[Federal Register Volume 68, Number 199 (Wednesday, October 15, 2003)]
[Notices]
[Pages 59424-59432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25973]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-26203; File No. 812-12981]


MLIG Variable Insurance Trust and Roszel Advisors, LLC; Notice of 
Application

October 8, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 6(c) of 
the

[[Page 59425]]

Investment Company Act of 1940, as amended, (the ``Act'') granting 
relief from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of 
the Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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Applicants: MLIG Variable Insurance Trust (the ``Trust'') and Roszel 
Advisors, LLC (``Roszel Advisors'').

Summary of Application: Applicants seek exemptions to permit life 
insurance company separate accounts supporting variable life insurance 
contracts (and their insurance company depositors) to invest in shares 
of the Trust or a ``future trust'' when the following other types of 
investors also hold shares of the Trust or a future trust: (1) A 
variable life insurance (``VLI'') account of a life insurance company 
that is not an affiliated person of the insurance company depositor of 
any other VLI account, (2) the Trust's or future trust's investment 
adviser (representing seed money investments in the Trust or future 
trust), (3) a life insurance company separate account supporting 
variable annuity contracts (a ``VA account''), or (4) a qualified 
pension or retirement plan. A ``future trust'' is any investment 
company (or investment portfolio or series thereof), other than the 
Trust, shares of which are to be sold to VLI accounts and to which 
applicants or their affiliates may in the future serve as investment 
advisers, investment sub-advisers, investment managers, administrators, 
principal underwriters or sponsors.

Filing Date: The application was filed on May 29, 2003 and was amended 
and restated on September 26, 2003.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the Commission and serving applicants with a copy of the 
request, in person or by mail. Hearing requests should be received by 
the Commission by 5:30 p.m. on November 3, 2003, and should be 
accompanied by proof of service on the applicants, in the form of an 
affidavit or, for lawyers, a certificate of service. Hearing requests 
should state the nature of the requestor's interest, the reason for the 
request, and the issues contested. Persons may request notification of 
a hearing by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street NW., Washington, DC 20549-0609. Applicants, c/o Edward W. 
Diffin, Jr., Esq., Vice President and Senior Counsel, Merrill Lynch 
Insurance Group, Inc., 1300 Merrill Lynch Drive, Pennington, New Jersey 
08534. Copy to David S. Goldstein, Esq., Sutherland Asbill & Brennan 
LLP, 1275 Pennsylvania Avenue NW., Washington, DC 20004-2415.

FOR FURTHER INFORMATION CONTACT: H. Yuna Peng, Attorney, at (202) 942-
0676, or Lorna J. MacLeod, Branch Chief, at (202) 942-6070, Office of 
Insurance Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application is available for a fee from the 
Public Reference Branch of the Commission, 450 5th Street NW., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants Representations

    1. The Trust is a business trust organized under the laws of 
Delaware on February 14, 2002. It is registered under the Act as an 
open-end management investment company and is a series investment 
company as defined by Rule 18f-2 under the Act. It is currently 
comprised of twenty-four investment portfolios. It issues a separate 
series of shares of beneficial interest in connection with each 
investment portfolio (each, a ``Portfolio''). It may offer each series 
of its shares to VLI accounts and VA accounts of various life insurance 
companies (``participating insurance companies'') and to pension and 
retirement plans qualified under Section 401(a) of the Internal Revenue 
Code of 1986, as amended (the ``Code'') (``plans'').
    2. Each VLI account and VA account will be established as a 
segregated asset account by a participating insurance company pursuant 
to the insurance law of the insurance company's state of domicile. As 
such, the assets of each will be the property of the participating 
insurance company and that portion of the assets of such an account 
equal to the reserves and other contract liabilities with respect to 
the account will not be chargeable with liabilities arising out of any 
other business that the insurance company may conduct. The income, 
gains and losses, realized or unrealized from such an account's assets 
will be credited to or charged against the account without regard to 
other income, gains or losses of the insurance company. If a VLI 
account or VA account is registered as an investment company, it will 
be a ``separate account'' as defined by Rule 0-1(e) (or any successor 
rule) under the Act and will be registered as a unit investment trust. 
For purposes of the Act, the life insurance company that establishes 
such a registered VLI account or VA account is the depositor and 
sponsor of the account as those terms have been interpreted by the 
Commission with respect to variable life insurance and variable annuity 
separate accounts.
    3. The plans will be pension or retirement plans intended to 
qualify under Sections 401(a) and 501(a) of the Code. Many of the plans 
will include a cash or deferred arrangement (permitting salary 
reduction contributions) intended to qualify under Section 401(k) of 
the Code. The plans will also be subject to, and will be designed to 
comply with, the provisions of the Employee Retirement Income Security 
Act of 1974 (``ERISA'') applicable to either defined benefit or to 
defined contribution profit-sharing plans.
    4. Roszel Advisors is a Delaware limited liability company 
organized on April 5, 2002. Roszel Advisors is registered as an 
investment adviser under the Investment Advisers Act of 1940. Roszel 
Advisors is a wholly-owned subsidiary of Merrill Lynch Insurance Group, 
Inc., and is an ``affiliated person'' of the Trust as defined in 
Section 2(a)(3) of the Act. Roszel Advisors serves as the investment 
adviser to the Trust and each of the Portfolios. Roszel Advisors, under 
the direction of the Trust's board of trustees, is responsible for the 
overall business management of the Trust and for retaining investment 
subadvisers (``Subadvisers'') to manage the assets of each Portfolio. 
Pursuant to an order under Section 6(c) of the Act granting exemption 
from Section 15(a) of the Act and Rule 18f-2 under the Act, Roszel 
Advisors uses a ``manager of managers'' approach to selecting and 
supervising Subadvisers to manage the assets of the Portfolios.
    5. The Trust proposes to offer and sell its shares to VLI accounts 
and VA accounts of various participating insurance companies to serve 
as an investment medium to support variable life insurance contracts 
(``VLI contracts'') and variable annuity contracts (``VA contracts'') 
(together, ``variable contracts'') issued through such accounts. As 
described more fully below, the Trust will only sell its shares to 
registered VLI accounts and registered VA accounts if each 
participating insurance company sponsoring such a VLI account or VA 
account enters into a participation agreement with the Trust. The 
participation agreements will define the relationship between the Trust 
and each

