80 FR 31420 - The RBB Fund, Inc., et al.;

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 105 (June 2, 2015)

[Federal Register Volume 80, Number 105 (Tuesday, June 2, 2015)]
[Notices]
[Pages 31420-31426]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-13176]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31648; File No. 812-14206]


The RBB Fund, Inc., et al.; Notice of Application

May 27, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application pursuant to section 6(c) of the 
Investment Company Act of 1940, as amended (the ``1940 Act''), seeking 
exemptions 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.

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Applicants:  The RBB Fund, Inc. (the ``Company''), Matson Money, Inc. 
(``Matson'') and Summit Global Investments, LLC (``Summit'' and, 
collectively with the Company and Matson, the ``Applicants'').

Summary of Application:  Applicants request an order granting 
exemptions 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, in cases where a 
life insurance separate account supporting variable life insurance 
contracts (``VLI Accounts'') holds shares of an existing portfolio of 
the Company that is designed to be sold to VLI Accounts or VA Accounts 
(as defined below) for which Matson, Summit or any of their affiliates, 
may serve as investment adviser, sub-adviser, manager, administrator, 
principal underwriter or sponsor (``Existing Fund'') or ``Future Fund'' 
\1\ (any Existing Fund or Future Fund is referred to herein as a 
``Fund'' and collectively, the ``Funds''), and one or more of the 
following other types of investors also hold shares of the Funds: (i) 
Any life insurance company separate account supporting variable annuity 
contracts (``VA Accounts'') and any VLI Account; (ii) trustees of 
qualified group pension or group retirement plans outside the separate 
account context (``Qualified Plans''); (iii) the investment adviser or 
any subadviser to a Fund or affiliated persons of the adviser or 
subadviser (representing seed money investments in a Fund) 
(``Advisers''); and (iv) any general account of an insurance company 
depositor of VA Accounts and/or VLI Accounts (``General Accounts'').
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    \1\ As used herein, a ``Future Fund'' is any investment 
portfolio or series thereof of the Company, other than an Existing 
Fund, designed to be sold to VA Accounts and/or VLI Accounts and to 
which Matson, Summit or their affiliates may in the future serve as 
investment adviser, sub-adviser, manager, administrator, principal 
underwriter or sponsor.

Filing Date:  The application was filed on August 30, 2013, and amended 
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and restated on September 25, 2014, and May 13, 2015.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on June 22, 2015, 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicants: The RBB Fund, Inc. c/o Mary 
Jo Reilly, Esq., Drinker Biddle & Reath LLP, One Logan Square, Ste. 
2000, Philadelphia, PA, 19103-6996; Mark E. Matson, Matson Money, Inc., 
5955 Deerfield Blvd., Mason, OH 45040; and David Harden, Summit Global 
Investments, LLC, 620 South Main St., Bountiful, UT, 84010.

FOR FURTHER INFORMATION CONTACT: Sonny Oh, Senior Counsel, or Joyce M. 
Pickholz, Branch Chief, Disclosure Review Office (Insured Investments), 
Division of Investment Management at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search.htm, 
or by calling (202) 551-8090.

Applicants' Representations

    1. The Company was organized as a Maryland corporation on February 
29, 1988 and is registered under the 1940 Act as an open-end management 
investment company (Reg. File No. 811-5518). The Company is a series 
investment company as defined by Rule 18f-2 under the 1940 Act and is 
currently comprised of twenty-three portfolios managed by ten different 
investment advisers, six sub-advisers and seven commodity trading sub-
advisers hereinafter collectively, (the ``investment advisers''). The 
investment advisers may or may not be affiliated with each other. None 
of the current investment advisers are affiliated with the Company. 
Each portfolio pursues its own investment strategy and is liable for 
its own expenses. However, the combination of multiple portfolios 
managed by multiple investment advisers into a single registered 
investment company allows the portfolios to share a single Board of 
Directors (``Board''), as well as common officers, fund counsel, 
custodian and other service providers. Expenses common to one or more 
portfolios can be shared by those portfolios, thus allowing the 
portfolios to realize economies of scale and reduce operating expenses. 
The Company may establish additional portfolios and classes of shares 
of each portfolio in the future. Shares of the Funds will not be 
offered to the general public.

