[Federal Register Volume 66, Number 236 (Friday, December 7, 2001)]
[Notices]
[Pages 63572-63581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30325]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25305; File No. 812-12544]


Touchstone Variable Series Trust, et al.

December 3, 2001.
AGENCY: Securities and Exchange Commission (the ``Commission'').

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

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    Applicants: Touchstone Variable Series Trust and Touchstone 
Advisors, Inc. (collectively, ``Applicants'').
    Summary of Application: Applicants seek an order of exemption 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 
Touchstone Variable Series Trust (``TVST'') and shares of any other 
investment company that is offered as a funding medium for insurance 
products and for which Touchstone Advisors, Inc. (``Touchstone 
Advisors'' or the ``Manager'') or any affiliates thereof may now or in 
the future serve as manager, investment adviser, sub-adviser, 
administrator, principal underwriter or sponsor (TVST and such future 
investment companies are collectively referred to herein as the 
``Trusts'' and individually as a ``Trust''; the current and future 
series of the Trusts are collectively referred to herein as the 
``Funds'' and individually as a ``Fund'') to be sold and held by: (1) 
Variable annuity and variable life insurance separate accounts 
(``Participating Separate Accounts'') of both affiliated and 
unaffiliated life insurance companies (``Participating Insurance 
Companies''); (2) qualified pension and retirement plans 
(``Participating Plans'') outside the separate account context; and (3) 
the Manager and any other affiliated and unaffiliated registered 
investment advisor (each, a ``Subadvisor'') retained by the Manager to 
manager the portfolio securities of a Touchstone Fund, and any 
affiliate of the Manager and affiliates of the Subadvisors 
(collectively, the ``Participating Investors'').
    Filing Date: The original application was filed on June 5, 2001. An 
amended and restated application was filed on November 28, 2001.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on December 28, 2001, 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 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a

[[Page 63573]]

hearing may request notification by writing to the Commission's 
Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549. Applicants, c/o Frost Brown Todd LLC, 
2200 PNC Center, 201 East Fifth Street, Cincinnati, Ohio 45202, 
Attention: Karen M. McLaughlin, Esq. or Kevin L. Cooney, Esq.

FOR FURTHER INFORMATION CONTACT: Alison Toledo, Senior Counsel, or 
Lorna 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC, 20549-0102 (202-942-8090).

Applicants' Representations

    1. TVST is a Massachusetts business trust that is registered under 
the 1940 Act as an open-end diversified management investment company. 
TVST currently consists of, and offers shares of beneficial interests 
in, separate portfolios (each a ``Touchstone Fund'' and collectively 
the ``Touchstone Funds''), each of which has its own investment 
objectives and policies. TVST may in the future issue shares of 
additional portfolios.
    2. Touchstone Advisors is registered as an investment adviser under 
the Investment Advisers Act of 1940, as amended, and is the investment 
adviser for each Touchstone Fund. Touchstone Advisors in turn has 
retained Subadvisors to manage the portfolio securities of each 
Touchstone Fund.
    3. Shares of the Funds will be offered to Participating Separate 
Accounts of Participating Insurance Companies to serve as investment 
vehicles 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.
    4. Each Participating Insurance Company will have the legal 
obligation to satisfy all requirements applicable to it under both 
state and federal securities laws in connection with any variable 
contract issued by such company. Each Participating Insurance Company 
will enter into a fund participation agreement with the applicable 
Trust on behalf of the Fund in which the Participating Insurance 
Company invests. With respect to the Participating Insurance Companies, 
the role of the funds, insofar as the federal securities laws are 
applicable, will be limited to offering shares to Participating 
Separate Accounts and fulfilling any conditions the Commission may 
impose upon granting the order requested by this Application.
    5. Shares of the Funds will also be offered to Participating Plans. 
It is anticipated that Participating Plans may choose a Fund (or any 
one or more series thereof) as the sole investment under the 
Participating Plan or as one of several investments. Participating Plan 
participants may or may not be given an investment choice among 
investment alternatives, depending on the plan itself. Shares of the 
Funds sold to Participating Plans would be held by the trustee(s) of 
these plans as mandated by Section 403(a) of the Employee Retirement 
Income Security Act of 1974, as amended (``ERISA''). With respect to 
the Participating Plans, insofar as federal securities laws are 
applicable, the role of the Funds will be limited to offering shares to 
Participating Plans and fulfilling any conditions the Commission may 
impose upon granting the order requested by this Application.
    6. Shares of each Fund also may be offered to the Participating 
Investors. When the Participating Investors invest in the Funds, they 
will have the legal obligation of satisfying all applicable 
requirements under the federal securities laws and other applicable 
laws. With respect to the Participating Investors, insofar as the 
federal securities laws are applicable, the role of the Funds will be 
limited to offering shares to the Participating Investors and 
fulfilling any conditions the Commission may impose upon granting the 
order requested by this Application.