[[Page 59426]]

participating insurance company and will memorialize, among other 
matters, the fact that, except where the agreement specifically 
provides otherwise, the participating insurance company will remain 
responsible for establishing and maintaining any VLI account or VA 
account covered by the agreement and for complying with all applicable 
requirements of state and federal law pertaining to such accounts and 
to the sale and distribution of variable contracts issued through such 
accounts.
    6. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for both VLI accounts and VA 
accounts of the same insurance company, or of two or more insurance 
companies that are affiliated persons of each other, is referred to 
herein as ``mixed funding.'' The use of a common management investment 
company (or investment portfolio thereof) as an investment medium for 
VLI accounts and/or VA accounts of two or more insurance companies that 
are not affiliated persons of each other, is referred to herein as 
``shared funding.''
    7. The Trust may sell its shares directly to the plans. Federal tax 
law permits investment companies such as the Trust to increase their 
net assets by selling shares to qualified pension and retirement plans 
such as the plans. Section 817(h) of the Code imposes certain 
diversification standards on the assets underlying variable contracts, 
such as those in each Portfolio of the Trust. The Code provides that 
variable contracts will not be treated as annuity contracts or life 
insurance contracts, as the case may be, for any period (or any 
subsequent period) for which the underlying assets are not, in 
accordance with regulations issued by the Treasury Department, 
adequately diversified. On March 2, 1989, the Treasury Department 
issued regulations (Treas. Reg. 1.817-5) which established specific 
diversification requirements for investment portfolios underlying 
variable contracts. The regulations generally provide that, in order 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 life insurance companies. Notwithstanding 
this, the regulations also contain an exception to this requirement 
that permits trustees of a qualified pension or retirement plan to hold 
shares of an investment company, the shares of which are also held by 
insurance company segregated asset accounts, without adversely 
affecting the status of the investment company as an adequately 
diversified underlying investment for variable contracts issued through 
such segregated asset accounts (Treas. Reg. 1.817-5(f)(3)(iii)).
    8. As a result of this exception to the general diversification 
requirement, qualified pension and retirement plans, such as the plans, 
may hold Trust shares and select a Portfolio or an investment portfolio 
of any future trust as an investment option without endangering the tax 
status of variable contracts as life insurance or annuities, 
respectively. Trust shares sold to the plans would be held by the 
trustees of the plans as required by Section 403(a) of ERISA. The 
trustees or other fiduciaries of the plans may vote Trust shares held 
by their plans in their own discretion or, if the applicable plan so 
provides, vote such shares in accordance with instructions from 
participants in such plans. The use of a common management investment 
company (or investment portfolio thereof) as an investment medium for 
VLI accounts, VA accounts and plans, is referred to herein as 
``extended mixed funding.''