[[Page 31421]]

    2. Matson currently serves as the investment adviser to six 
portfolios of the Company, including the Existing Funds. It is 
anticipated that Matson will also serve as the Adviser to one or more 
of the Future Funds, subject to the authority of the Board. Matson is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 Act (``Advisers Act'').
    3. Summit currently serves as the investment adviser to one 
portfolio of the Company. It is anticipated that Summit will serve as 
the Adviser to one or more of the Funds, subject to the authority of 
the Board. Summit is registered as an investment adviser under the 
Advisers Act.
    4. The Funds propose to, and other Funds may in the future propose 
to, offer and sell their shares to VLI and VA Accounts of affiliated 
and unaffiliated life insurance companies (``Participating Insurance 
Companies'') to serve as investment media to support variable life 
insurance contracts (VLI Contracts'') and variable annuity contracts 
(``VA Contacts'') (VLI Contracts and VA Contracts together, ``Variable 
Contracts'') issued through such accounts respectively, VLI Accounts 
and VA Accounts (VLI Accounts and VA Accounts together, ``Separate 
Accounts''). Each Separate Account is or 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. 
Presently, TIAA-CREF Life Insurance Company is the only Participating 
Insurance Company.
    5. The Funds will sell their shares to Separate Accounts only if 
each Participating Insurance Company sponsoring such a Separate Account 
enters into a participation agreement with the Funds. The participation 
agreements define or will define the relationship between each Fund and 
each Participating Insurance Company and memorialize or 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 
Separate 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 Separate Accounts. The role of the Funds under this 
arrangement, with regard to the federal securities laws, will consist 
of offering and selling shares of the Funds to the Separate Accounts 
and fulfilling any conditions that the Commission may impose in 
granting the requested order.
    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 Participating 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 Participating 
Insurance Companies that are not affiliated persons of each other is 
referred to herein as ``shared funding.''
    7. Applicants propose that the Funds may offer their shares 
directly to Qualified Plans, Advisers, and the General Accounts of a 
Participating Insurance Company.
    8. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for Separate Accounts, 
Qualified Plans, Advisers and General Accounts is referred to herein as 
``extended mixed funding.''

Applicants' Legal Analysis

    1. Section 9(a)(3) of the 1940 Act makes it unlawful for any 
company to serve as an investment adviser or principal underwriter of 
any investment company, including a unit investment trust, if an 
affiliated person of that company is subject to disqualification 
enumerated in section 9(a)(1) or (2) of the 1940 Act. Sections 13(a), 
15(a), and 15(b) of the 1940 Act have been deemed by the Commission to 
require ``pass-through'' voting with respect to an underlying 
investment company's shares.
    2. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act provide 
partial exemptions from sections 9(a), 13(a), 15(a), and 15(b) of the 
1940 Act to VLI Accounts supporting certain VLI Contracts and to their 
life insurance company depositors under limited circumstances, as 
described in the application. VLI Accounts, their depositors and their 
principal underwriters may not rely on the exemptions provided by Rules 
6e-2(b)(15) and 6e-3(T)(b)(15) if shares of the Fund are held by a VLI 
Account through which certain VLI Contracts are issued, a VLI Account 
of an unaffiliated Participating Insurance Company, an unaffiliated 
Adviser, any VA Account, a Qualified Plan or a General Account. 
Accordingly, Applicants request an order of the Commission granting 
exemptions 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 in cases where a 
scheduled premium VLI Account holds shares of a Fund and one or more of 
the following types of investors also hold Shares of the Funds: (i) VA 
Accounts and VLI Accounts (supporting scheduled premium or flexible 
premium VLI Contracts) of affiliated and unaffiliated Participating 
Insurance Companies; (ii) Qualified Plans; (iii) Advisers; and/or (iv) 
General Accounts.
    3. Applicants maintain that there is no policy reason for the sale 
of Fund Shares to Qualified Plans, Advisers or General Accounts to 
prohibit or otherwise limit a Participating Insurance Company from 
relying on the relief provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 
Nonetheless, Rule 6e-2 and Rule 6e-3(T) each specifically provides that 
the relief granted thereunder is available only where shares of the 
underlying fund are offered exclusively to insurance company separate 
accounts. In this regard, Applicants request exemptive relief to the 
extent necessary to permit shares of the Funds to be sold to Qualified 
Plans, Advisers and General Accounts while allowing Participating 
Insurance Companies and their Separate Accounts to enjoy the benefits 
of the relief granted under Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15). 
Applicants note that if the Funds were to sell their shares only to 
Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) 
would not be necessary. The relief provided for under Rule 6e-2(b)(15) 
and Rule 6e-3(T)(b)(15) does not relate to Qualified Plans, Advisers or 
General Accounts or to a registered investment company's ability to 
sell its shares to such purchasers.
    4. Applicants are not aware of any reason for excluding separate 
accounts and investment companies engaged in shared funding from the 
exemptive relief provided under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), 
or for excluding separate accounts and investment companies engaged in 
mixed funding from the exemptive relief provided under Rule 6e-
2(b)(15). Similarly, Applicants are not aware of any reason for 
excluding Participating Insurance Companies from the exemptive relief 
requested because the Funds may also sell their shares to Qualified 
Plans, Advisers and General Accounts. Rather, Applicants submit that 
the proposed sale of shares of the Funds to these purchasers may allow 
for the development of larger pools of assets resulting in the 
potential for greater investment and diversification opportunities, and 
for decreased