Applicants' Legal Analysis

    1. Applicants request an order of the Commission pursuant to 
Section 6(c) of the 1940 Act exempting the Participating Separate 
Accounts of Participating Insurance Companies (and, to the extent 
necessary, any investment adviser, sub-adviser, principal underwriter, 
manager, administrator or sponsor of a Fund) from 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 (and any permanent rule comparable to Rule 6e-
3(T)), to the extent necessary to permit shares of the Funds to be 
offered and sold to, and held by: (a) Variable annuity separate 
accounts and variable life insurance separate accounts (including both 
scheduled and flexible premium 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 (including both variable annuity separate accounts 
and variable life insurance separate accounts); (c) trustees of 
qualified pension or retirement plans; and (d) the Participating 
Investors.
    2. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security or transaction from the provisions of the 1940 Act and 
rules promulgated thereunder, if and to the extent that, such exemption 
is necessary or appropriate in the public interest or for 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, Rule 6e-2(b)(15) under 
the 1940 Act provides partial exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act. Section 9(a) of the 1940 Act provides 
that it is unlawful for any company to serve as an investment adviser 
or principal underwriter of any registered open-end investment company 
if an affiliated person of that company is subject to disqualification 
enumerated in Section 9(a)(1) or (2) of the 1940 Act. 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) of the 1940 Act to the extent those sections have been 
deemed by the Commission to require ``pass-through'' voting with 
respect to an underlying fund's shares.
    4. The exemptions granted 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 that offer 
their shares ``exclusively to variable life insurance separate accounts 
of the life insurer, or of any affiliated life insurance company * * 
*.'' Therefore the relief granted by Rule 6e-2(b)(15) is not available 
if the scheduled premium variable life insurance separate account owns 
shares of a management company that also offers its shares to a 
flexible premium variable life insurance or variable annuity separate 
account of the same insurance company or any other insurance company. 
The use of a common management investment company as the underlying 
investment medium for both variable annuity and variable life insurance 
separate accounts of the same life insurance company or

[[Page 63574]]

of any affiliated life insurance company is referred to as ``mixed 
funding.''
    5. In addition, applicants assert that the relief granted by Rule 
6e-2(b)(15) is not available if the scheduled premium variable life 
insurance separate account owns shares of an underlying management 
company that also offers its shares to separate accounts funding 
variable contracts of one or more unaffiliated life insurance 
companies. The use of a common management company as the underlying 
investment medium for variable annuity and/or variable life insurance 
separate accounts of one insurance company and separate accounts 
funding variable contracts of one or more unaffiliated life insurance 
companies is referred to as ``shared funding.''
    6. Moreover, although the relief granted by Rule 6e-2(b)(15) is not 
affected by the purchase of shares of the Funds by Participating Plans 
and the Participating Investors, because the relief granted by Rule 6e-
2(b)(15) is available only where shares are offered exclusively to 
variable life insurance separate accounts, additional exemptive relief 
may be necessary if the shares of the Funds are also sold to 
Participating Plans or to the Participating Investors.
    7. 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) under the 
1940 Act provides partial exemptions from Sections 13(a), 15(a), and 
15(b) of the 1940 Act 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 as 
an investment adviser 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 management investment company.
    8. 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.'' Therefore, Rule 6e-3(T)(b)(15) grants the exemptions if the 
underlying fund engages in mixed funding for a flexible premium 
variable life insurance separate account, subject to certain 
conditions, but does not permit shared funding.
    9. Applicants asset that the relief provided by Rule 6e-3(T) is not 
relevant to the purchase of shares of the Funds by Participating Plans 
or by the Participating Investors. However, because the relief granted 
by Rule 6e-3(T)(b)(15) is available only where shares of the underlying 
fund are offered exclusively to separate accounts, or to life insurers 
in connection with the operation of a separate account, additional 
relief may be necessary if shares of the Funds are also sold to 
Participating Plans or to the Participating Investors.
    10. Applicants assert that if the Funds were to sell their shares 
only to Participating Plans or to the Participating Investors, no 
exemptive relief would be necessary. None of the relief provided for in 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) relates to qualified pension and 
retirement plans or to a registered investment company's ability to 
sell its shares to such plans or to the Participating Investors. 
Exemptive relief in connection with the sale of shares of the Funds to 
Participating Plans or the Participating Investors is requested only 
because Applicants are seeking relief under Rules 6e-2 and 6e-3(T) and 
do not wish to be denied such relief if the Funds sell shares to 
Participating Plans or to the Participating Investors.
    11. Applicants state that the current tax law permits the Funds to 
sell their shares to the Participating Plans and to the Participating 
Investors. Section 817(h) of the Internal Revenue Code (the ``Code'') 
imposes certain diversification requirements on the underlying assets 
of variable contracts. The Code provides that variable contracts shall 
not be treated as an annuity contract or life insurance contract for 
any period (and any subsequent period) in which the underlying assets 
are not adequately diversified as prescribed by the U.S. Department of 
the Treasury (the ``Treasury Department''). The Treasury Department has 
issued regulations (Treas. Reg. 1.817-5) (the ``Treasury Regulations'') 
which establish diversification requirements for investment portfolios 
underlying variable contracts. To meet these diversification 
requirements, all of the beneficial interests in the investment company 
must be held by the segregated asset accounts of one or more insurance 
companies. The regulations, however, do contain certain exceptions to 
this requirement, one of which allows shares in an investment company 
to be held by the trustees of a pension or retirement plan as well as 
segregated asset accounts of insurance companies in connection with 
their variable contracts. (See Treas. Reg. Sec. 1.817-5(f)(3)(iii)). 
Applicants assert that another exception allows shares in an investment 
company to be held by the investment manager of the investment company 
and certain companies related to the investment manager as well as the 
segregated asset accounts of insurance companies (Treas. Reg. 
Sec. 1.817-5(f)(3)(ii)).
    12. Applicants state that the promulgation of Rules 6e-2 and 6e-
3(T) preceded the issuance of these Treasury Regulations, and that it 
is possible for shares of an investment company to be held by the 
trustee of a qualified pension or retirement plan or the investment 
company's investment manager and certain related companies without 
adversely affecting the ability of shares in the same investment 
company to be held by the separate accounts of insurance companies in 
connection with their variable contracts. Given the then-current tax 
law, the sale of shares of the same investment company to separate 
accounts of insurance companies, trustees of qualified plans or the 
investment company's investment manager and companies related to the 
investment manager could not have been envisioned at the time of the 
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    13. In general, Section 9(a) of the 1940 Act disqualifies any 
person convicted of certain offenses, and any company affiliated with 
that person, from acting or serving in various capacities with respect 
to a registered investment company. Section 9(a) provides that it is 
unlawful for any company to serve 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 Rules 6e-3(T)(b)(15)(i) and (ii) provide 
partial exemptions from Section 9(a) under certain circumstances, 
subject to limitations 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

