76682]]

underlying mutual fund, including any fund that sells shares to 
separate accounts, in effect, would be precluded from selling its 
shares to the public. Applicants conclude that, consequently, there 
will be no public shareholders of the Funds.
    25. Applicants state that the rights of an insurance company or of 
a state insurance regulator to disregard the voting instructions of 
contract owners are not inconsistent with either mixed funding of 
different insurance products or shared funding by unaffiliated 
insurers.
    26. Applicants state that the Commission's primary concern with 
respect to mixed and shared funding issues is that of potential 
conflicts of interest. Applicants submit that, as discussed below, no 
increased conflicts of interest would be present if the Commission 
grants the requested relief.
    27. Applicants submit 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. Applicants state 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 maintain that the fact that different insurers may be 
domiciled in different states does not create a significantly different 
or enlarged problem.
    28. Applicants state that shared funding by unaffiliated insurers, 
in this respect, is no different than the use of the same investment 
company as the funding vehicle for affiliated insurers, which Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) permit. Applicants note that affiliated 
insurers may be domiciled in different states and be subject to 
differing state law requirements, and that affiliation does not reduce 
the potential, if any exists, for differences in state regulatory 
requirements. Applicants submit that, in any event, the conditions 
discussed below (which, according to the Applicants, are adapted from 
the conditions included in Rule 6e-3(T)(b)(15) and are virtually 
identical to the conditions imposed in connection with other mixed and 
shared funding orders) are designed to safeguard against, and provide 
procedures for resolving, any adverse effects that differences among 
state regulatory requirements may produce. Applicants state that, if a 
particular state insurance regulator's decision conflicts with the 
majority of other state regulators, then the affected insurer will be 
required to withdraw its separate account's investment in the affected 
fund. Applicants represent that this requirement will be provided for 
in agreements that will be entered into by Participating Insurance 
Companies with respect to their participation in the Funds.
    29. Applicants maintain that Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
give the insurance company the right to disregard the voting 
instructions of the contract owners, and that this right does not raise 
any issues different from those raised by the authority of state 
insurance administrators over separate accounts. Applicants state that, 
under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer can disregard 
contract owner voting instructions only with respect to certain 
specified items. Applicants further 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 advisor initiated by contract 
owners. According to the Applicants, the potential for disagreement is 
limited by the requirements in Rules 6e-2 and 6e-3(T) that the 
insurance company's disregard of voting instructions be reasonable and 
based on specific good-faith determinations.
    30. Applicants note that, nevertheless, a particular insurer's 
disregard of voting instructions could conflict with the majority of 
contract owner voting instructions. Applicants state that the insurer's 
action possibly could be different than the determination of all or 
some of the other insurers (including affiliated insurers) that the 
voting instructions of contract owners should prevail, and either could 
preclude a majority vote approving the change or could represent a 
minority view. Applicants further state that, if the insurer's judgment 
represents a minority position or would preclude a majority vote, then 
the insurer may be required, at the affected Fund's election, to 
withdraw its Separate Account's investment in the Fund and no charge or 
penalty will be imposed as a result of such withdrawal. Applicants 
represent that this requirement will be provided for in the agreements 
entered into with respect to participation by insurance companies in 
the Funds.
    31. Applicants submit that there is no reason why the investment 
policies of the Funds would or should be materially different from what 
these policies would or should be if the Funds funded only variable 
annuity contracts or variable life insurance policies, whether flexible 
premium or scheduled premium policies. Applicants note that each type 
of insurance product is designed as a long-term investment program.
    32. Applicants represent that each Portfolio will be managed to 
attempt to achieve the investment objective or objectives of such 
Portfolio, and not to favor or disfavor any particular Participating 
Insurance Company or type of insurance product. Applicants state that 
there is no reason to believe that different features of various types 
of contracts, including the ``minimum death benefit'' guarantee under 
certain variable life insurance and variable annuity contracts,will 
lead to different investment policies for different types of variable 
contracts. First, Applicants state that minimum death benefit 
guarantees generally are specifically provided for by particular 
charges, and always are supported by general account reserves as 
required by state insurance law. Second, Applicants state that certain 
variable annuity contracts also have minimum death benefit guarantees 
and that, to the extent that the degree of risk may differ as between 
variable annuity contracts and variable life insurance policies, the 
differing insurance charges imposed, in effect, adjust any such 
differences and equalize the insurers' exposure in either case. Third, 
Applicants note that the sale, persistency, and ultimate success of all 
variable insurance products depend, at least in part, on satisfactory 
investment performance, which provides an incentive for the insurer to 
optimize investment performance. Fourth, Applicants maintain that, 
under existing statutes and regulations, an insurance company and its 
affiliates can offer a variety of variable annuity and life insurance 
contracts, some with death benefit guarantees of different types and 
significance (and different degrees of risk for the insurer), some 
without death benefit guarantees, all funded by a single mutual fund.
    33. Applicants assert that, furthermore, no one investment strategy 
can be identified as appropriate to a particular insurance product. 
According to the Applicants, each pool of variable annuity and variable 
life insurance contract owners is composed of individuals of diverse 
financial status, age, insurance, and investment goals. Applicants 
state that a fund supporting even one type of insurance product must 
accommodate these diverse factors in order to attract and retain 
purchasers. Applicants maintain that permitting mixed and shared 
funding will provide economic justification for the continuation of 
Advantus Fund and, it is expected, of any Future Fund. Applicants state 
that, in addition,