[[Page 31422]]

expenses at higher asset levels resulting in greater cost efficiencies.
    5. For the reasons explained below, Applicants have concluded that 
investment by Qualified Plans, Advisers and General Accounts in the 
Funds should not increase the risk of material irreconcilable conflicts 
between owners of VLI Contracts and other types of investors or between 
owners of VLI Contracts issued by unaffiliated Participating Insurance 
Companies.
    6. Consistent with the Commission's authority under section 6(c) of 
the 1940 Act to grant exemptive orders to a class or classes of persons 
and transactions, Applicants request exemptions for a class consisting 
of Participating Insurance Companies and their separate accounts 
investing in Existing and Future Funds of the Company, as well as their 
principal underwriters.
    7. Section 6(c) of the 1940 Act provides, in part, that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security or transaction, or any 
class or classes of persons, securities or transactions, from any 
provision or provisions of the 1940 Act, or any rule or regulation 
thereunder, if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the 1940 Act. Applicants submit that the exemptions 
requested 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.
    8. Section 9(a)(3) of the 1940 Act provides, among other things, 
that it is unlawful for any company to serve as investment adviser or 
principal underwriter of any registered open-end investment company if 
an affiliated person of that company is subject to a disqualification 
enumerated in sections 9(a)(1) or (2). Rules 6e-2(b)(15)(i) and (ii) 
and Rules 6e-3(T)(b)(15)(i) and (ii) under the 1940 Act provide 
exemptions from section 9(a) under certain circumstances, subject to 
the limitations discussed above on mixed funding, extended mixed 
funding and shared funding. These exemptions limit the application of 
the eligibility restrictions to affiliated individuals or companies 
that directly participate in management or administration of the 
underlying investment company.
    9. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from pass-through voting requirements with 
respect to several significant matters, assuming the limitations on 
mixed funding, extended mixed funding and shared funding are observed. 
Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that the 
insurance company may disregard the voting instructions of its variable 
life insurance contract owners with respect to the investments of an 
underlying investment company, or any contract between such an 
investment company 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 Rules 6e-2 and 6e-3(T)). 
Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that an 
insurance company may disregard the voting instructions of owners of 
its variable life insurance contracts if such owners initiate any 
change in an underlying investment company's investment policies, 
principal underwriter or any 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)).
    10. Applicants represent that the sale of Fund shares to Qualified 
Plans, Advisers or General Accounts will not have any impact on the 
exemptions requested herein regarding the disregard of pass-through 
voting rights. Shares sold to Qualified Plans will be held by such 
Qualified Plans. The exercise of voting rights by Qualified Plans, 
whether by trustees, participants, beneficiaries, or investment 
managers engaged by the Qualified Plans, does not raise the type of 
issues respecting disregard of voting rights that are raised by VLI 
Accounts. With respect to Qualified Plans, which are not registered as 
investment companies under the 1940 Act, there is no requirement to 
pass through voting rights to Qualified Plan participants. Indeed, to 
the contrary, applicable law expressly reserves voting rights 
associated with Qualified Plan assets to certain specified persons.
    11. Similarly, Advisers and General Accounts are not subject to any 
pass-through voting rights. Accordingly, unlike the circumstances 
surrounding Separate Account investments in shares of the Funds, the 
issue of the resolution of any material irreconcilable conflicts with 
respect to voting is not present with respect to Advisers or General 
Accounts of Participating Insurance Companies.
    12. Applicants recognize that the prohibitions on mixed and shared 
funding might reflect concern regarding possible different investment 
motivations among investors. When Rule 6e-2 was first adopted, variable 
annuity separate accounts could invest in mutual funds whose shares 
were also offered to the general public. However, now, under the 
Internal Revenue Code of 1986 (the ``Code''), any underlying fund, 
including the Funds, that sells shares to VA Accounts or VLI Accounts, 
would, in effect, be precluded from also selling its shares to the 
public. Consequently, the Funds may not sell their shares to the 
public.
    13. Applicants assert that the rights of an insurance company on 
its own initiative or on instructions from a state insurance regulator 
to disregard the voting instructions of owners of Variable Contracts is 
not inconsistent with either mixed funding or shared funding. 
Applicants state that The National Association of Insurance 
Commissioners Variable Life Insurance Model Regulation (the ``NAIC 
Model Regulation'') suggests that it is unlikely that insurance 
regulators would find an underlying fund's investment policy, 
investment adviser or principal underwriter objectionable for one type 
of Variable Contract but not another type.
    14. 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. A particular state insurance regulator could require action 
that is inconsistent with the requirements of other states in which the 
insurance company offers its contracts. However, the fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem. Shared funding by 
unaffiliated insurers, in this respect, is no different than the use of 
the same investment company as the funding vehicle for affiliated 
insurers, which Rules 6e-2(b)(15) and 6e-3(T)(b)(15) permit. Affiliated 
insurers may be domiciled in different states and be subject to 
differing state law requirements. Affiliation does not reduce the 
potential, if any exists, for differences in state regulatory 
requirements. Applicants state that in any event, the conditions set 
forth below are designed to safeguard against, and provide procedures 
for resolving, any adverse effects that differences among state 
regulatory requirements may produce. If a particular state insurance 
regulator's decision conflicts with the majority of other state 
regulators, then the affected Participating Insurance Company will be 
required to withdraw its separate account investments in the relevant 
Fund. This requirement will be

