[Federal Register Volume 71, Number 92 (Friday, May 12, 2006)]
[Notices]
[Pages 27746-27750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-7259]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27315; 812-13167]


Phoenix Life Insurance Company, et al.; Notice of Application

May 8, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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Summary of Application: The order would permit certain registered open-
end management investment companies to acquire shares of other 
registered open-end management investment companies and unit investment 
trusts (``UITs'') both within and outside the same group of investment 
companies.

Applicants: (a) Phoenix Life Insurance Company (``Phoenix''), PHL 
Variable Insurance Company (``PHL Variable'') and Phoenix Life and 
Annuity Company (``PLAC,'' and together with Phoenix, PHL Variable and 
any insurance company controlling, controlled by or under common 
control with Phoenix, PHL Variable or PLAC, the ``Insurance 
Companies''); (b) Phoenix Edge Series Fund (the ``Insurance-Dedicated 
Fund''), including the currently existing series and all future series 
thereof; (c) Phoenix Pholios (the ``Retail Fund,'' and together with 
the Insurance-Dedicated Fund, the ``Phoenix Funds'') including the 
currently existing series and all future series thereof; (d) any 
existing or future registered open-end management investment companies 
and any series thereof that are part of the same ``group of investment 
companies,'' as defined in section 12(d)(1)(G)(ii) of the Act, as the 
Phoenix Funds, and are, or will be, advised by either Phoenix 
Investment Counsel, Inc. or Phoenix Variable Advisors, Inc. 
(collectively, the ``Manager'') \1\ or any entity controlling, 
controlled by or under common control with the Manager (included in the 
term, ``Phoenix Funds''); and (e) the Manager.\2\
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    \1\ The Manager, together with any existing or future entity 
controlling, controlled by or under common control with the Manager 
are referred to collectively as the ``Manager.''
    \2\ All entities that currently intend to rely on the requested 
order are named as applicants. Any other entity that relies on the 
order in the future will comply with the terms and conditions of the 
application.

DATES: Filing Dates: The application was filed on February 14, 2005 and 
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amended on January 6, 2006 and May 1, 2006.

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. June 2, 2006, and should be accompanied by proof of service on 
applicants, in the form of an affidavit, or for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants, Phoenix, PHL 
Variable, PLAC, and Phoenix Variable Advisors, Inc., One American Row, 
Hartford, CT 06102; the Retail Fund and the Insurance-Dedicated Fund, 
101 Munson Street, Greenfield, MA 01301; Phoenix Investment Counsel, 
Inc., 56 Prospect Street, Hartford, CT 06115.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. Phoenix is a New York life insurance company and an indirect 
wholly-owned subsidiary of The Phoenix Companies, Inc. (``The Phoenix 
Companies''), a publicly traded Delaware corporation. PHL Variable is a 
Connecticut life insurance company and an indirect wholly-owned 
subsidiary of

[[Page 27747]]