[[Page 76683]]

permitting mixed and shared funding also will facilitate the 
establishment of additional portfolios serving diverse goals, and that 
the broader base of contract owners can be expected to provide economic 
justification for the creation of additional portfolios with a greater 
variety of investment objectives and policies.
    34. In connection with the proposed sale of shares of the Funds to 
Qualified Plans, Applicants submit that either there are no conflicts 
of interest or there exists the ability by the affected parties to 
resolve any such conflicts without harm to the contract owners in the 
Separate Accounts or to the participants under the Qualified Plans. 
Section 817(h) of the Code is the culmination of a series of Revenue 
Rulings aimed at the investment control of variable contract owners. 
Section 817 is the only section in the Code where separate accounts are 
discussed, and Section 817(h) imposes certain diversification standards 
on the underlying assets of variable annuity contracts and variable 
life insurance contracts held in the portfolios of management 
investment companies. Applicants state that Treasury Regulation 1.817-
5(f)(3)(iii), which establishes the diversification requirements for 
such portfolios, specifically permits, among other things, interests 
held by Trustees of a ``qualified pension or retirement plan'' and 
separate accounts to share the same underlying management investment 
company. Applicants, therefore, conclude that neither the Code nor the 
Treasury Regulations or Revenue Rulings thereunder present any inherent 
conflicts of interest if Qualified Plans, variable annuity Separate 
Accounts, and variable life insurance Separate Accounts all invest in 
the same management investment company.
    35. Applicants maintain that, while there are differences in the 
manner in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts, and Qualified Plans, the tax 
consequences of distributions from variable contracts and Qualified 
Plans do not raise any conflicts of interest with respect to the use of 
the Funds. Applicants state that, when distributions are to be made, 
and the Separate Account or the Qualified Plan cannot net purchase 
payments to make the distributions, the Separate Account or the 
Qualified Plan will redeem shares of the affected Fund at its net asset 
value. Applicants represent that the Qualified Plan then will make 
distributions in accordance with the terms of the Qualified Plan, and 
that the life insurance company will surrender values from the separate 
account into the general account to make distributions in accordance 
with the terms of the variable contract.
    36. Applicants state that, with respect to voting rights, it is 
possible to provide an equitable means of giving such voting rights to 
separate account contract owners and to Qualified Plans. Applicants 
further state that the transfer agent for each fund will inform each 
Participating Insurance Company of its share ownership in each Separate 
Account, as well as inform the trustees of Qualified Plans of their 
holdings. According to the Applicants, the Participating Insurance 
Company then will solicit voting instructions in accordance with Rules 
6e-2 and 6e-3(T).
    37. Applicants submit that the ability of the Funds to sell their 
shares directly to Qualified Plans does not create a ``senior 
security'' with respect to any variable annuity or variable life 
contract owner as opposed to a participant under a Qualified Plan. 
Applicants note that the term ``senior security'' is defined under 
Section 18(g) of the 1940 Act to include ``any stock of a class having 
priority over any other class as to distribution of assets or payment 
of dividends.'' Applicants state that, regardless of the rights and 
benefits of participants under the Qualified Plans or contract owners 
under variable contracts, the Qualified Plans and the Separate 
Accounts, respectively, have rights only with respect to their 
respective shares of the Funds. Applicants state that the Qualified 
Plans and the Separate Accounts can redeem such shares of the Funds 
only at the net asset value of the shares, and that no shareholder of a 
Fund will have any preference over any other shareholder of such Fund 
with respect to distribution of assets or payment of dividends.
    38. Applicants maintain that there are no conflicts between the 
contract owners of the Separate Accounts and the participants under the 
Qualified Plans with respect to the state insurance commissioners veto 
powers (direct with respect to variable life and indirect with respect 
to variable annuities) over investment objectives. Applicants state 
that the basic premise of shareholder voting is that not all share 
holders agree with a particular proposal. According to the Applicants, 
this does not mean that there are any inherent conflicts of interest 
between shareholders. Applicants state that the state insurance 
commissioners have been given the veto power in recognition of the fact 
that insurance companies cannot comply redeem their separate accounts 
out of one fund and invest in another. Applicants note that time-
consuming, complex transactions must be undertaken to accomplish such 
redemptions and transfers. Applicants state that, on the other hand, 
the trustees of Qualified Plans can quickly make the decisions and 
implement the redemption of their plans' shares from the Funds and 
reinvest in another funding vehicle without the same regulatory 
impediments or, as is the case with most Qualified Plans, even hold 
cash pending suitable investment. Based on the foregoing, Applicants 
have concluded that, even if there should arise issues where the 
interests of Qualified Plans are in conflict, these issues can be 
resolved almost immediately in that the trustees of the Qualified Plans 
can, on their own, redeem the shares out of the Funds.
    39. Applicants submit that, regardless of the type of shareholder 
in a Fund, the responsible advisor will continue to manage a 
Portfolio's investments solely and exclusively in accordance with each 
such Portfolio's investment objectives and restrictions as well as with 
any guidelines established by the Board of that Fund. Applicants note 
that individual Portfolio manager work with a pool of money and do not 
take into account the identity of the shareholders. Applicants 
represent that Advantus Fund thus is, and any Future Fund will be, 
managed in the same manner as any other mutual fund. Applicants state 
that, if shareholders are not pleased with a mutual fund's investment 
results, or the manner in which the mutual fund is being operated, 
these shareholders may redeem their shares. Applicants note that, since 
Advantus Fund is, and any Future Fund is expected to be, sold without 
the imposition of any sales load, such redemption is to net asset value 
without the imposition of any other charge or fee. According to the 
Applicants, it is the duty of the management of a mutual fund, 
including its board of directors or trustees, as the case may be, to 
keep shareholders informed through updated prospectuses and annual and 
semi-annual reports. Applicants state that these periodic 
communications to shareholders function as these communications are 
intended. Applicants represent that Qualified Plans, as well as 
contract owners, thus will be given up-to-date information necessary 
for them to make informed investment decisions.
    40. Applicants state that the difference between a Qualified Plan 
shareholder and a contract owner whose variable contract invests in a 
Fund is that the Qualified Plan shareholder immediately can redeem its 
shares in the fund and reinvest the proceeds of