[[Page 63575]]

participate in the management of the underlying management company.
    14. Applicants state that the relief provided by Rules 6e-
2(b)(15)(i) and 6e-3(T)(b)(15)(i) under the 1940 act permits a person 
disqualified under Section 9(a) to serve as an officer, director, or 
employee of the life insurer, or any of its affiliates, so long as that 
person does not participate directly in the management or 
administration of the underlying fund.
    15. Applicants assert that the relief provided by Rules 6e-
2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) under the 1940 Act permits a 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 underlying fund.
    16. 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 of the 
1940 Act, 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. The rules recognize 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 many individuals in a typical insurance 
company complex, most of whom typically will have no involvement in 
matters pertaining to investment companies in that organization. 
Applicants assert that it is also unnecessary to apply Section 9(a) to 
the many individuals employed by Participating Insurance Companies (or 
affiliated companies of Participating Insurance Companies) who do not 
participate in the administration or management of the Funds.
    17. The Applicants 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 and shared 
funding or sales to Participating Plans. Participating Insurance 
Companies and Participating Plans are not expected to play any role in 
the management or administration of the Funds. It is expected that 
those individuals who participate in the management or administration 
of the Funds will remain the same regardless of which separate 
accounts, insurance companies or qualified plans use the Funds. 
Therefore, applying the monitoring requirements of Section 9(a) because 
of investments by Participating Insurance Companies or Participating 
Plans would not serve any regulatory purpose. Furthermore, the 
increased monitoring costs would reduce the net rates of return 
realized by contract owners and plan participants.
    18. Moreover, Applicants assert that the relief requested should 
not be affected by the sale of shares of the Funds to the Participating 
Investors. The eligibility restrictions of Section 9(a) will still 
apply to any officers, directors or employees of the Participating 
Investors who participate directly in the management or administration 
of the Funds.
    19. 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. 
Participating Insurance Companies will provide pass-through voting 
privileges to variable contract owners so long as the Commission 
interprets the 1940 Act to require pass-through voting privileges for 
variable contract owners. However, if the limitations on mixed funding 
and shared funding are observed, Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide exemptions from the pass-through voting 
requirements with respect to several significant matters.
    20. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)(1) provide 
that an insurance company may disregard the voting instructions of its 
contract owners with respect to the investments of an underlying fund, 
or any contract between a fund and its investment adviser, when 
required to do so by an insurance regulatory authority (subject to the 
provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of such Rules).
    21. 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 contract owners' voting instructions if 
the contract owners initiate any change in such company's investment 
objectives or any principal underwriter or investment adviser (provided 
that disregarding such voting instructions is reasonable and subject to 
the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) 
of Rules 6e-2 and 6e-3(T)).
    22. Applicants state that in the case of a proposed change in the 
underlying fund's investment policies, the insurance company, in order 
to disregard contact 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 investments 
techniques used by other separate accounts of the company or of an 
affiliated life insurance company with similar investment objectives.
    23. Applicants state that in the case of a change in an investment 
adviser or principal underwriter, the insurance company, in order to 
disregard contract owners' voting instructions, must make a good faith 
determination that either: (a) The proposed advisory fees would exceed 
the maximum rate that may be charged against the separate account's 
assets; or (b) the proposed adviser may be expected (i) to employ 
investment techniques that would vary from the general techniques used 
by the current adviser, or (ii) to manage the investments in a manner 
that either would be inconsistent with the investment objectives of the 
separate account or would result in investments that vary from certain 
standards.
    24. 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. 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 advisers, or principal underwriters. The 
Commission also 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. The Commission, 
therefore, deemed exemptions from the pass-through voting requirements 
necessary ``to assure the solvency of the life insurer and 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.'' In this respect, flexible premium variable life insurance 
contracts are identical to scheduled premium variable life insurance 
contracts. Therefore, the corresponding provisions of Rule 6e-3(T), 
which apply to flexible premium insurance contracts and permit mixed 
funding, were adopted in recognition of the same considerations as the 
Commission applied in adopting Rule 6e-2.
    25. Applicants assert that the considerations that prompted the

[[Page 63576]]