[[Page 31423]]

provided for in the participation agreement that will be entered into 
by Participating Insurance Companies with the relevant Fund.
    15. Rules 6e-2(b)(15) and 6e-3(T)(b)(15) give Participating 
Insurance Companies the right to disregard the voting instructions of 
VLI Contract owners in certain circumstances. This right derives from 
the authority of state insurance regulators over Separate Accounts. 
Under Rules 6e-2(b)(15) and 6e-3(T)(b)(15), a Participating Insurance 
Company may disregard VLI 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 such Contract owners. 
The potential for disagreement is limited by the requirements in Rules 
6e-2 and 6e-3(T) that the Participating Insurance Company's disregard 
of voting instructions be reasonable and based on specific good faith 
determinations.
    16. A particular Participating Insurance Company's disregard of 
voting instructions, nevertheless, could conflict with the voting 
instructions of a majority of VLI Contract owners. The Participating 
Insurance Company's action possibly could be different than the 
determination of all or some of the other Participating Insurance 
Companies (including affiliated insurers) that the voting instructions 
of VLI Contract owners should prevail, and either could preclude a 
majority vote approving the change or could represent a minority view. 
If the Participating Insurance Company's judgment represents a minority 
position or would preclude a majority vote, then the Participating 
Insurance Company may be required, at the relevant Fund's election, to 
withdraw its Separate Accounts' investments in the relevant Fund. No 
charge or penalty will be imposed as a result of such withdrawal. This 
requirement will be provided for in the participation agreement entered 
into by the Participating Insurance Companies with the relevant Fund.
    17. Applicants assert there is no reason why the investment 
policies of a Fund would or should be materially different from what 
these policies would or should be if the Fund supported only VA 
Accounts or VLI Accounts supporting flexible premium or scheduled 
premium VLI Contracts. Each type of insurance contract is designed as a 
long-term investment program.
    18. Each Fund will be managed to attempt to achieve its specified 
investment objective, and not favor or disfavor any particular 
Participating Insurance Company or type of insurance contract. 
Applicants assert there is no reason to believe that different features 
of various types of Variable Contracts will lead to different 
investment policies for each or for different Separate Accounts. The 
sale of Variable Contracts and ultimate success of all Separate 
Accounts depends, at least in part, on satisfactory investment 
performance, which provides an incentive for each Participating 
Insurance Company to seek optimal investment performance.
    19. Furthermore, no single investment strategy can be identified as 
appropriate to a particular Variable Contract. Each ``pool'' of VLI 
Contract and VA Contract owners is composed of individuals of diverse 
financial status, age, insurance needs and investment goals. A Fund 
supporting even one type of Variable Contract must accommodate these 
diverse factors in order to attract and retain purchasers. Permitting 
mixed and shared funding will provide economic support for the 
continuation of the Funds. Applicants state further that mixed and 
shared funding will broaden the base of potential Variable Contract 
owner investors, which may facilitate the establishment of additional 
Funds serving diverse goals.
    20. Applicants do not believe that the sale of the shares to 