Applicants' Legal Analysis

    9. Rule 6e-2(b)(15) under the Act provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI accounts 
supporting scheduled premium VLI contracts and to their life insurance 
company depositors. The exemptions granted by the Rule are available, 
however, only where the Trust offers its shares exclusively to VLI 
accounts of the same participating insurance company and/or of 
participating insurance companies that are affiliated persons of the 
same participating insurance company and then, only where scheduled 
premium VLI contracts are issued through such VLI accounts. Therefore, 
VLI accounts, their depositors and their principal underwriters may not 
rely on the exemptions provided by Rule 6e-2(b)(15) if shares of the 
Trust are held by a VLI account through which flexible premium VLI 
contracts are issued, a VLI account of an unaffiliated participating 
insurance company, an unaffiliated investment adviser, any VA account 
or a plan. In other words, Rule 6e-2(b)(15) does not permit a scheduled 
premium VLI account to invest in shares of a management investment 
company that serves as a vehicle for mixed funding, extended mixed 
funding or shared funding.
    10. Rule 6e-3(T)(b)(15) under the Act provides partial exemptions 
from Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI accounts 
supporting flexible premium variable life insurance contracts and their 
life insurance company depositors. The exemptions granted by the Rule 
are available, however, only where the Trust offers its shares 
exclusively to VLI accounts (through which either scheduled premium or 
flexible premium contracts are issued) of the same participating 
insurance company and/or of participating insurance companies that are 
affiliated persons of the same participating insurance company, VA 
accounts of the same participating insurance company or of affiliated 
participating insurance companies, or the general account of the same 
participating insurance company or of affiliated participating 
insurance companies. Therefore, VLI accounts, their depositors and 
their principal underwriters may not rely on the exemptions provided by 
Rule 6e-3(T)(b)(15) if shares of the Trust are held by a VLI account of 
an unaffiliated participating insurance company, a VA account of an 
unaffiliated participating insurance company, the general account of an 
unaffiliated participating insurance company, an unaffiliated 
investment adviser or a plan. In other words, Rule 6e-3(T)(b)(15) 
permits VLI accounts supporting flexible premium VLI contracts to 
invest in shares of a management investment company that serves as a 
vehicle for mixed funding but does not permit such a VLI account to 
invest in shares of a management investment company that serves as a 
vehicle for extended mixed funding or shared funding.
    11. In general, Section 9(a) of the 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. More specifically, paragraph (3) of 
Section 9(a) provides that it is unlawful for any company to serve as 
investment adviser 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).
    12. Subject to the limitations described above, Rule 6e-2(b)(15)(i) 
and (ii) and Rule 6e-3(T)(b)(15)(i) and (ii) provide exemptions from 
Section 9(a) to VLI accounts and their affiliates under certain 
circumstances and subject to certain conditions that would limit the 
application of the eligibility restrictions to affiliated individuals 
or companies that directly participate in the management of the Trust. 
The relief provided by Rule 6e-2(b)(15)(i) and Rule 6e-3(T)(b)(15)(i) 
permits a person disqualified under Section 9(a) to serve as an 
officer, director, or employee of a

[[Page 59427]]

participating insurance company, or any of the insurance company's 
affiliates, as long as that person does not participate directly in the 
management or administration of the Trust. The relief provided by Rule 
6e-2(b)(15)(ii) and Rule 6e-3(T)(b)(15)(ii) permits a participating 
insurance company to serve as the Trust's investment adviser or 
principal underwriter, provided that none of its personnel who are 
ineligible pursuant to Section 9(a) of the Act are participating in the 
management or administration of the Trust.
    13. The partial relief provided by Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) limits, in effect, the amount of monitoring of personnel 
that a participating insurance company and its affiliates would 
otherwise have to conduct to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of Section 9. 
These Rules recognize that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the Act to apply the provisions of Section 9(a) to the many hundreds 
of individuals in a large insurance company complex, most of whom 
typically have no involvement in matters pertaining to investment 
companies affiliated with such an organization. These Rules also 
recognize that, in connection with the Trust, there exists no necessity 
to apply Section 9(a) to individuals in various participating insurance 
companies who would have no relationship to the Trust other than that 
their employer utilizes the Trust to support variable contracts. No 
regulatory purpose would be served in extending the Section 9(a) 
monitoring requirements because of mixed funding, extended mixed 
funding or shared funding. Participating insurance companies and plans 
are not expected to play any significant role in the management of the 
Trust. Those individuals at Roszel Advisors who would participate in 