Commission to include exemptions from pass-through voting requirements 
in both Rules 6e-2 and 6e-3(T) are no less important and necessary when 
an insurance company funds its separate accounts with underlying funds 
engaged in mixed funding and shared funding. Such funding does not 
compromise the goals of the insurance regulatory authorities or the 
Commission. In connection with mixed funding, the Commission may have 
wished to reserve wide latitude with respect to the once unfamiliar 
variable annuity product, but that product is now familiar, and there 
appears to be no reason for the maintenance of prohibitions against 
mixed funding arrangements.
    26. Applicants note that when the Commission amended Rule 6e-3(T) 
in 1985, it considered the appropriateness of extending the partial 
exemptions from the pass-through voting requirements to separate 
accounts that invest in underlying funds offering their shares to 
variable contract separate accounts of both affiliated and unaffiliated 
life insurance companies (i.e., shared funding). At that time, the 
Commission stated that shared funding was a new and somewhat 
complicated area from a regulatory perspective and reiterated its 
concerns about voting arrangements and irreconcilable conflicts in the 
area of mixed and shared funding. The Applicants believe that the 
Commission's concerns about voting arrangements and material 
irreconcilable conflicts are not warranted in the context of shared 
funding because offering shares of an underlying fund to separate 
accounts of unaffiliated life insurance companies does not increase the 
risk of material irreconcilable conflicts among shareholders of the 
Funds. Furthermore, the Commission's application experience over the 
past 15 years in crafting appropriate safeguards to deal with potential 
conflicts of interest arising from shared funding arrangements is 
reflected in the conditions proposed by the Applicants.
    27. Applicants further assert that the offer and sale of shares of 
the Funds to Participating Plans or to the Participating Investors will 
not have any impact on the relief requested with respect to pass-
through voting. Shares of the Funds sold to Participating Plans will be 
held by the trustees or custodians of the Participating Plans as 
required by Section 403(a) of ERISA or applicable provisions of the 
Code. The exercise of voting rights by Participating Plans, whether by 
the trustees, by participants, by beneficiaries, or by investment 
managers engaged by the Participating Plans, does not present the type 
of issues with respect to voting rights that are presented by variable 
life separate accounts. ERISA does not require pass-through voting to 
participants in qualified pension or retirement plans that are not 
registered as investment companies under the 1940 Act.
    28. Applicants submit that Section 403(a) of ERISA provides that 
the trustee(s) must have exclusive authority and discretion to manage 
and control the investments of the Participating Plans with two 
exceptions: (a) When a Participating Plan expressly provides that the 
trustee(s) is (are) subject to the direction of a named fiduciary who 
is not a trustee, in which case the trustee(s) is (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, plan trustees have the 
exclusive authority and responsibility for voting proxies. When 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. 
Accordingly, unlike the case with insurance company separate accounts, 
issues related to pass-through voting rights and potential material 
irreconcilable differences are not present with respect to 
Participating Plans that do not provide pass-through voting privileges 
to their participants.
    29. Applicants note that some plans may provide participants with 
the right to give voting instructions. However, there is no reason to 
believe that participants in plans generally, or those in a particular 
plan, either as a single group or in combination with other plans, 
would vote in a manner that would disadvantage variable contract 
owners. Therefore, the purchase of shares of the Funds by Participating 
Plans that provide voting rights to participants does not present any 
complications not otherwise occasioned by mixed funding and shared 
funding.
    30. Applicants further assert that certain complications are not 
present with respect to these Participating Plans because insurance 
regulations would not be applicable to the plans and the insurance 
company could not disregard votes cast by a plan trustee, even if the 
votes were based on plan participant instructions. Moreover, the 
conditions proposed by the Applicants, which are based on those imposed 
by the Commission in numerous exemptive orders related to sales to 
qualified retirement and pension plans, will provide the appropriate 
safeguards for dealing with such conflicts of interest.
    31. Moreover, Applicants assert that the Participating Investors 
are not subject to any pass-through voting requirements. Accordingly, 
the issue of the resolution of material irreconcilable conflicts with 
respect to voting is not present with respect to the Participating 
Investors.
    32. Applicants assert that the Commission's primary concern with 
respect to mixed and shared funding issues is that of potential 
conflicts of interest. Therefore the prohibitions on mixed and shared 
funding might reflect some concern with possible divergent interests 
among different classes of investors. When Rule 6e-2 was adopted, 
variable annuity separate accounts could (and some did) invest in 
mutual funds whose shares were also offered to the general public. 
Therefore, at the time of the adoption of Rule 6e-2, the Commission 
staff contemplated underlying funds with public shareholders and with 
variable life insurance separate account shareholders. The Commission 
staff may have been concerned with the potentially different investment 
motivations of public shareholders and variable life insurance contract 
owners. There also may have been some concern with a state insurance 
regulatory authority having the authority to affect the operations of a 
publicly available mutual fund, and hence, affect the investment 
decisions of public shareholders.
    33. Applicants note that, for reasons unrelated to the 1940 Act, 
Internal Revenue Service Ruling 81-225 (Sept. 25, 1981) effectively 
deprived variable annuities funded by publicly available mutual funds 
of their tax-benefited status. Applicants state that 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 further state 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.'' If a separate account is registered as a unit investment 
trust that invests in a single fund or series, Applicants maintain that 
Section 817(h) and the Treasury Regulations provide, in effect, that 
the diversification test will be applied at the underlying fund level 
rather than at the separate account

[[Page 63577]]