Qualified Plans, Advisers or General Accounts will increase the 
potential for material irreconcilable conflicts of interest between or 
among different types of investors. In particular, Applicants see very 
little potential for such conflicts beyond those that would otherwise 
exist between owners of VLI Contracts and VA Contracts. Applicants 
submit that either there are no conflicts of interest or that there 
exists the ability by the affected parties to resolve such conflicts 
consistent with the best interests of VLI Contract owners, VA Contract 
owners and Qualified Plan participants.
    21. Applicants state they considered whether there are any issues 
raised under the Code, Treasury Regulations, or Revenue Rulings 
thereunder, if Qualified Plans, Separate Accounts, Advisers and General 
Accounts all invest in the same Fund. Applicants have concluded that 
neither the Code, nor the Treasury Regulations nor Revenue Rulings 
thereunder present any inherent conflicts of interest if Qualified 
Plans, Advisers, General Accounts, and Separate Accounts all invest in 
the same Fund.
    22. Applicants note that, while there are differences in the manner 
in which distributions from separate accounts and Qualified Plans are 
taxed, these differences have no impact on the Funds. When 
distributions are to be made, and a separate account or Qualified Plan 
is unable to net purchase payments to make distributions, the separate 
account or Qualified Plan will redeem shares of the relevant Fund at 
its net asset values in conformity with Rule 22c-1 under the 1940 Act 
(without the imposition of any sales charge) to provide proceeds to 
meet distribution needs. A Participating Insurance Company will then 
make distributions in accordance with the terms of its Variable 
Contracts, and a Qualified Plan will then make distributions in 
accordance with the terms of the Qualified Plan.
    23. Applicants state that they considered whether it is possible to 
provide an equitable means of giving voting rights to Variable Contract 
owners, Qualified Plans, Advisers and General Accounts. In connection 
with any meeting of Fund shareholders, the Fund or its transfer agent 
will inform each Participating Insurance Company (with respect to its 
Separate Accounts and General Account), Adviser, and Qualified Plan of 
its share holdings and provide other information necessary for such 
shareholders to participate in the meeting (e.g., proxy materials). 
Each Participating Insurance Company then will solicit voting 
instructions from owners of VLI Contracts and VA Contracts in 
accordance with Rules 6e-2 or 6e-3(T), or section 12(d)(1)(E)(iii)(aa) 
of the 1940 Act, as applicable, and its participation agreement with 
the relevant Fund. Shares of a Fund that are held by an Adviser or a 
General Account will generally be in the same proportion as all votes 
cast on behalf of all Variable Contract owners having voting rights. 
However, an Adviser or General Account will vote its shares in such 
other manner as may be required by the Commission or its staff. Shares 
held by Qualified Plans will be voted in accordance with applicable 
law. The voting rights provided to Qualified Plans with respect to the 
shares would be no different from the voting rights that are provided 
to Qualified Plans with respect to shares of mutual funds sold to the 
general public. Furthermore, if a material irreconcilable conflict 
arises because of a Qualified Plan's decision to disregard Qualified 
Plan participant voting instructions, if applicable, and that decision 
represents a minority position or would preclude