Phoenix. PLAC is a Connecticut life insurance company and an indirect 
wholly-owned subsidiary of The Phoenix Companies. The Insurance 
Companies issue group and individual variable annuity contracts and 
variable life insurance policies (collectively, the ``Contracts'') that 
offer opportunities to invest in the Insurance-Dedicated Fund through 
separate accounts registered under the Act (``Registered Separate 
Accounts'') and separate accounts exempt from registration under the 
Act (``Unregistered Separate Accounts,'' and together with the 
Registered Separate Accounts, the ``Separate Accounts'').
    2. The Insurance-Dedicated Fund is a Massachusetts business trust 
registered under the Act as an open-end management investment company. 
The Retail Fund is a Delaware statutory trust registered under the Act 
as a diversified open-end management investment company. The Insurance-
Dedicated Fund and the Retail Fund currently offer 26 and 7 series, 
respectively (each series is referred to as a ``Fund,'' and 
collectively, as ``Funds''). Except for organizational seed capital for 
certain of the Funds invested by the Manager or an affiliate, shares of 
the Insurance-Dedicated Fund are sold exclusively to the Insurance 
Companies on behalf of their Separate Accounts to fund benefits under 
the Contracts. Shares of the Insurance-Dedicated Fund may also be 
offered in the future to unaffiliated insurance companies to fund 
benefits under variable annuity contracts and variable life insurance 
policies issued by the unaffiliated insurance companies, and directly 
to certain qualified pension and profit sharing plans pursuant to an 
order granted by the Commission.\3\ Shares of the Retail Fund are sold 
directly to the public.
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    \3\ The Phoenix Edge Series Fund, Investment Company Act Release 
Nos. 25687 (July 26, 2002) (notice) and 25703 (August 20, 2002) 
(order).
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    3. The Manager is an affiliated person of the Insurance Companies 
and is registered under the Investment Advisers Act of 1940. The 
Manager serves as investment adviser to the Funds.
    4. Applicants request relief to permit certain Funds (each a ``Fund 
of Funds'') to invest in: (a) Other Funds in the same group of 
investment companies as the Fund of Funds (``Affiliated Funds''), and/
or (b) registered open-end management investment companies and UITs 
that are not part of the same group of investment companies as the Fund 
of Funds (``Unaffiliated Funds,'' and together with the Affiliated 
Funds, the ``Underlying Funds''). The Unaffiliated Funds may include 
UITs (``Unaffiliated Underlying Trusts'') and open-end management 
investment companies registered under the Act (``Unaffiliated 
Underlying Funds''). Certain of the Unaffiliated Funds may be 
``exchange-traded funds'' that are registered under the Act as UITs or 
open-end management investment companies and have received exemptive 
relief to sell their shares on a national securities exchange at 
negotiated prices (``ETFs''). Each Fund of Funds may also make 
investments in government securities, domestic and foreign common and 
preferred stock, fixed income securities, futures transactions, options 
on the foregoing and in other securities that are not issued by 
registered investment companies and which are consistent with its 
investment objective, including money market instruments (the ``Other 
Securities''). Applicants state that the requested relief will provide 
an efficient and simple method of allowing investors to create a 
comprehensive asset allocation program.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any broker or dealer from selling the shares of the investment company 
to another investment company if the sale will cause the acquiring 
company to own more than 3% of the acquired company's voting stock, or 
if the sale will cause more than 10% of the acquired company's voting 
stock to be owned by investment companies generally.
    2. Section 12(d)(1)(G) provides, in relevant part, that section 
12(d)(1) will not apply to securities of a registered open-end 
investment company or registered UIT if the acquired company and the 
acquiring company are part of the same group of investment companies, 
provided that certain other requirements contained in section 
12(d)(1)(G) are met. Applicants state that, while the Funds of Funds 
currently rely on section 12(d)(1)(G) with respect to their investments 
in Affiliated Funds, if the Funds of Funds wish to invest in 
Unaffiliated Funds and Other Securities in addition to Affiliated 
Funds, they cannot then rely on section 12(d)(1)(G).
    3. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) to permit the Funds of Funds to acquire shares of 
Affiliated and Unaffiliated Funds and to permit the Affiliated and 
Unaffiliated Funds, their principal underwriters and any broker or 
dealer to sell shares to the Funds of Funds beyond the limits set forth 
in sections 12(d)(1)(A) and (B) of the Act.
    4. Applicants state that the proposed arrangement will not give 
rise to the policy concerns underlying sections 12(d)(1)(A) and (B), 
which include concerns about undue influence by a fund of funds over 
underlying funds, excessive layering of fees, and overly complex fund 
structures. Accordingly, applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    5. Applicants state that the proposed arrangement will not result 
in undue influence by a Fund of Funds or its affiliated persons over 
the Unaffiliated Funds. To limit the control that a Fund of Funds may 
have over an Unaffiliated Fund, applicants propose a condition 
prohibiting: (a) The Manager and any person controlling, controlled by 
or under common control with the Manager, and any investment company 
and any issuer that would be an investment company but for section 
3(c)(1) or section 3(c)(7) of the Act advised or sponsored by the 
Manager or any person controlling, controlled by or under common 
control with the Manager (collectively, the ``Group''), and (b) any 
investment adviser within the meaning of section 2(a)(20)(B) of the Act 
(``Sub-Adviser'') to a Fund of Funds, any person controlling, 
controlled by or under common control with the Sub-Adviser, and any 
investment company or issuer that would be an investment company but 
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such 
investment company or issuer) advised by the Sub-Adviser or any person 
controlling, controlled by or under common control with the Sub-Adviser 
(collectively, the ``Sub-Adviser Group'') from controlling an 
Unaffiliated Fund within the meaning of section 2(a)(9) of the Act.
    6. Applicants also propose conditions to preclude a Fund of Funds 
and its affiliated entities from taking advantage