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 would not be adequately diversified. In addition, 
Applicants state that any underlying fund, including any fund that 
sells its shares to separate accounts, in effect, would be precluded 
from selling its shares to the public. Consequently, there will be no 
public shareholders of the Funds.
    34. Moreover, Applicants assert that the National Association of 
Insurance Commissioners Variable Insurance Model Regulation (the ``NAIC 
Model Regulation'') reflects the Commission's apparent confidence that 
mixed and shared funding is appropriate and that state insurance 
regulators can adequately protect the interests of all contract owners. 
The NAIC Model Regulation suggests that it is unlikely that insurance 
regulators would find an investment policy, principal underwriter or 
investment adviser inappropriate for one insurance product, but not for 
another insurance product. Applicants note that the NAIC Model 
Regulation, at Article VI, Section 1.9, as amended, removes a previous 
requirement that variable life insurance separate accounts not be used 
for variable annuity contracts. The NAIC Model Regulation has long 
permitted the use of a single underlying fund for different separate 
accounts. The NAIC Model Regulation, at Article VI, Section 3, as 
amended, eliminates a previous prohibition on one separate account 
investing in a separate account of another insurance company. As 
between scheduled premium and flexible premium variable life insurance 
policies, Applicants note that the NAIC Model Regulation draws no 
distinction.
    35. Applicants assert that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. If insurers are domiciled in different states, it is possible 
that the particular state insurance regulatory body in a state in which 
one insurance company is domiciled could require action that is 
inconsistent with the requirements of insurance regulators of other 
states in which other insurance companies are domiciled. The fact that 
different Participating Insurance Companies are domiciled in different 
states does not create a significantly different or enlarged problem.
    36. Applicants assert that shared funding by unaffiliated insurers 
does not present any issues that do not already exist where the same 
investment company serves as the funding vehicle for affiliated 
insurers, which Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit. Affiliated 
insurers may be domiciled in different states and be subject to 
differing state law requirements. Applicants submit that affiliation 
does not reduce the potential, if any exists, for differences in state 
regulatory requirements. In any event, the conditions proposed below, 
which are adopted from the conditions included in Rule 6e-3(T)(b)(15) 
and which are virtually identical to the conditions imposed in other 
mixed and shared funding orders granted by the Commission, are designed 
to safeguard against, and provide procedures for, resolving any adverse 
effects that differences among state regulatory requirements may 
produce. For example, if a particular state insurance regulatory 
decision conflicts with the majority of other states regulators, then 
the affected Participating Insurance Company will be required to 
withdraw its separate account's investment in the Fund. This 
requirement will be included in agreements that will be entered into by 
Participating Insurance Companies with respect to their participation 
in the Funds.
    37. Shared funding does not present any issues that do not already 
exist when a life insurer disregards contract owner voting 
instructions. Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), an insurer 
may disregard contract owner voting instructions only with respect to 
certain specified items. Affiliation does not eliminate the potential, 
if any exists, for divergent judgments as to the advisability or 
legality of a change in investment policies, principal underwriter, or 
investment adviser initiated by contract owners. 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.
    Nevertheless, a particular insurer's disregard of voting 
instructions could conflict with the voting instructions of a majority 
of contract owners. One insurer might determine to disregard voting 
instructions when all or some of the other insurers (including 
affiliated insurers) determine to follow the voting instructions of 
contract owners. If the insurer's judgment represents a minority 
position or would preclude a majority vote, the insurer may be 
required, at the relevant Fund's election, to withdraw its separate 
account's investment in the Fund. No charge or penalty will be imposed 
as a result of such withdrawal. The participation agreements executed 
by the Participating Insurance Companies will contain these provisions.
    38. Applicants submit that investment by the Participating Plans 
and the Participating Investors in any of the Funds will similarly 
present no additional conflict. The likelihood that voting instructions 
of variable contract owners will ever be disregarded or the possible 
withdrawal referred to immediately above is extremely remote and this 
possibility will be known, through prospectus disclosure, to any plans 
choosing to invest in a Fund. Moreover, Applicants state that even if a 
material irreconcilable conflict involving a Participating Plan or the 
Participating Investors arises, the Participating Plan or the 
Participating Investors may simply redeem its Fund shares and make 
alternative investments.
    39. Applicants state that there is no reason why the investment 
policies of a Fund when it engages in sales to Participating Plans 
would or should be materially different from the investment policies of 
the Fund when it supports only variable annuity separate accounts or 
variable life insurance separate accounts, whether flexible premium or 
scheduled premium contracts. Each type of insurance product is designed 
as a long-term investment program. The investment objective of a 
qualified pension or retirement plan should coincide with a long-term 
investment program and should not increase the potential for conflicts.
    40. Each Fund will be managed to attempt to achieve the investment 
objective or objectives of the Fund, and not to favor or disfavor any 
particular Participating Insurance Company or Participating Plan, the 
Participating Investors or any particular type of insurance product or 
plan. There is no reason to believe that the 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, 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, certain variable annuity contracts also have 
minimum death benefit guarantees. To

[[Page 63578]]