the management of the Trust will do so regardless of which VLI 
accounts, VA accounts and plans invest in the Trust. The increased 
expense of extending the Section 9(a) monitoring requirements to 
participating insurance companies or plans could reduce the net return 
realized by investors in VLI accounts, VA accounts or plans and would 
not provide any material benefit to such investors.
    14. Rule 6e-2(b)(15)(iii) and Rule 6e-3(T)(b)(15)(iii) provide 
partial exemptions from Sections 13(a), 15(a) and 15(b) of the Act to 
the extent that those Sections have been deemed by the Commission to 
require ``pass-through'' voting with respect to management investment 
company shares held by an insurance company separate account, in order 
to permit the insurance company to disregard the voting instructions of 
its VLI contract owners (``VLI owners'') in certain limited 
circumstances. Because the Commission has deemed Sections 13(a), 15(a) 
and 15(b) to require a participating insurance company to vote all 
shares of the Trust held by a VLI account in accordance with 
instructions from VLI owners, the partial exemption from these sections 
provided by subparagraph (b)(15)(iii)(A)(1) of the Rules 6e-2 and 6e-
3(T) would permit a participating insurance company to disregard the 
voting instructions of such VLI owners when required to do so by any 
insurance regulatory authority (subject to the provisions of paragraphs 
(b)(5)(i) and (b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T)), if following 
such instructions would cause the insurance company to: (1) make (or 
refrain from making) certain investments that would result in changes 
in the subclassification or investment objectives of the Trust, or (2) 
approve or disapprove any contract between the Trust and Roszel 
Advisors (or another investment adviser or subadviser).
    15. Subparagraph (b)(15)(iii)(B) of Rule 6e-2 and subparagraph 
(b)(15)(iii)(A)(2) of Rule 6e-3(T) would permit a participating 
insurance company to disregard the voting instructions of such VLI 
owners if the owners initiate any change in the Trust's investment 
policies, principal underwriter, or investment adviser (provided that 
disregarding such voting instructions is reasonable and subject to the 
other provisions of paragraphs (b)(5)(ii), (b)(7)(ii)(B) and 
(b)(7)(ii)(C) of Rules 6e-2 and 6e-3(T)).
    16. Because the Commission has deemed Sections 13(a), 15(a) and 
15(b) to require any participating insurance company to vote all shares 
of the Trust held by the insurer's VLI accounts in accordance with 
instructions from owners of variable life insurance contracts issued 
through such account, the partial exemption from these sections 
provided by subparagraph (b)(15)(iii) of Rule 6e-2 and subparagraph 
(b)(15)(iii)(A)(1) of the Rule 6e-3(T) is one that almost all VLI 
accounts and their participating insurance companies may need to rely 
on.
    17. Both Rule 6e-2 and Rule 6e-3(T) generally recognize that a 
variable life insurance contract is primarily a life insurance contract 
containing many important elements unique to life insurance contracts 
and subject to extensive state insurance regulation. Applicants assert 
that in adopting subparagraph (b)(15)(iii) of these Rules, the 
Commission implicitly recognized that state insurance regulators have 
authority, pursuant to state insurance laws or regulations, to 
disapprove or require changes in investment policies, investment 
advisers, or principal underwriters.
    18. If the Trust serves as an investment vehicle for mixed funding, 
extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-2(b)(15) would not be available to VLI accounts and 
their participating insurance company depositors and principal 
underwriters. Likewise, if the Trust serves as an investment vehicle 
for extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-3(T)(b)(15) would not be available to VLI accounts 
and their participating insurance companies and principal underwriters.
    19. Applicants maintain that VLI owners and VA owners, as investors 
in the Trust, would have substantially identical interests. Likewise, 
owners of scheduled premium VLI contracts and flexible premium VLI 
contracts would, as investors in the Trust, have virtually identical 
interests.
    20. Each Portfolio is, or 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 variable contract. Applicants assert that there is no reason to 
believe that the different features of various types of variable 
contracts, including any ``minimum death benefit'' guarantee under 
certain VLI contracts, will lead to different investment policies for 
different types of variable contracts. To the extent that the degree of 
risk may differ between VLI contracts and VA contracts, the different 
insurance charges imposed, in effect, adjust any such differences and 
equalize the insurers' exposure to risk in either case.
    21. Furthermore, no single investment strategy is appropriate to 
one particular type of variable contract but not another. Each pool of 
VLI owners and VA owners is composed of individuals of diverse 
financial status, age, and insurance and investment goals. A Portfolio 
supporting one type of variable contract must accommodate these diverse 
factors in order to attract and retain owners of other types of 
variable contracts. Permitting mixed funding will facilitate the 
success of each Portfolio and will broaden the base of VLI owners and 
VA owners and encourage the Trust to add additional Portfolios.