[[Page 27748]]

of an Unaffiliated Fund. Under condition 2, no consideration will be 
received by a Fund of Funds or its Manager, Sub-Adviser, promoter, 
principal underwriter and any person controlling, controlled by or 
under common control with any of these entities (each, a ``Fund of 
Funds Affiliate'') from an Unaffiliated Fund or its investment 
adviser(s), sponsor, promoter, principal underwriter and any person 
controlling, controlled by or under common control with any of these 
entities (each, an ``Unaffiliated Fund Affiliate'') in connection with 
any services, transactions or the investment by the Fund of Funds in 
the Unaffiliated Fund. Condition 3 precludes a Fund of Funds and Fund 
of Funds Affiliate (except to the extent it is acting in its capacity 
as an investment adviser to an Unaffiliated Underlying Fund or sponsor 
to an Unaffiliated Underlying Trust) from causing an Unaffiliated Fund 
to purchase a security in an offering of securities during the 
existence of any underwriting or selling syndicate of which a principal 
underwriter is an officer, director, member of an advisory board, 
Manager, Sub-Adviser, or employee of the Fund of Funds, or a person of 
which any such officer, director, member of an advisory board, Manager, 
Sub-Adviser, or employee is an affiliated person (each, an 
``Underwriting Affiliate,'' except any person whose relationship to the 
Unaffiliated Fund is covered by section 10(f) of the Act is not an 
Underwriting Affiliate). An offering of securities during the existence 
of any underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate is an ``Affiliated 
Underwriting.''
    7. As an additional assurance that an Unaffiliated Underlying Fund 
understands the implications of an investment by a Fund of Funds under 
the requested order, prior to a Fund of Funds' investment in an 
Unaffiliated Underlying Fund in excess of the limit in section 
12(d)(1)(A)(i), condition 6 requires that the Fund of Funds and 
Unaffiliated Underlying Fund execute an agreement stating, without 
limitation, that their boards of directors or trustees and their 
investment advisers understand the terms and conditions of the order 
and agree to fulfill their responsibilities under the order. Applicants 
note that an Unaffiliated Fund (other than an ETF whose shares are 
purchased by a Fund of Funds in the secondary market) will retain the 
right to reject an investment by a Fund of Funds.\4\
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    \4\ An Unaffiliated Fund, including an ETF, would retain its 
right to reject any initial investment by a Fund of Funds in excess 
of the limit in section 12(d)(1)(A)(i) of the Act by declining to 
execute the agreement with the Fund of Funds.
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    8. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. With respect to investment advisory 
fees, applicants state that, prior to reliance on the requested order 
and subsequently in connection with the approval of any investment 
advisory contract under section 15 of the Act, the board of directors 
or trustees (``Board'') of each Fund of Funds, including a majority of 
the directors or trustees who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act (``Disinterested Trustees''), 
will find that the investment advisory fees charged under a Fund of 
Fund's investment advisory contract(s) are based on services provided 
that are in addition to, rather than duplicative of, services provided 
pursuant to any Affiliated Fund's and Unaffiliated Underlying Fund's 
advisory contract(s).
    9. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that an Underlying 
Fund will be prohibited from acquiring securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A), except to the 
extent that such Underlying Fund: (a) Receives securities of another 
investment company as a dividend or as a result of a plan of 
reorganization of a company (other than a plan devised for the purpose 
of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed 
to have acquired) securities of another investment company pursuant to 
exemptive relief from the Commission permitting such Underlying Fund 
to: (i) Acquire securities of one or more affiliated investment 
companies for short-term cash management purposes, or (ii) engage in 
interfund borrowing and lending transactions. Applicants also represent 
that a Fund of Funds' prospectus and sales literature will contain 
concise, ``plain English'' disclosure designed to inform investors of 
the unique characteristics of the proposed Fund of Funds structure, 
including, but not limited to, its expense structure and the additional 
expenses of investing in Underlying Funds.