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 insurer's exposure in either case. Third, 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, 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.
    41. Applicants note that no one investment strategy can be 
identified as appropriate to a particular insurance product or to a 
particular pension or retirement plan. Each pool of variable annuity 
and variable life insurance contract owners is composed of individuals 
of diverse financial status, age, insurance needs, and investment 
goals. Likewise participants in a particular pension or retirement plan 
differ in financial status, age and investment goals. A Fund supporting 
even one type of insurance product or one type of pension or retirement 
plan must accommodate these diverse factors in order to attract and 
retain purchasers. Applicants submit that permitting sales to 
Participating Plans will provide economic support for the continuation 
of the Funds. In addition, the broader base of contract owners and 
participants can be expected to provide economic support for the 
creation of additional Funds with a greater variety of investment 
objectives and policies.
    42. In connection with the proposed sale of shares of the Funds to 
Participating Plans or to the Participating Investors, 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 Participating Separate 
Accounts or to participants under the Participating Plans. Section 
817(h) of the Code imposes certain diversification standards on the 
underlying assets of variable contracts held in the portfolios of 
management investment companies. Treasury Regulation 1.817-
5(f)(3)(iii), which established diversification requirements for such 
portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans'' and insurance company separate accounts 
to share the same underlying investment company. In addition, Treasury 
Reg. 1.817-5(f)(3)(ii) permits the Participating Investors to invest in 
the same underlying investment company. Applicants assert, therefore, 
that neither the Code, nor the Treasury Regulations, nor the revenue 
rulings thereunder recognize any inherent conflicts of interests if 
Participating Plans, Participating Separate Accounts and the 
Participating Investors all invest in the same management investment 
company.
    43. Although there may be differences in the manner in which 
distributions from variable annuity contracts, variable life insurance 
contracts and qualified pension and retirement plans are taxed, 
Applicants state that the tax consequences do not raise any conflicts 
of interest with respect to use of the Funds. When distributions are to 
be made, and a Participating Separate Account or a Participating Plan 
cannot net purchase payments to make the distributions, the 
Participating Separate Account or the Participating Plan will redeem 
shares of the Fund at their net asset value. The Participating Plan 
will then make distributions in accordance with the terms of the plan, 
and the Participating Insurance Company will make distributions in 
accordance with the terms of the variable contract.
    44. Applicants state that it is possible to provide an equitable 
means of giving voting rights to separate account contract owners and 
to Participating Plans and the Participating Investors. Applicants 
represent that each Fund will inform each shareholder, including each 
Participating Separate Account, each Participating Plan and the 
Participating Investors, of its respective share of ownership in the 
Funds. Each Participating Insurance Company then will solicit voting 
instructions in accordance with the applicable ``pass-through'' voting 
requirement.
    45. Applicants submit that the ability of a Fund to sell its shares 
directly to Participating Plans or the Participating Investors does not 
create a ``senior security'' with respect to any variable contract 
owner as opposed to a participant in a Participating Plan or the 
Participating Investors. 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.'' Regardless of the rights and benefits of participants 
under the Participating Plans, or contract owners under variable 
contracts, Participating Plans, Participating Separate Accounts and the 
Participating Investors have rights only with respect to their 
respective shares of a Fund. They can only redeem such shares at their 
net asset value. No shareholder of any of the Funds will have any 
preference over any other shareholder with respect to distribution of 
assets or payment of dividends.
    46. Applicants assert that there are no conflicts between the 
variable contract owners of the Participating Separate Accounts and the 
participants under the Participating Plans or the Participating 
Investor 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. The basic premise of 
shareholder voting is not all shareholders may agree with a particular 
proposal. This does not mean that there are any inherent conflicts of 
interest between shareholders. 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 
investment company and invest in another. Generally, time-consuming, 
complex transactions must be undertaken to accomplish such redemptions 
and transfers. On the other hand, trustees of qualified plans can 
redeem their shares from an investment company and reinvest 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 have concluded that even if issues arise 
where the interests of variable contract owners and the interests of 
Participating Plans are in conflict, the issues can be almost 
immediately resolved because the trustees of the Plans, on their own, 
can redeem their shares from an investment company and reinvest in 
another funding vehicle at any time.
    47. The Applicants assert that permitting the sale of a Fund's 
shares to the Participating Investor in compliance with Treasury Reg. 
1.817-5 will enhance Fund management without raising significant 
concerns regarding material irreconcilable conflicts. Section 14(a) of 
the 1940 Act generally requires that an investment company have a net 
worth of $100,000 upon making a public offering of its shares. Initial 
capital is also required in connection with the creation of new series 
and the voting of initial shares of such series on matters requiring 
the approval of shareholders. A potential source of initial capital for 
a new Trust or a new Fund is the Manager or its affiliates or a 
Participating Insurance Company. Any of these parties may have an 
interest in

[[Page 63579]]

making the capital expenditure, and in participating with the new Trust 
or the new Fund in its organization. However, provision of seed capital 
or the purchase of Fund shares by the Participating Investor or by a 
Participating Insurance Company may be deemed to violate the 
exclusivity requirement of Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(1) 
under the 1940 Act.
    48. Applicants anticipate that such investment by the Participating 
Investor or by a Participating Insurance Company will be made in 
compliance with Treasury Reg. 1.817-5(f)(3). Given the conditions of 
Treasury Reg. 1.817-5(f)(3) under the Code and the harmony of interest 
between a Fund, on the one hand, and the Participating Investors or a 
Participating Insurance Company, on the other, the Applicants assert 
that little incentive for overreaching exists. Furthermore, such 
investment should not implicate the concerns discussed above regarding 
the creation of material irreconcilable conflicts. Instead, permitting 
investments by the Participating Investor or a Participating Insurance 
Company will permit the orderly and efficient creation and operation of 
the Funds.
    49. Applicants state that various factors have limited the number 
of insurance companies offering variable annuity and variable life 
insurance 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 
professionals. In particular, some small 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.
    50. Applicants argue that use of the Funds as common investment 
mediums for variable contracts, as well as for qualified plans, could 
ameliorate these concerns for insurance companies that decide to 
participate in the Funds. Applicants also submit that mixed and shared 
funding should provide a benefit to variable contract owners by 
eliminating a significant portion of the costs of establishing and 
administering separate funds. Participating Insurance Companies should 
also benefit from the investment and administrative expertise of 
Touchstone Advisors and Western-Southern, or any other investment 
adviser or sub-adviser to a fund, and the cost efficiencies and 
investment flexibility afforded by a larger pool of assets. Therefore, 
making the Funds available for shared funding should encourage more 
insurance companies to offer variable contracts and 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.
    51. The Applicants further assert that sale of shares of the Funds 
to Participating Plans should further increase the amount of assets 
available for investment by the Funds. This larger asset base should 
benefit variable contract owners and plan participants by promoting 
economies of scale, by permitting greater diversification, and by 
making the addition of new Funds more feasible. In connection with the 
proposed sale of shares of the Funds to Participating Plans, Applicants 
further submit that the intended use of the Funds with Participating 
Plans is not dissimilar from the intended use of the Funds with 
variable contracts in that Participating Plans, like variable 
contracts, are generally long-term retirement vehicles. The Applicants 
further submit that the sale of shares of the Funds to Participating 
Plans does not increase the risk of material irreconcilable conflicts 
to such Funds or to the Participating Separate Accounts.
    52. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding. Applicants also note that the 
Commission has granted numerous applications for orders permitting 
mixed and shared funding with respect to both scheduled and flexible 
premiums, including where sales are made to qualified pension and 
retirement plans. Applicants further note there is ample precedent for 
extending exemptive relief to members of a class or classes of persons, 
not currently identified, that may be similarly situated in the future. 
Such relief has been granted in various contexts and from a wide 
variety of the 1940 Act's provisions, including class exemption in the 
context of mixed and shared funding. Applicants assert that the 
requested exemption is 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.