[[Page 31424]]

a majority vote, the Qualified Plan may be required, at the election of 
the relevant Fund, to withdraw its investment in the Fund, and no 
charge or penalty will be imposed as a result of such withdrawal.
    24. Applicants do not believe that the ability of a Fund to sell 
its shares to a Qualified Plan, Adviser or General Account gives rise 
to a ``senior security'' as defined by section 18(g) of the 1940 Act. 
Regardless of the rights and benefits of participants under Qualified 
Plans or owners of Variable Contracts; Separate Accounts, Qualified 
Plans, Advisers and General Accounts only have, or will only have, 
rights with respect to their respective shares of a Fund. These parties 
can only redeem such shares at net asset value. No shareholder of a 
Fund has any preference over any other shareholder with respect to 
distribution of assets or payment of dividends.
    25. Applicants do not believe that the veto power of state 
insurance commissioners over certain potential changes to Fund 
investment objectives approved by Variable Contract owners creates 
conflicts between the interests of such owners and the interests of 
Qualified Plan participants, Advisers or General Accounts. Applicants 
note that a basic premise of corporate democracy and shareholder voting 
is that not all shareholders may agree with a particular proposal. 
Their interests and opinions may differ, but this does not mean that 
inherent conflicts of interest exist between or among such shareholders 
or that occasional conflicts of interest that do occur between or among 
them are likely to be irreconcilable.
    26. Although Participating Insurance Companies may have to overcome 
regulatory impediments in redeeming shares of a Fund held by their 
Separate Accounts, Applicants state that the Qualified Plans and 
participants in participant-directed Qualified Plans can make decisions 
quickly and redeem their shares in a Fund and reinvest in another 
investment company or other funding vehicle without impediments, or as 
is the case with most Qualified Plans, hold cash pending suitable 
investment. As a result, conflicts between the interests of Variable 
Contract owners and the interests of Qualified Plans and Qualified Plan 
participants can usually be resolved quickly since the Qualified Plans 
can, on their own, redeem their Fund shares. Advisers and General 
accounts can similarly redeem their shares of a Fund and make 
alternative investments at any time.
    27. Finally, Applicants considered whether there is a potential for 
future conflicts of interest between Participating Insurance Companies 
and Qualified Plans created by future changes in the tax laws. 
Applicants do not see any greater potential for material irreconcilable 
conflicts arising between the interests of Variable Contract owners and 
Qualified Plan participants from future changes in the federal tax laws 
than that which already exists between VLI Contract owners and VA 
Contract owners.
    28. Applicants recognize that the foregoing is not an all-inclusive 
list, but rather is representative of issues that they believe are 
relevant to the Application. Applicants believe that the sale of Fund 
shares to Qualified Plans would not increase the risk of material 
irreconcilable conflicts between the interests of Qualified Plan 
participants and Variable Contract owners or other investors. Further, 
Applicants submit that the use of the Funds with respect to Qualified 
Plans is not substantially dissimilar from each Fund's current and 
anticipated use, in that Qualified Plans, like separate accounts, are 
generally long-term investors.
    29. Applicants assert that permitting a Fund to sell its shares to 
an Adviser or to the General Account of a Participating Insurance 
Company will enhance management of each Fund without raising 
significant concerns regarding material irreconcilable conflicts among 
different types of investors.
    30. Applicants assert that various factors have limited the number 
of insurance companies that offer Variable Contracts. These factors 
include the costs of organizing and operating a funding vehicle, 
certain insurers' lack of experience with respect to investment 
management, and the lack of name recognition by the public of certain 
insurance companies as investment experts. In particular, some smaller 
life insurance companies may not find it economically feasible, or 
within their investment or administrative expertise, to enter the 
Variable Contract business on their own. Applicants state that use of a 
Fund as a common investment vehicle for Variable Contracts would reduce 
or eliminate these concerns. Mixed and shared funding should also 
provide several benefits to owners of Variable Contracts by eliminating 
a significant portion of the costs of establishing and administering 
separate underlying funds.
    31. Applicants state that the Participating Insurance Companies 
will benefit not only from the investment and administrative expertise 
of the Funds' Adviser, but also from the potential cost efficiencies 
and investment flexibility afforded by larger pools of funds. 
Therefore, making the Funds available for mixed and shared funding will 
encourage more insurance companies to offer Variable Contracts. This 
should result in increased competition with respect to both Variable 
Contract design and pricing, which can in turn be expected to result in 
more product variety. Applicants also assert that sale of shares in a 
Fund to Qualified Plans, in addition to Separate Accounts, will result 
in an increased amount of assets available for investment in a Fund.
    32. Applicants also submit that, regardless of the type of 
shareholder in a Fund, an Adviser is or would be contractually and 
otherwise obligated to manage the Fund solely and exclusively in 
accordance with the Fund's investment objectives, policies and 
restrictions, as well as any guidelines established by the Fund's Board 
of Trustees (the ``Board'').
    33. Applicants assert that sales of Fund shares, as described 
above, will not have any adverse federal income tax consequences to 
other investors in such Fund.
    34. In addition, Applicants assert that granting the exemptions 
requested herein is in the public interest and, as discussed above, 
will not compromise the regulatory purposes of sections 9(a), 13(a), 
15(a), or 15(b) of the 1940 Act or Rules 6e-2 or 6e-3(T) thereunder.

Applicants' Conditions

    Applicants agree that the Commission order requested herein shall 
be subject to the following conditions:
    1. A majority of the Board of each Fund will consist of persons who 
are not ``interested persons'' of the Fund, as defined by section 
2(a)(19) of the 1940 Act, and the rules thereunder, and as modified by 
any applicable orders of the Commission, except that if this condition 
is not met by reason of death, disqualification or bona fide 
resignation of any director/trustee or directors/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 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, or by future rule.
    2. The Board will monitor a Fund for the existence of any material 
irreconcilable conflict between and among the interests of the owners 
of all VLI Contracts and VA Contracts and