[[Page 59428]]

    22. Applicants maintain that qualified retirement plan investors in 
the Trust would have substantially the same interests as do VLI owners 
and VA owners. Like VLI and VA owners, qualified retirement plan 
investors are long-term investors. Therefore, most can be expected not 
to withdraw their assets from the plans.
    23. In addition, neither VLI and VA owners on the one hand, nor 
plan investors on the other, would be taxed on the investment return of 
their respective investments in the Trust. Therefore, they would share 
a strong interest in the Trust operating in a manner that preserves 
this tax status. For example, material conflicts between these two 
groups of investors regarding capital transactions would be unlikely to 
occur. In this regard, ERISA imposes general diversification 
requirements on qualified pension or retirement plan investments that 
are wholly consistent with those required of each Portfolio under 
Section 817(h) of the Code.
    24. VLI accounts, VA accounts and the plans are governed in similar 
ways. Plan committees (and other plan fiduciaries) have a fiduciary 
duty to participants that is similar to the obligations that a 
participating insurance company has to look after the interests of its 
VLI owners and VA owners. In this respect, applicants note that 
participating insurance companies and their VLI accounts would not 
require any exemptions from the Act other than those necessary for 
mixed funding and shared funding if participants in certain qualified 
pension and retirement plans invest indirectly in the Trust when their 
plan purchases a variable annuity contract offered by participating 
insurance company in the qualified plan market. The various plans may 
or may not offer an annuity option.
    25. In light of the fact that plan investors would have beneficial 
interests in the Trust very similar to those of VLI owners and VA 
owners, applicants assert that, provided that they (and VLI accounts 
and participating insurance companies) comply with the conditions 
explained below, the addition of the plans as shareholders of the Trust 
and the addition of participants as persons having beneficial interests 
in the Trust should not increase the risk of material irreconcilable 
conflicts among and between investors. Applicants further assert that 
even if a material irreconcilable conflict involving the plans, or 
participants arose, the trustees (or other fiduciaries) of the plans, 
unlike participating insurance companies, can, if their fiduciary duty 
to the participants requires it, redeem the shares of the Trust held by 
the plans and make alternative investments without obtaining prior 
regulatory approval. Similarly, most, if not all, of the plans, unlike 
the VLI accounts or the VA accounts, may hold cash or other liquid 
assets pending their reinvestment in a suitable alternative investment.
    26. Applicants maintain that VLI owners and VA owners would benefit 
from the expected increase in net assets of the Portfolios occasioned 
by participant investments. Not only should such additional investments 
not increase the likelihood of material irreconcilable conflicts of 
interests between or among different types of investors, but such 
additional investments should reduce some of the costs of investing for 
variable contract owners. In particular, additional investments would 
promote economies of scale, permit increased safety through greater 
portfolio diversification, provide each Portfolio's investment adviser 
with greater flexibility due to a larger portfolio and make the 
addition of future new Portfolios more feasible.
    27. When the Commission last revised Rule 6e-3(T) in 1987, the 
Treasury Department had not issued the current regulations (Treas. Reg. 
1.817-5) which make it possible for the Trust to sell shares to 
qualified pension or retirement plans without adversely affecting the 
tax status of VLI contracts and VA contracts. Applicants submit that, 
although proposed regulations had been published, the Commission did 
not envision this possibility when it last examined paragraph (b)(15) 
of the Rule and might well have broadened the exclusivity provision of 
that paragraph at that time to include plans such as the plans had this 
possibility been apparent. In this regard, the Commission has recently 
issued a number of orders under Section 6(c) granting the same 
exemptions requested herein to other applicants in very similar 
circumstances.
    28. In light of the fact that the proposed plan investments in the 
Trust should not increase the likelihood of material irreconcilable 
conflicts and would otherwise benefit VA owners and VLI owners and in 
light of the recent supporting precedent, applicants believe that the 
Commission should grant the requested exemptions.
    29. Applicants do not believe that plan investments in the Trust 
would increase the potential for material irreconcilable conflicts of 
interest between or among different types of investors. Section 403(a) 
of ERISA provides that the trustee(s) of a plan must have exclusive 
authority and discretion to manage and control the plan with two 
exceptions: (1) when the plan expressly provides that the trustee(s) 
are subject to the direction of a named fiduciary who is not a trustee, 
in which event the trustee(s) are subject to proper directions made in 
accordance with the terms of the plan and not contrary to ERISA, and 
(2) when the authority to manage, acquire or dispose of assets of the 
plan is delegated to one or more investment advisers pursuant to 
Section 402(c)(3) of ERISA. Absent one of these exceptions, the 
trustee(s) of the plans would have the exclusive authority and 
responsibility for exercising voting rights attributable to their 
plan's investment securities. Where a named fiduciary appoints an 
investment adviser, the adviser has the authority and responsibility to 
exercise such voting rights unless the authority and responsibility is 
reserved to the trustee(s) or a non-trustee fiduciary.
    30. Applicants generally expect many of the plans to have their 
trustees or other fiduciaries exercise voting rights attributable to 
investment securities held by the plans in their discretion. Some of 
the plans, however, may provide for the trustee(s), an investment 
adviser (or advisers) or another named fiduciary to exercise voting 
rights in accordance with instructions from participants.
    31. Where plans do provide participants with the right to give 
voting instructions, applicants see no reason to believe that 
participants in the plans generally or those in a particular plan, 
either as a single group or in combination with participants in other 
plans, would vote in a manner that would disadvantage VLI owners or VA 
owners. The purchase of Trust shares by the plans that provide voting 
rights does not present any complications not otherwise occasioned by 
mixed funding or by shared funding.
    32. Section 817(h) of the Code is the codification of certain 
aspects of a series of published and unpublished rulings issued by the 
Internal Revenue Service directed at the control of investments 
supporting most VLI contracts and VA contracts. In light of Treasury 
Regulation 1.817-5(f)(3)(iii) which specifically permits ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company, applicants have concluded 
that neither the Code, nor other Treasury Regulations or revenue 
rulings thereunder, would create any inherent conflicts of interest 
between or among plan investors, VLI owners and VA owners.
    33. Although there are differences in the manner in which 
distributions from

[[Page 59429]]