Applicants' Conditions

    Applicants have consented to the following conditions if the order 
requested in its application is granted:
    1. A majority of the Board of Trustees of each Fund (a ``Board'') 
will consist of persons who are not ``interested persons'' of that 
Trust, 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. 
However, if this condition is not met by reason of the death, 
disqualification, or bona fide resignation of any trustee or trustees, 
then the operation of this condition will be suspended: (a) For a 
period of 90 days if the vacancy or vacancies may be filled by the 
remaining trustees;
    (b) for a period of 150 days if a vote of shareholders is required 
to fill the vacancy or vacancies; or (c) for such longer period as the 
Commission may prescribe by order upon application.
    2. Each Board will monitor its respective Funds for the existence 
of any material irreconcilable conflict among the interests of the 
variable contract owners of the Participating Separate Accounts, 
participants under the Participating Plans and the Participating 
Investor investing in the Fund, and the Board will determine what 
action, if any, should be taken in response to such conflicts. A 
material irreconcilable conflict may arise for a variety of reasons, 
including: (a) An action by any state insurance regulatory authority; 
(b) a change in applicable federal or state insurance, tax, or 
securities laws or regulations, or a public ruling, private letter 
ruling, no-action or 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 are being managed; (e) a 
difference in voting instructions given by variable annuity contract 
owners, variable life insurance contract owners, plan trustees or plan 
participants; (f) a decision by an insurer to disregard the voting 
instructions of variable contract owners; or (g) if applicable, a 
decision by a Participating Plan to disregard voting instructions of 
its participants.
    3. Any Participating Plan that executes a fund participation 
agreement upon becoming an owner of 10 percent or more of the issued 
and outstanding shares of the Fund (a ``Reporting Plan''), 
Participating Insurance Companies, and the Participating Investor 
investing in a Fund (collectively, the ``Reporting Entities'') will 
report any potential or existing conflicts to the relevant Board and 
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. These responsibilities include, but are not limited to, (a) an 
obligation by each Participating Insurance Company to inform the Board 
whenever it has determined to disregard voting instructions of variable 
contract

[[Page 63580]]