B. Section 17(a)

    6. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include (a) Any person 
directly or indirectly owning, controlling, or holding with power to 
vote, 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; and (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person.
    7. Applicants state that the Funds of Funds and the Affiliated 
Funds might be deemed to be under common control of the Manager and 
therefore affiliated persons of one another. Applicants also state that 
the Funds of Funds and the Underlying Funds might be deemed to be 
affiliated persons of one another if a Fund of Funds acquires 5% or 
more of an Underlying Fund's outstanding voting securities. In light of 
these possible affiliations, section 17(a) could prevent an Underlying 
Fund from selling shares to and redeeming shares from a Fund of Funds.
    8. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) The terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transactions from any provision of the Act if 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.
    9. Applicants submit that the proposed arrangement satisfies the 
standards for relief under sections 17(b) and 6(c) of the Act. 
Applicants state that the terms of the arrangement are fair and 
reasonable and do not involve overreaching. Applicants note that the 
terms upon which an Underlying Fund will sell its shares to or purchase 
its shares from a Fund of Funds will be based on the net asset value of 
each Underlying Fund.\5\ Applicants state that

[[Page 27749]]

the proposed arrangement will be consistent with the policies of each 
Fund of Funds and Underlying Fund, and with the general purposes of the 
Act.
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    \5\ Applicants note that a Fund of Funds generally would 
purchase and sell shares of an Underlying Fund that operates as an 
ETF through secondary market transactions at market prices rather 
than through principal transactions with the Underlying Fund at net 
asset value. Applicants would not rely on the requested relief from 
section 17(a) for such secondary market transactions.
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Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The members of the Group will not control (individually or in 
the aggregate) an Unaffiliated Fund within the meaning of section 
2(a)(9) of the Act. The members of the Sub-Adviser Group will not 
control (individually or in the aggregate) an Unaffiliated Fund within 
the meaning of section 2(a)(9) of the Act. If, as a result of a 
decrease in the outstanding voting securities of an Unaffiliated Fund, 
the Group or the Sub-Adviser Group, each in the aggregate, becomes a 
holder of more than 25% of the outstanding voting securities of the 
Unaffiliated Fund, it (except for any member of the Group or the Sub-
Adviser Group that is a Separate Account) will vote its shares of the 
Unaffiliated Fund in the same proportion as the vote of all other 
holders of the Unaffiliated Fund's shares. A Registered Separate 
Account will seek voting instructions from its Contract holders and 
will vote its shares of an Unaffiliated Fund in accordance with the 
instructions received and will vote those shares for which no 
instructions were received in the same proportion as the shares for 
which instructions were received. An Unregistered Separate Account will 
either: (i) Vote its shares of the Unaffiliated Fund in the same 
proportion as the vote of all other holders of the Unaffiliated Fund's 
shares; or (ii) seek voting instructions from its Contract holders and 
vote its shares in accordance with the instructions received and vote 
those shares for which no instructions were received in the same 
proportion as the shares for which instructions were received. This 
condition will not apply to the Sub-Adviser Group with respect to an 
Unaffiliated Fund for which the Sub-Adviser or a person controlling, 
controlled by, or under common control with the Sub-Adviser acts as the 
investment adviser within the meaning section 2(a)(20)(A) of the Act 
(in the case of an Unaffiliated Underlying Fund) or as the sponsor (in 
the case of an Unaffiliated Underlying Trust).
    2. No consideration will be received by a Fund of Funds or a Fund 
of Funds Affiliate from an Unaffiliated Fund or an Unaffiliated Fund 
Affiliate in connection with any services, transactions or the 
investment by the Fund of Funds in the Unaffiliated Fund.
    3. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to an 
Unaffiliated Underlying Fund or sponsor to an Unaffiliated Underlying 
Trust) will cause an Unaffiliated Fund to purchase a security in any 
Affiliated Underwriting.
    4. The Board of an Unaffiliated Underlying Fund, including a 
majority of the Disinterested Trustees, will adopt procedures 
reasonably designed to monitor any purchases of securities by the 
Unaffiliated Underlying Fund in an Affiliated Underwriting, once an 
investment by a Fund of Funds in the securities of the Unaffiliated 
Underlying Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
including any purchases made directly from an Underwriting Affiliate. 
The Board of the Unaffiliated Underlying Fund will review these 
purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by 
the Fund of Funds in the Unaffiliated Underlying Fund. The Board of the 
Unaffiliated Underlying Fund will consider, among other things: (a) 
Whether the purchases were consistent with the investment objectives 
and policies of the Unaffiliated Underlying Fund; (b) how the 
performance of securities purchased in an Affiliated Underwriting 
compares to the performance of comparable securities purchased during a 
comparable period of time in underwritings other than Affiliated 
Underwritings or to a benchmark such as a comparable market index; and 
(c) whether the amount of securities purchased by the Unaffiliated 
Underlying Fund in Affiliated Underwritings and the amount purchased 
directly from an Underwriting Affiliate have changed significantly from 
prior years. The Board of the Unaffiliated Underlying Fund will take 
any appropriate actions based on its review, including, if appropriate, 
the institution of procedures designed to assure that purchases of 
securities in Affiliated Underwritings are in the best interests of 
shareholders.
    5. Each Unaffiliated Underlying Fund will maintain and preserve 
permanently in an easily accessible place a written copy of the 
procedures described in the preceding condition, and any modifications 
to such procedures, and will maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
purchase from an Affiliated Underwriting occurred, the first two years 
in an easily accessible place, a written record of each purchase of 
securities in an Affiliated Underwriting once an investment by a Fund 
of Funds in the securities of an Unaffiliated Underlying Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom 
the securities were acquired, the identity of the underwriting 
syndicate's members, the terms of the purchase, and the information or 
materials upon which the determinations of the Board of the 
Unaffiliated Underlying Fund were made.
    6. Prior to its investment in shares of an Unaffiliated Underlying 
Fund in excess of the limit in section 12(d)(1)(A)(i) of the Act, the 
Fund of Funds and the Unaffiliated Underlying Fund will execute an 
agreement stating, without limitation, that their boards of directors 
or trustees and their investment advisers understand the terms and 
conditions of the order and agree to fulfill their responsibilities 
under the order (``Participation Agreement''). At the time of its 
investment in shares of an Unaffiliated Underlying Fund in excess of 
the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the 
Unaffiliated Underlying Fund of the investment. At such time, the Fund 
of Funds will also transmit to the Unaffiliated Underlying Fund a list 
of the names of each Fund of Funds Affiliate and Underwriting 
Affiliate. The Fund of Funds will notify the Unaffiliated Underlying 
Fund of any changes to the list as soon as reasonably practicable after 
a change occurs. The Unaffiliated Underlying Fund and the Fund of Funds 
will maintain and preserve a copy of the order, the Participation 
Agreement, and the list with any updated information for the duration 
of the investment and for a period of not less than six years 
thereafter, the first two years in an easily accessible place.
    7. Before approving any advisory contract under section 15 of the 
Act, the Board of each Fund of Funds, including a majority of the 
Disinterested Trustees, shall find that the advisory fees charged under 
the advisory contract are based on services provided that are in 
addition to, rather than duplicative of, services provided under the 
advisory contract(s) of any Underlying Fund in which the Fund of Funds 
may invest. Such finding, and the basis upon which the finding was 
made, will be recorded fully