the plans and distributions from VLI and VA contracts are taxed, 
applicants maintain that these differences will have no impact on the 
Trust. VLI accounts, VA accounts, participating insurance companies and 
the plans each will redeem Trust shares in the same manner and using 
the same procedures. Each will purchase and redeem such shares at net 
asset value in conformity with Rule 22c-1 under the Act.
    34. Applicants do not see any greater potential for material 
irreconcilable conflicts arising between the interests of plan 
investors and other Trust investors from possible future changes in the 
federal tax laws than that which already exists with regard to such 
conflicts arising between VLI owners and VA owners.
    35. Applicants assert that the holding of Trust shares by separate 
accounts of unaffiliated insurance companies would not entail greater 
potential for material irreconcilable conflicts arising between or 
among the interests of VLI owners and VA owners than would mixed 
funding. Likewise, the holding of Trust shares by separate accounts of 
unaffiliated insurance companies would not entail greater potential for 
material irreconcilable conflicts arising between or among the 
interests of VLI owners, VA owners and plan investors than would 
extended mixed funding where only separate accounts of affiliated 
participating insurance companies held such shares.
    36. A particular state insurance regulator could require action of 
an insurer domiciled or licensed in its jurisdiction that conflicts 
with or is inconsistent with the regulatory requirements of or actions 
required by the regulator of another state where that insurer is 
domiciled or licensed. The fact that different insurance companies are 
domiciled in different states does not enlarge or create significantly 
different issues in connection with conflicting state regulatory 
requirements. Affiliation among or between such insurance companies 
does not diminish the potential for such issues to arise nor, in light 
of the source of such issues, does it dramatically increase the 
likelihood of their being resolved.
    37. Concern also has existed that material irreconcilable conflicts 
between or among the interests of VLI owners and/or VA owners of 
unaffiliated insurance companies were more likely to arise in the event 
that such companies exercised their limited right to disregard VLI 
owner voting instructions than would be the case between or among 
affiliated companies. Applicants assert, however, that the right of an 
insurance company to disregard VLI owner voting instructions does not 
raise any issues different from those raised by the authority of 
different state insurance regulators over separate accounts. Similarly, 
affiliation between or among insurance companies does not diminish or 
eliminate the potential for divergent judgments by such companies as to 
the advisability or legality of a change in investment policies, 
principal underwriter or investment adviser of a mutual fund in which 
their separate account invests. Applicants believe that the potential 
for disagreement between or among insurance companies is limited by 
requirements in Rule 6e-2 and Rule 6e-3(T) that a company's disregard 
of voting instructions be reasonable and based on specific good faith 
determinations. Moreover, in the event that a decision by a 
participating life insurance company to disregard VLI owners' voting 
instructions represents a minority position or would preclude a 
majority vote at a Trust shareholders meeting, the company could be 
required by the Trust's board of trustees to withdraw from the Trust.
    38. Various factors have discouraged a number of life insurance 
companies from offering variable contracts. These factors include the 
cost of organizing and operating a funding medium (such as the Trust), 
the lack of expertise with respect to investment management 
(principally with respect to equity investments and derivative 
instruments) and the lack of name recognition by the public of many 
such insurers as investment professionals with whom an investor can 
feel comfortable entrusting their investment dollars. For example, a 
number of smaller life insurance companies do not find it economically 
feasible, or within their investment or administrative expertise, to 
enter the variable contract business on their own. Use of the 
Portfolios as a mixed funding and shared funding vehicle for variable 
contracts would reduce or eliminate such concerns for small life 
insurance companies.
    39. Permitting the Trust to serve as a mixed funding and shared 
funding vehicle also should provide several benefits to variable 
contract owners by eliminating a significant portion of the costs or 
establishing and administering separate mutual funds. Participating 
insurance companies would benefit not only from the investment and 
administrative expertise of Roszel Advisors, but also from the cost 
efficiencies and investment flexibility afforded by a large pool of 
assets. Permitting the Trust to serve as a mixed and shared funding 
vehicle also should make a greater amount of assets available for 
investment by each Portfolio than would otherwise be the case and, 
thereby, promote economies of scale, increase the safety of a Portfolio 
by increasing diversification of investments, and/or make the addition 
of new Portfolios more feasible. Therefore, making the Trust available 
to serve as a vehicle for mixed funding and shared funding could 
encourage more life insurance companies to offer variable contracts and 
thereby increase competition in the variable contracts market. Such 
competition, in turn, can be expected to result in more contract 
variation and in lower fees and charges. Applicants also assert that 
permitting the Trust to serve as a vehicle for extended mixed funding 
will result in increased assets for the Portfolios. This also will 
benefit owners of variable contracts by promoting economies of scale, 
increasing the safety of Portfolios by increasing diversification of 
investments, and/or make the addition of new Portfolios more feasible.
    40. Applicants submit that regardless of the types of investors in 
the Trust, they each will be contractually and otherwise obligated to 
manage each Portfolio solely and exclusively in accordance with its 
investment objective(s), policies and restrictions as well as any 
additional guidelines established by trustees of the Trust. Roszel 
Advisors manages (and the investment adviser of any future trust would 
manage) each Portfolio, without regard to the identity of the investors 
in such accounts. Thus, each Portfolio is managed in the same manner as 
any other open-end management investment company.
    41. Applicants see no legal impediment to permitting the Trust to 
serve as a vehicle for mixed funding, extended mixed funding and shared 
funding. The Commission has issued numerous orders permitting mixed 
funding, extended mixed funding and shared funding. Therefore, granting 
the exemptions requested herein is in the public interest and will not 
compromise the regulatory purposes of Sections 9(a), 13(a), 15(a) or 
15(b) of the Act or of Rules 6e-2 and 6e-3(T) thereunder.
    42. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security, or transaction or any class of persons, securities, 
or transactions from any provision or provisions of the Act and/or any 
rule under it if, and to the extent that, such exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants request an order of the 
Commission that would exempt VLI

[[Page 59430]]

accounts and their participating insurance companies and principal 
underwriters as a class from the provisions of Sections 9(a), 13(a), 
15(a) and 15(b) of the Act and Rule 6e-2 or Rule 6e-3(T)(b)(15) 
thereunder. The exemption of these classes of parties 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 Act 
because all of the potential members of the class could obtain the 
foregoing exemptions for themselves on the same basis as the 
applicants, but only at a cost to each of them that is not justified by 
any public policy purpose. As discussed below, the requested exemptions 
would only extend to VLI accounts whose participating insurance 
companies enter into participation agreements with the Trust; which 
agreements would subject such VLI accounts to the conditions discussed 
below. The Commission staff also would have the opportunity to review 
compliance with these conditions by participating insurance companies 
when it reviews the 1933 Act registration statements filed by each VLI 
account and VA account before the account could issue any variable 
contracts. The Commission has previously granted exemptions to classes 
of similarly situated parties in various contexts and from a wide 
variety of circumstances, including class exemptions in the context of 
mixed funding, extended mixed funding and shared funding.