[[Page 76684]]

such a redemption, while the contract owner either must wait for the 
Participating Insurance Company to find another suitable investment 
medium or must exchange contracts, both of which strategies require 
multiple steps and some period of time.
    41. Applicants maintain that various factors have kept more 
insurance companies from offering variable annuity and variable life 
insurance contracts than currently offer such contracts. Applicants 
state that these factors include the costs 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 with whom the public feels comfortable 
entrusting their investment dollars. Applicants note that, for example, 
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. Applicants state 
that use of the Funds as common investment media for variable 
contracts, as well as for Qualified Plans, would reduce or eliminate 
these concerns. Applicants further state that mixed and shared funding 
also should provide several benefits to variable contract owners by 
eliminating a significant portion of the costs of establishing and 
administering separate funds. Also, Applicants maintain that 
Participating Insurance Companies and Qualified Plans will benefit not 
only from the investment and administrative expertise of the 
responsible advisors and their affiliates, but also from the cost 
efficiencies and investment flexibility afforded by a large pool of 
funds. According to the Applicants, mixed and shared funding, including 
the sale of shares of a Fund to Qualified Plans, also would permit a 
greater amount of assets available for investment by such Fund, thereby 
promoting economies of scale, permitting increased safety through 
greater diversification, and making the addition of new Portfolios to a 
Fund more feasible. Therefore, Applicants believe that making the Funds 
available for mixed and shared funding will encourage more insurance 
companies to offer variable contracts, and that this should result in 
increased competition with respect to both variable contract design and 
pricing, which in turn can be expected to result in more product 
variation and lower charges.
    42. Accordingly, Applicants submit that the relief requested herein 
is fully consistent with the policy and purpose of the 1940 Act. In 
connection with the proposed sale of shares of the Funds to Qualified 
Plans in particular, Applicants further submit that the intended use of 
the Funds with Qualified Plans is not that dissimilar from the intended 
use of the Funds with variable contracts, in that Qualified Plans, like 
variable contracts, are generally long-term retirement vehicles. 
Applicants further submit that the sale of shares of the Funds to 
Qualified Plans does not increase the risk of material irreconcilable 
conflicts to such Funds or to the participating Separate Accounts.
    43. Applicants see no significant legal impediment to permitting 
mixed and shared funding. Applicants note that separate accounts 
organized as unit investment trusts historically have been employed to 
accumulate shares of mutual funds which have not been affiliated with 
the depositor or sponsor of the separate account. Applicants do not 
believe that mixed and shared funding will have any adverse Federal 
income tax consequences.
    44. Applicants submit that the Commission has issued numerous 
orders permitting mixed and shared funding, including ones where shares 
of the underlying mutual fund used for funding variable contracts also 
would be sold to qualified pension and retirement plans. Therefore, 
Applicants maintain that, as the Commission has tacitly acknowledged, 
granting the exemptions requested herein is in the public interest and, 
as discussed above, will not compromise the regulatory purposes of 
Sections 9(a), 13(a), 15(a), or 15(b) or Rules 6e-2 or 6e-3(T).