[[Page 31425]]

participants of all Qualified Plans investing in the Fund, and 
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 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 Fund are being managed; (e) a 
difference in voting instructions given by VA Contract owners, VLI 
Contract owners, and Qualified Plans or Qualified Plan participants; 
(f) a decision by a Participating Insurance Company to disregard the 
voting instructions of contract owners; or (g) if applicable, a 
decision by a Qualified Plan to disregard the voting instructions of 
Qualified Plan participants.
    3. Participating Insurance Companies (on their own behalf, as well 
as by virtue of any investment of General Account assets in a Fund), 
any Advisers, and any Qualified Plan that executes a participation 
agreement upon its becoming an owner of 10% or more of the net assets 
of a Fund (collectively, ``Participants'') will report any potential or 
existing conflicts to the Board. Each Participant will be responsible 
for assisting the Board in carrying out the Board's responsibilities 
under these conditions by providing the Board with all information 
reasonably necessary for the Board to consider any issues raised. This 
responsibility includes, but is not limited to, an obligation by each 
Participating Insurance Company to inform the Board whenever Variable 
Contract owner voting instructions are disregarded, and, if pass-
through voting is applicable, an obligation by each trustee for a 
Qualified Plan to inform the Board whenever it has determined to 
disregard Qualified Plan participant voting instructions. The 
responsibility to report such information and conflicts, and to assist 
the Board, will be a contractual obligation of all Participating 
Insurance Companies under their participation agreement with a Fund, 
and these responsibilities will be carried out with a view only to the 
interests of the Variable Contract owners. The responsibility to report 
such information and conflicts, and to assist the Board, also will be 
contractual obligations of all Qualified Plans under their 
participation agreement with a Fund, and such agreements will provide 
that these responsibilities will be carried out with a view only to the 
interests of Qualified Plan participants.
    4. If it is determined by a majority of the Board, or a majority of 
the disinterested directors/trustees of the Board, that a material 
irreconcilable conflict exists, then the relevant Participant will, at 
its expense and to the extent reasonably practicable (as determined by 
a majority of the disinterested directors/trustees), take whatever 
steps are necessary to remedy or eliminate the material irreconcilable 
conflict, up to and including: (a) Withdrawing the assets allocable to 
some or all of their VLI Accounts or VA Accounts from the relevant Fund 
and reinvesting such assets in a different investment vehicle, 
including another Fund; (b) in the case of a Participating Insurance 
Company, 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 (i.e., 
VA Contract owners or VLI Contact 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; (c) withdrawing the assets allocable to some or all of 
the Qualified Plans from the affected Fund and reinvesting them in a 
different investment medium; and (d) 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 Variable Contract owner 
voting instructions, and that decision represents a minority position 
or would preclude a majority vote, then the Participating Insurance 
Company may be required, at the election of the Fund, to withdraw such 
Participating Insurance Company's Separate Account investments in a 
Fund, and no charge or penalty will be imposed as a result of such 
withdrawal. If a material irreconcilable conflict arises because of a 
Qualified Plan's decision to disregard Qualified Plan participant 
voting instructions, if applicable, and that decision represents a 
minority position or would preclude a majority vote, the Qualified Plan 
may be required, at the election of the Fund, to withdraw its 
investment in a Fund, and no charge or penalty will be imposed as a 
result of such withdrawal. The responsibility to take remedial action 
in the event of a Board determination of a material irreconcilable 
conflict and to bear the cost of such remedial action will be a 
contractual obligation of all Participants under their participation 
agreement with a Fund, and these responsibilities will be carried out 
with a view only to the interests of Variable Contract owners or, as 
applicable, Qualified Plan participants.
    For purposes of this Condition 4, a majority of the disinterested 
directors/trustees of the Board of a Fund will determine whether or not 
any proposed action adequately remedies any material irreconcilable 
conflict, but, in no event, will the Fund or its investment adviser be 
required to establish a new funding vehicle for any Variable Contract 
or Qualified Plan. No Participating Insurance Company will be required 
by this Condition 4 to establish a new funding vehicle for any Variable 
Contract if any offer to do so has been declined by vote of a majority 
of the Variable Contract owners materially and adversely affected by 
the material irreconcilable conflict. Further, no Qualified Plan will 
be required by this Condition 4 to establish a new funding vehicle for 
the Qualified Plan if: (a) A majority of the Qualified Plan 
participants materially and adversely affected by the irreconcilable 
material conflict vote to decline such offer, or (b) pursuant to 
documents governing the Qualified Plan, the Qualified Plan trustee 
makes such decision without a Qualified Plan participant vote.
    5. The determination by the Board of the existence of a material 
irreconcilable conflict and its implications will be made known in 
writing promptly to all Participants.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all Variable Contract owners whose Variable 
Contracts are issued through registered Separate Accounts for as long 
as the Commission continues to interpret the 1940 Act as requiring such 
pass-through voting privileges. However, as to Variable Contracts 
issued through Separate Accounts not registered as investment companies 
under the 1940 Act, pass-through voting privileges will be extended to 
owners of such Variable Contracts to the extent granted by the 
Participating Insurance Company. Accordingly, such Participating 
Insurance Companies, where applicable, will vote the shares of each 
Fund held in their Separate Accounts in a manner consistent with voting 
instructions timely received from Variable Contract owners. 
Participating Insurance Companies will be responsible for assuring that 
each of their Separate Accounts investing in a Fund calculates voting 
privileges in a manner consistent