Applicants' Conditions

    With regard to the conditions recited below, references to the 
Trust include any future trust; references to a Portfolio include any 
investment portfolio of a future trust; and references to Roszel 
Advisors include any current or future Subadviser and any investment 
adviser to a future trust or investment portfolio of a future trust. 
Applicants consent to the following conditions if the exemptions 
requested herein are granted:
    1. A majority of the Trustees (the ``Board'') of the Trust and each 
Portfolio will consist of persons who are not ``interested persons'' 
thereof, as defined by Section 2(a)(19) of the Act, and the rules 
thereunder, and as modified by any applicable orders of the Commission, 
except that if this condition is not met by reason of the death, 
disqualification or bona fide resignation of any trustee, then the 
operation of this condition shall be suspended: (a) for a period of 90 
days if the vacancy or vacancies may be filled by the Board; (b) for a 
period of 150 days if a vote of shareholders is required to fill the 
vacancy or vacancies; or (c) for such longer period as the Commission 
may prescribe by order upon application.
    2. The Board will monitor the Portfolios for the existence of any 
material irreconcilable conflict between and among the interests of VLI 
owners and VA owners and of plan participants and plans investing in 
the Portfolios and determine what action, if any, should be taken in 
response to any such conflicts. A material irreconcilable conflict may 
arise for a variety of reasons, including: (a) An action by any state 
insurance regulatory authority; (b) a change in applicable federal or 
state insurance, tax or securities laws or regulations, or a public 
ruling, private letter ruling, no-action or interpretive letter, or any 
similar action by insurance, tax or securities regulatory authorities; 
(c) an administrative or judicial decision in any relevant proceeding; 
(d) the manner in which the investments of the Portfolios are being 
managed; (e) a difference in voting instructions given by VLI owners, 
VA owners and plan investors; (f) a decision by a participating 
insurance company to disregard the voting instructions of VLI owners or 
VA owners; or (g) if applicable, a decision by a plan to disregard the 
voting instructions of plan participants.
    3. Roszel Advisors (or any ``investment adviser'' of a Portfolio), 
any participating insurance company, and any plan that executes a 
participation agreement upon becoming an owner of 10% or more of the 
issued and outstanding shares of a Portfolio (such plans referred to 
hereafter as ``participating plans'') will be required to report any 
potential or existing conflicts to the Board. Roszel Advisors (or any 
other investment adviser of a Portfolio), participating insurance 
companies and participating plans will be responsible for assisting the 
Board in carrying out its responsibilities under these conditions by 
providing the Board with all information reasonably necessary for the 
Board to consider any issues raised. This includes, but is not limited 
to, an obligation by a participating insurance company to inform the 
Board whenever it has determined to disregard VLI owner or VA owner 
voting instructions, and, if pass-through voting is applicable, an 
obligation by a participating plan to inform the Board whenever it has 
determined to disregard plan participant voting instructions. The 
responsibility to report such conflicts and information, and to assist 
the Board will be contractual obligations of all participating 
insurance companies and participating plans investing in the Portfolios 
under their agreements governing participation in the Portfolios, and 
such agreements, shall provide that these responsibilities will be 
carried out with a view only to the interests of the VLI owners and VA 
owners, and if applicable, plan participants.
    4. If a majority of the Board, or a majority of its disinterested 
trustees, determine that a material irreconcilable conflict exists, the 
relevant participating insurance companies and participating plans, at 
their expense and to the extent reasonably practicable (as determined 
by a majority of the disinterested trustees), will be required to take 
whatever steps are necessary to remedy or eliminate the material 
irreconcilable conflict. Such steps could include: (a) Withdrawing the 
assets allocable to some or all of the separate accounts from the 
Portfolio and reinvesting such assets in a different investment medium, 
which may include another Portfolio of the Trust; (b) in the case of 
participating insurance companies, submitting the questions of whether 
such segregation should be implemented to a vote of all affected owners 
of all registered VA contracts or VLI contracts, and, as appropriate, 
segregating the assets of any appropriate group (i.e., VA owners or VLI 
owners of one or more participating insurance companies) that votes in 
favor of such segregation, or offering to the affected variable 
contract owners, the option of making such a change; and (c) 
establishing a new registered management investment company. If a 
material irreconcilable conflict arises because of a decision by a 
participating insurance company to disregard VLI owners' or VA owners' 
voting instructions and that decision represents a minority position or 
would preclude a majority vote, the participating insurance company may 
be required, at the election of the Portfolio, to withdraw its separate 
account's investment in such Portfolio, with no charge or penalty 
imposed as a result of such withdrawal. If a material irreconcilable 
conflict arises because of a participating plan's decision to disregard 
plan participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude a majority vote, the 
participating plan may be required, at the election of the Portfolio, 
to withdraw its investment in such Portfolio, with no charge or penalty 
imposed as a result of such withdrawal. To the extent permitted by 
applicable law, the responsibility of taking