Applicants' Conditions

    Applicants consent to the following conditions:
    1. A majority of each Fund's Board 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 director or directors, then the operation of this 
condition shall be suspended: (a) For a period of 45 days if the 
vacancy or vacancies may be filed 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 order upon application.
    2. The Board of each Fund will monitor that Fund for the existence 
of any material irreconcilable conflict between and among the interests 
of the contract owners of all Separate Accounts and the participants of 
all Qualified Plans investing in that 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 
series are being managed; (e) a difference in voting instructions given 
by variable annuity contract owners, variable life insurance contract 
owners and trustees of Qualified Plans; (f) a decision by a 
Participating Insurance company to disregard the voting instructions of 
contract owners; or (g) if applicable, a decision by a Qualified Plan 
to disregard the voting instructions of its participants.
    3. In the event that a Qualified Plan ever should become an owner 
of 10 percent or more of the assets of a Fund, such Qualified Plan will 
execute a fund participation agreement with the Fund, including 
agreement to comply with the conditions set forth herein to the extent 
applicable. A Qualified Plan shareholder will execute an application 
with each Fund that contains an acknowledgment of this condition at the 
time of the Qualified Plan's initial purchase of shares of such Fund.
    4. Participating Insurance Companies, the responsible advisors, and 
any Qualified Plan that executes a fund participation agreement upon 
becoming an owner of 10% or more of the assets of a Fund (collectively, 
the ``Participants'') will report any potential or existing conflicts 
to the respective responsible Board(s). Participants will be 
responsible for assisting the Boards in carrying out the 
responsibilities of the Boards under these conditions by providing the 
Boards with all information reasonably necessary for the Boards to 
consider any issues raised. This includes, but is not limited to, an 
obligation by each Participating Insurance Company to inform the 
respective responsible Board(s) whenever contract owner voting 
instructions are disregarded. The responsibility to report such 
information and conflicts to and to assist the Boards will be a 
contractual obligation of all Participating Insurance Companies and 
Qualified Plans investing in a Fund under their agreements governing 
participation in

[[Page 76685]]