[[Page 31426]]

with all other Participating Insurance Companies investing in that 
Fund.
    The obligation to calculate voting privileges as provided in the 
Application shall be a contractual obligation of all Participating 
Insurance Companies under their participation agreement with the Fund. 
Each Participating Insurance Company will vote shares of each Fund held 
in its Separate Accounts for which no timely voting instructions are 
received, as well as shares held in its General Account or otherwise 
attributed to it, in the same proportion as those shares for which 
voting instructions are received. Each Qualified Plan will vote as 
required by applicable law, governing Qualified Plan documents and as 
provided in the Application.
    7. As long as the Commission continues to interpret the 1940 Act as 
requiring that pass-through voting privileges be provided to Variable 
Contract owners, a Fund Adviser or any General Account will vote its 
respective shares of a Fund in the same proportion as all votes cast on 
behalf of all Variable Contract owners having voting rights; provided, 
however, that such an Adviser or General Account shall vote its shares 
in such other manner as may be required by the Commission or its staff.
    8. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in its shares), and, in 
particular, the Fund will either provide for annual meetings (except to 
the extent that the Commission may interpret section 16 of the 1940 Act 
not to require such meetings) or comply with section 16(c) of the 1940 
Act (although each Fund is not, or will not be, one of those trusts of 
the type described in section 16(c) of the 1940 Act), as well as with 
section 16(a) of the 1940 Act and, if and when applicable, section 
16(b) of the 1940 Act. Further, each Fund will act in accordance with 
the Commission's interpretations of the requirements of section 16(a) 
with respect to periodic elections of directors/trustees and with 
whatever rules the Commission may promulgate thereunder.
    9. A Fund will make its shares available to the VLI Accounts, VA 
Accounts, and Qualified Plans at or about the time it accepts any seed 
capital from its Adviser or from the General Account of a Participating 
Insurance Company.
    10. Each Fund has notified, or will notify, all Participants that 
disclosure regarding potential risks of mixed and shared funding may be 
appropriate in VA Account and VLI Account prospectuses or Qualified 
Plan documents. Each Fund will disclose, in its prospectus that: (a) 
shares of the Fund may be offered to both VA Accounts and VLI Accounts 
and, if applicable, to Qualified Plans; (b) due to differences in tax 
treatment and other considerations, the interests of various Variable 
Contract owners participating in the Fund and the interests of 
Qualified Plan participants investing in the Fund, if applicable, may 
conflict; and (c) the Fund's Board will monitor events in order to 
identify the existence of any material irreconcilable conflicts and to 
determine what action, if any, should be taken in response to any such 
conflicts.
    11. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the 1940 
Act are amended, or proposed Rule 6e-3 under the 1940 Act is adopted, 
to provide exemptive relief from any provision of the 1940 Act, or the 
rules thereunder, with respect to mixed or shared funding, on terms and 
conditions materially different from any exemptions granted in the 
order requested in the Application, then each Fund and/or Participating 
Insurance Companies, as appropriate, shall take such steps as may be 
necessary to comply with Rules 6e-2 or 6e-3(T), as amended, or Rule 6e-
3, to the extent such rules are applicable.
    12. Each Participant, at least annually, shall submit to the Board 
of each Fund such reports, materials or data as the Board reasonably 
may request so that the directors/trustees may fully carry out the 
obligations imposed upon the Board 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 the 
Participants to provide these reports, materials and data to the Board, 
when it so reasonably requests, shall be a contractual obligation of 
all Participants under their participation agreement with the Fund.
    13. All reports of potential or existing conflicts received by a 
Board, and all Board action with regard to determining the existence of 
a conflict, notifying Participants of a conflict and determining 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the Board or other appropriate 
records, and such minutes or other records shall be made available to 
the Commission upon request.
    14. Each Fund will not accept a purchase order from a Qualified 
Plan if such purchase would make the Qualified Plan an owner of 10 
percent or more of the assets of a Fund unless the Qualified Plan 
executes an agreement with the Fund governing participation in the Fund 
that includes the conditions set forth herein to the extent applicable. 
A Qualified Plan will execute an application containing an 
acknowledgement of this condition at the time of its initial purchase 
of shares.

Conclusion

    Applicants submit, for all of the reasons explained above, that the 
exemptions requested 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.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13176 Filed 6-1-15; 8:45 am]
 BILLING CODE 8011-01-P