[[Page 27750]]

in the minute books of the appropriate Fund of Funds.
    8. With respect to Registered Separate Accounts that invest in a 
Fund of Funds, no sales load will be charged at the Fund of Funds level 
or at the Underlying Fund level. Other sales charges and service fees, 
as defined in NASD Conduct Rule 2830, if any, will only be charged at 
the Fund of Funds level or at the Underlying Fund level, not both. With 
respect to other investments in a Fund of Funds, any sales charges and/
or service fees charged with respect to shares of a Fund of Funds will 
not exceed the limits applicable to funds of funds set forth in NASD 
Conduct Rule 2830.
    9. No Underlying Fund will acquire securities of any other 
investment company or company relying on section 3(c)(1) or 3(c)(7) of 
the Act in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except to the extent that such Underlying Fund: (a) Receives 
securities of another investment company as a dividend or as a result 
of a plan of reorganization of a company (other than a plan devised for 
the purpose of evading section 12(d)(1) of the Act); or (b) acquires 
(or is deemed to have acquired) securities of another investment 
company pursuant to exemptive relief from the Commission permitting 
such Underlying Fund to: (i) Acquire securities of one or more 
affiliated investment companies for short-term cash management 
purposes, or (ii) engage in interfund borrowing and lending 
transactions.
    10. The Board of any Fund of Funds will satisfy the fund governance 
standards as defined in rule 0-1(a)(7) under the Act (``Governance 
Standards'') by the earlier of the date of reliance on the order or the 
date on which the Fund of Funds executes a Participation Agreement.
    The Board of any Unaffiliated Fund will satisfy the Governance 
Standards by the date on which the Unaffiliated Fund executes a 
Participation Agreement.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-7259 Filed 5-11-06; 8:45 am]
BILLING CODE 8010-01-P