the Fund and these responsibilities will be carried out with a view 
only to the interests of the contract owners and, if applicable, 
Qualified Plan participants.
    5. If it is determined by a majority of a Board, or a majority of 
the disinterested, directors or trustees, as appropriate, of a Board, 
that a material irreconcilable conflict exists, then the relevant 
Participating Insurance Companies and Qualified Plans, at their expense 
and to their expense and to the extent reasonably practicable (as 
determined by a majority of the disinterested directors or trustees, as 
the case may be), shall 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 the Separate 
Accounts from the affected Fund or any Portfolio and reinvesting such 
assets in a different investment medium, including another Portfolio of 
such Fund, or 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., 
variable annuity contract owners or variable life insurance contract 
owners of one or more Participating Insurance companies) that votes in 
favor of such segregation, or offering to the affected contract owners 
the option of making such a change; (b) withdrawing the assets 
allocable to some or all of the Qualified Plans from the affected Fund 
or any Portfolio and reinvesting such assets in a different investment 
medium, including another Portfolio of the Fund; and (c) establishing a 
new registered management investment company or managed separate 
account. If a material irreconcilable conflict arises because of a 
decision by a Participating Insurance Company to disregard contract 
owner voting instructions, or, if applicable, a decision by a trustee 
of a Qualified Plan to disregard Qualified Plan participant voting 
instructions, and that decision represents a minority position or would 
preclude a majority vote, then the insurer or Qualified Plan may be 
required, at the affected Fund's election, to withdraw the insurer's 
Separate Account's investment in the Fund or the Qualified Plan's 
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 all 
Qualified Plans under their agreements governing participation in the 
Funds and these responsibilities will be carried out with a view only 
to the interests of contract owners and participants in the Qualified 
Plans, as applicable.
    For purposes of this 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, but, in no 
event, will a Fund or its advisor be required to establish a new 
funding medium for any variable contract. No Participating Insurance 
Company shall be required by this Condition 5 to establish a new 
funding medium for any variable contract if any materially and offer to 
do so has been declined by vote of a majority of the contract owners 
adversely affected by the material irreconcilable conflict. Further, no 
Qualified Plan will be required by this Condition 5 to establish a new 
funding medium for the Plan if: (a) a majority of Plan participants 
materially and adversely affected by the irreconcilable material 
conflict vote to decline that offer, or (b) pursuant to documents 
governing the Qualified Plan, the Plan makes that decision without a 
Plan participant vote.
    6. A Board's determination of the existence of a material 
irreconcilable conflict and its implications shall be made known in 
writing promptly to all Participants.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contact owners 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 Funds held in 
their Separate Accounts in a manner consistent with voting instructions 
timely-received from contract owners. Each Participating Company will 
vote shares of a Fund held in the Participating Insurance Company's 
Separate Accounts for which no voting instructions from contract owners 
are timely-received, as well as shares of a Fund which the 
Participating Insurance Company itself owns, in the same proportions as 
those shares of the Fund for which voting instructions from contract 
owners are timely-received. Participating Insurance Companies shall be 
responsible for assuring that each of their Separate Accounts 
participating in the Funds calculates voting privileges in a manner 
consistent with other Participants. The obligation to calculate voting 
privileges in a manner consistent with all other Separate Accounts 
investing in the Funds shall be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participation in the Funds. Trustees of Qualified Plans will vote 
shares held by Qualified Plans in accordance with the terms of those 
Qualified Plans.
    8. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which for these purposes, shall be 
persons having a voting interest in their respective Portfolios), and, 
in particular, each 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 the Section 16(c) of the 1940 Act), as well as with Section 16(a) of 
the 1940 Act and, if and when applicable, Section 16(b) of the 1940 
Act. Further, each Fund will act in accordance with the Commission's 
interpretation of the requirements of Section 16(a) with respect to 
periodic elections of directors and with whatever rules the Commission 
may promulgate with respect thereto.
    9. Each Fund shall disclose in its prospectus that (a) the Fund is 
intended to be a funding vehicle for all types of variable annuity and 
variable life insurance contracts offered by various insurance 
companies and certain qualified pension and retirement plans, (b) 
material irreconcilable conflicts possibly may arise due to differences 
of tax treatments and other considerations, and (c) the Fund's Board 
will monitor events in order to identify the existence of any material 
irreconcilable conflicts and to determine what action, if any, should 
be taken in response to any such conflict. Each Fund will notify all 
Participating Insurance Companies that Separate Account prospectus 
disclosure regarding potential risks of mixed and shared funding may be 
appropriate.
    10. If, and to the extent that, Rule 6e-2 or Rule 6e-3(T) under the 
1940 Act are amended, or Rule 63-3 under the 1940 Act is adopted, to 
provide exemptive relief from any provision of the 1940 Act, or the 
rules promulgated thereunder, with respect to mixed or shared funding, 
on terms and conditions materially different from any exemptions 
granted in the order requested in this application, then the Funds and/
or the Participants, as appropriate, shall take such steps as may be 
necessary to comply with Rules 6e-2, 6e-3(T), or Rule 6e-3, as such 
rules are applicable.

[[Page 76686]]

    11. The Participants, at least annually, shall submit to each 
Fund's Board such reports, materials, or data as the Board reasonably 
may request so that the directors or trustees, as appropriate, of the 
Fund may fully carry out the obligations imposed upon the Board by the 
conditions contained in this application and said reports, materials, 
and data shall be submitted more frequently if deemed appropriate by 
the Board. The obligations of the Participating Insurance Companies and 
Qualified Plans to provide these reports, materials, and data to a 
Fund's Board, when the Board so reasonably requests, shall be a 
contractual obligation of all Participating Insurance Companies and 
Qualified Plans under their agreements governing participation in the 
Funds.
    12. All reports of potential or existing conflicts received by a 
Board, 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.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31164 Filed 12-6-00; 8:45 am]
BILLING CODE 8010-01-M