owners, and (b) if pass-through voting is applicable, an obligation by 
each Reporting Plan to inform the relevant Board whenever it has 
determined to disregard its participants' voting instructions. The 
responsibility to report such information and conflicts and to assist 
the relevant Board will be contractual obligations of all Participating 
Insurance Companies and Reporting Plans under their agreements 
governing participation in the Funds, and such agreements will provide 
that these responsibilities will be carried out with a view only to the 
interests of the variable contract owners and plan participants, as 
applicable.
    4. If it is determined by a majority of the Board of a Trust, or by 
a majority of its disinterested trustees, as appropriate, that a 
material irreconcilable conflict exists with respect to a Fund, the 
relevant Participating Insurance Companies and Relevant Participating 
Plans, at their own expense (or at the discretion of a Manager of the 
Fund, at that Manager's expense), will take whatever steps are 
necessary to remedy or eliminate the material irreconcilable conflict 
to the extent reasonably practicable (as determined by a majority of 
the disinterested trustees). These steps could include: (a) Withdrawing 
the assets allocable to some or all of the separate accounts of the 
Participating Insurance Companies from the Fund and reinvesting such 
assets in a different investment medium, including another Fund, (b) 
submitting the question as to whether such segregation should be 
implemented to a vote of all affected variable contract owners and, as 
appropriate, segregating the assets of any appropriate group that votes 
in favor of such segregation, (c) offering to the affected variable 
contract owners the option of making such a change; (d) withdrawing the 
assets allocable to some or all of the Participating Plans from the 
Fund and reinvesting such assets in a different investment medium; or 
(e) 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 Participating Plan to disregard participant voting 
instructions, and that decision represents a minority position or would 
preclude a majority vote, then that insurer or plan, as applicable, may 
be required, at the Fund's election, to withdraw its investment in the 
Fund, and no charge or penalty will be imposed as a result of such 
withdrawal. To the extent permitted by applicable law, the 
responsibility to take remedial action in the event of a Board 
determination of a material irreconcilable conflict and to bear the 
cost of such remedial action will be a contractual obligation of all 
Participating Insurance Companies and Reporting Plans under their 
agreements governing participation in the Funds, and these 
responsibilities will be carried out with a view only to the interests 
of variable contract owners and plan participants, as applicable.
    5. For purposes of Condition 4, a majority of the disinterested 
trustees of the relevant Board will determine whether or not any 
proposed action adequately remedies any material irreconcilable 
conflict, but in no event will the Trust or the Participating Investor 
be required to establish a new funding medium for any variable contract 
or qualified plan. No Participating Insurance Company will be required 
by Condition 4 to establish a new funding medium for any variable 
contract if a majority of the variable contract owners materially and 
adversely affected by the material irreconcilable conflict vote to 
decline such offer. Furthermore, no Participating Plan will be required 
by Condition 4 to establish a new funding medium for such plan if (a) A 
majority of plan participants materially and adversely affected by the 
irreconcilable material conflict vote to decline such offer, or (b) 
pursuant to governing documents and applicable law, the Participating 
Plan makes such decision without plan participant vote.
    6. The affected Reporting Entities will be informed promptly in 
writing of a Board's determination of the existence of a material 
irreconcilable conflict and its implications.
    7. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners so long as the 
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for variable contract owners. Accordingly, 
each Participating Insurance Company will vote shares of a Fund held in 
its Participating Separate Accounts in a manner consistent with voting 
instructions timely received from variable contract owners. Each 
Participating Insurance Company also will vote shares of the Fund held 
in its Participating Separate Accounts for which it has not received 
timely voting instructions from contract owners, as well as shares of 
the Fund that the Participating Insurance Company itself owns, in the 
same proportion as those shares of the Fund for which voting 
instructions from contract owners are timely received. Each 
Participating Insurance Company will be responsible for assuring that 
each of its Participating Separate Accounts investing in a Fund 
calculates voting privileges in a manner consistent with other 
Participating Insurance Companies investing in the Fund. The obligation 
to vote the Fund shares and to calculate voting privileges in a manner 
consistent with all other Participating Separate Accounts investing in 
a Fund will be a contractual obligation of all Participating Insurance 
Companies under the agreements governing their participation in that 
Fund. Each Participating Plan will vote as required by applicable law 
and governing plan documents.
    8. All reports of potential or existing conflicts received by the 
Board, and all Board actions with regard to determining the existence 
of a conflict, notifying affected Reporting Entities of a conflict, and 
determining whether any proposed action adequately remedies a conflict, 
will be properly recorded in the minutes of the meetings of the Board 
or other appropriate records, and such minutes or other records will be 
made available to the Commission upon request.
    9. Each Fund will notify all Participating Insurance Companies and 
all Participating Plans that disclosure regarding potential risks of 
mixed and shared funding may be appropriate in separate account 
prospectuses or plan documents. Each Fund will 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 for qualified pension and 
retirement plans; (b) due to differences of tax treatment and other 
considerations, the interests of various variable contract owners 
participating in the Fund and the interests of Participating Plans 
investing in the Fund may conflict, and (c) the relevant 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.
    10. Each Trust will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, will be 
the persons having a voting interest in the shares of the Fund). In 
particular, each Trust will either provide for annual shareholder 
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 Trusts are not the type of 
trust described in

[[Page 63581]]

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 Trust 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.
    11. So long as the Commission continues to interpret the 1940 Act 
as requiring pass-through voting privileges for variable contract 
owners, the Participating Investor will vote their shares in the same 
proportion as all contract owners having voting rights with respect to 
the relevant Funds; provided, however, that the Participating Investor 
shall vote their shares in such other manner as may be required by the 
Commission or its staff.
    12. If and to the extent that Rules 6e-2 and Rule 6e-3(T) under the 
1940 Act 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 promulgated thereunder, with respect to mixed funding or shared 
funding, on terms and conditions materially different from any 
exemptions granted in the order requested in this Application, then the 
Trusts and/or Participating Insurance Companies, as appropriate, will 
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), as amended, or Rule 6e-3, as adopted, to the extent that such 
rules are applicable.
    13. The Reporting Entities, at least annually, will submit to the 
relevant Board such reports, materials, or data as the Board may 
reasonably request so that the Board may fully carry out the 
obligations imposed upon it by the conditions contained in this 
Application. Such reports, materials, and data will be submitted more 
frequently if deemed appropriate by the Board. The obligations of the 
Participating Insurance Companies and the Reporting Plans to provide 
these reports, materials, and data to the Board will be a contractual 
obligation under their agreements governing participation in the Funds.
    14. If a Participating Plan should ever become a holder of ten 
percent or more of the issued and outstanding shares of a Fund, such 
plan will execute a participation agreement with the Fund, which will 
include the conditions set forth herein to the extent applicable. A 
Participating Plan will execute a document containing an 
acknowledgement of this condition upon such plan's initial purchase of 
the shares of any Fund.
    15. Any shares of a Fund purchased by the Manager or its affiliates 
will be automatically redeemed if and when the Manager's investment 
management agreement terminates, and to the extent required by the 
applicable Treasury Regulations. No Participating Investor will sell 
such shares of the Funds to the public.

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. 01-30325 Filed 12-6-01; 8:45 am]
BILLING CODE 8010-01-P