[[Page 59431]]

remedial action in the event of a Board determination of a material 
irreconcilable conflict and bearing the cost of such remedial action, 
will be a contractual obligation of all participating insurance 
companies and participating plans under their agreements governing 
participation in the Portfolios, and these responsibilities will be 
carried out with a view only to the interests of VLI owners, VA owners 
and plan participants, as applicable.
    For purposes of this Condition 4, a majority of the disinterested 
trustees of the Board will determine whether or not any proposed action 
adequately remedies any material irreconcilable conflict, but in no 
event will a Portfolio, or Roszel Advisors be required to establish a 
new funding medium for any VLI contracts or VA contracts. No 
participating insurance company will be required by this Condition 4 to 
establish a new funding medium for any VLI contracts or VA contracts if 
a majority of VLI owners or VA owners materially and adversely affected 
by the irreconcilable material conflict vote to decline such offer. No 
participating plan shall be required by this 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 plan documents and applicable law, the participating plan 
makes such decision without a plan participant vote.
    5. Roszel Advisors, all participating insurance companies with 
respect to a Portfolio and participating plans with respect to a 
Portfolio will be promptly informed in writing of any determination by 
the Board of such Portfolio that a material irreconcilable conflict 
exists and its implications.
    6. Participating insurance companies will be required to provide 
pass-through voting privileges to all owners of registered VLI 
contracts and registered VA contracts so long as the Commission 
interprets the Act to require pass-through voting privileges for such 
VLI owners or VA owners. Accordingly, the participating insurance 
companies will vote shares of a Portfolio held in their separate 
accounts in a manner consistent with voting instructions timely 
received from VLI owners or VA owners. Participating insurance 
companies shall be responsible for assuring that each of their separate 
accounts calculates voting privileges in a manner consistent with all 
other participating insurance companies. The obligation to calculate 
voting privileges in a manner consistent with all other separate 
accounts investing in the fund will be a contractual obligation of all 
participating insurance companies under the agreements governing 
participation in the Portfolio. Each participating insurance company 
will be required to vote shares for which it has not received voting 
instructions as well as shares attributable to it, in the same 
proportion as it votes shares for which it has received instructions. 
Each participating plan will vote as required by applicable law 
governing plan documents.
    7. Roszel Advisors, and any person under common control with Roszel 
Advisors, will vote shares held by them for their own benefit (i.e., 
shares representing seed money) in the same proportions as the shares 
collectively voted by the various participating insurance companies.
    8. All reports of potential or existing conflicts received by the 
Board and all Board action with regard to determining the existence of 
a conflict, notifying Roszel Advisors, participating insurance 
companies and participating plans 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 will be made available to the Commission 
upon request.
    9. Each Portfolio will notify all participating insurance companies 
and participating plans that disclosure in separate account 
prospectuses or plan prospectuses or other plan disclosure documents 
regarding potential risks of mixed and shared funding may be 
appropriate. Each Portfolio will disclose in its prospectus that: (a) 
Shares of the Portfolio may be offered to insurance company separate 
accounts of both annuity and life insurance variable contracts, and to 
plans; (b) due to differences of tax treatment and other 
considerations, the interests of various variable contract owners 
participating in the Portfolios and the interests of plans investing in 
the Portfolios may conflict; and (c) the Board will monitor such 
Portfolios for any material conflicts of interest and determine what 
action, if any, should be taken.
    10. Each Portfolio will comply with all provisions of the Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the respective 
Portfolio), and, in particular, each Portfolio will either provide for 
annual meetings (except to the extent that the Commission may interpret 
Section 16 of the Act not to require such meetings) or comply with 
Section 16(c) of the Act (although the Portfolios are not within the 
trusts described in Section 16(c) of the Act), as well as with Section 
16(a), and, if applicable, Section 16(b) of the Act. Further, each 
Portfolio will act in accordance with the Commission's interpretation 
of the requirements of Section 16(a) with respect to periodic elections 
of trustees and with whatever rules the Commission may promulgate with 
respect thereto.
    11. If and to the extent Rules 6e-2 and 6e-3(T) are amended (or 
Rule 6e-3 under the Act is adopted) to provide exemptive relief from 
any provision of the Act or the rules promulgated thereunder with 
respect to mixed or shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Portfolios shall and the participating insurance 
companies, as appropriate, shall be required to 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 applicable.
    12. No less than annually, Roszel Advisors, the participating 
insurance companies and participating plans shall submit to the Board 
such reports, materials or data as the Board may reasonably request so 
that the Board may fully carry out obligations imposed upon them by the 
conditions contained in the application. Such reports, materials and 
data shall be submitted more frequently if deemed appropriate by the 
Board. The obligations of Roszel Advisors, participating insurance 
companies and participating plans to provide these reports, materials 
and data to the Board, shall be a contractual obligation of Roszel 
Advisors, all participating insurance companies and participating plans 
under their agreements governing participation in the Portfolios.
    13. If a plan or plan participant shareholder should become an 
owner of 10% or more of the issued and outstanding shares of a 
Portfolio, such plan will execute a participation agreement with such 
Portfolio, including the conditions set forth herein to the extent 
applicable. A plan or plan participant shareholder will execute an 
application containing an acknowledgment of this condition at the time 
of its initial purchase of shares of the Portfolio.

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

[[Page 59432]]

fairly intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25973 Filed 10-14-03; 8:45 am]
BILLING CODE 8010-01-P