[Federal Register Volume 65, Number 92 (Thursday, May 11, 2000)]
[Notices]
[Pages 30453-30458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11864]



[[Page 30453]]

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SECURITIES AND EXCHANGE COMMISSION

[Docket No. Rel. No. IC-24442; File No. 812-11826]


Warburg, Pincus Trust, et al.

May 5, 2000.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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    Summary of Application: Applicants seek an order to permit shares 
of Warburg, Pincus Trust I (``Trust I'') and Warburg, Pincus Trust II 
(``Trust II'') (each, a ``Trust'' and together with Trust I, the 
``Trusts'') and shares of any other investment company or series 
thereof that is designed to fund insurance products and for which 
Credit Suisse Asset Management, LLC (``CSAM'') or any of its affiliates 
may serve, immediately upon commencement of operation as a registered 
investment company or in the future, as investment adviser, 
administrator, manager, principal underwrite or sponsor (the Trusts, 
their respective existing and future investment portfolios and such 
other investment companies or investment portfolios thereof hereinafter 
referred to, individually, as a ``Fund'' and collectively as ``Funds'') 
to be sold to and held by (a) variable annuity and variable life 
insurance separate accounts of both affiliated and unaffiliated life 
insurance companies; and (b) qualified pension and retirement plans 
outside of the separate account context (``Qualified Plans''). The 
order would supersede an existing order (the ``Existing Order'') 
previously granted by the Commission to Trust I on December 19, 1995.
    Applicants: Warburg, Pincus Trust, Warburg, Pincus Trust II and 
Credit Suisse Asset Management, LLC.
    Filing Date: The application was filed on October 28, 1999, and 
amended and restated on May 3, 2000.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing on this application by writing 
to the Secretary of the SEC and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on May 26, 2000, and 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 interest, the reason for the request and the issues contested. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, 153 East 53rd Street, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or 
Susan M. Olson, Branch Chief, Division of Investment Management, Office 
of Insurance Products, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Existing Order \1\ was granted to certain Funds, including 
Trust I, and Warburg Pincus Asset Management, Inc. (``Warburg'') to 
permit those Funds to offer their respective shares to (a) variable 
annuity and variable life insurance separate accounts of both affiliate 
and unaffiliated life companies and (b) qualified pension and 
retirement plans outside of the separate account context. On February 
15, 199, the parent companies of Warburg entered into an agreement with 
Credit Sussie Group (``Credit Sussie''), a global financial service 
company based in Switzerland, under which Credit Suisse would acquire 
Warbug (the ``Acquisition''). In conjunction with the Acquisition, 
Credit Suisse merged Warburg into its existing U.S. asset management 
business, which was converted from Credit Suisse Asset Management, a 
New York general partnership, into CSAM, prior to the consummation of 
the merger. The Acquisition and merger of CSAM and Warburg occurred 
simultaneously on July 6, 1999.
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    \1\ Warburg, Pincus Trust, et al., Investment Company Act 
Release No. IC-21607 (Dec. 19, 1995) (order), Investment Company Act 
Release No. IC-21522 (Nov. 20, 1995) (notice). Trust II was not a 
named party to the prior exemptive application because it had not 
yet been organized. Trust II has relied on the Existing Order 
because the prior application requested relief for shares of any 
other investment company or series thereof designed of fund 
insurance products and for which Warburg Pincus Asset Management, 
Inc. or its affiliates serves as investment adviser.
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    2. Each Trust is a Massachusetts business trust registered under 
the 1940 Act as an open-end management investment company. Trust I is 
currently comprised of six portfolios: the Emerging Growth Portfolio, 
the Emerging Markets Portfolio, the Growth & Income Portfolio, the 
International Equity Portfolio, the Post-Venture Capital Portfolio and 
the Small Company Growth Portfolio. Thrust II is comprised of two 
portfolios: the Fixed Income Portfolio and the Global Fixed Income 
Portfolio. Each Trust may offer additional portfolios in the future.
    3. CSAM, a Delaware limited liability company, is registered with 
the Commission under the Investment Advisers Act of 1940 and serves as 
the investment adviser for each of the Funds.
    4. Each Trust offers its shares to and its shares are held by 
separate accounts, which are registered with the Commission under the 
1940 Act as unit investment trusts (``Separate Accounts''), of various 
life insurance companies to serve as an investment vehicle for life and 
variable annuity contracts issued by such insurance companies. 
Insurance companies whose separate account or accounts own shares of 
the Funds are referred to herein as ``Participating Insurance 
Companies.'' Shares of the Trust may also be held by separate accounts 
that are not registered as investment companies under the 1940 Act 
pursuant to an exemption therefrom.
    5. Each Participating Insurance Company will have the legal 
obligation of satisfying all applicable requirements under both state 
and federal law. Each Participating Insurance Company will enter into a 
fund participating agreement with the applicable Trust on behalf of the 
Fund in which the Participating Insurance Company invests. The role of 
the Funds under this agreement, insofar as the federal securities laws 
are applicable, will consists of offering their shares to the Separate 
Accounts and fulfilling any conditions that the Commission may impose 
upon granting the order requested in the application.
    6. Applicants propose that each Trust continue to have the ability 
to offer and sell shares directly to Qualified Plans. The Funds propose 
to offer shares to any Qualified Plans that can, consistent with 
applicable law, invest in the Funds consistent with the Funds serving 
as investment vehicles for Separate Accounts.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a Separate Account, Rule 6e-
2(b)(15) under the 1940 Act provides partial exemptions from Sections 
9(a), 13(a), 15(a) and 15(b) of the 1940 Act. The

[[Page 30454]]

exemptions granted under Rule 6e-(b)(15) are available, however, only 
when all of the assets of the separate account consist of the shares of 
one or more registered management investment companies which offer 
their shares ``exclusively to variable life insurance separate accounts 
of the life insurer, or of any affiliated life insurance company.'' 
(emphasis supplied) Therefore, the relief granted by Rule 6e-2(b)(15) 
is not available with respect to a scheduled premium variable life 
insurance separate account that owns shares of an investment company 
that also offers its shares to a variable annuity separate account of 
the same or of any affiliated or unaffiliated life insurance company. 
The use of a common management investment company as the underlying 
investment medium for both variable annuity and variable life insurance 
separate accounts of the same life insurance company or of any 
affiliated life insurance company is referred to herein as ``mixed 
funding.'' In addition, the relief granted by Rule 6e-2(b)(15) is not 
available if shares of the underlying management investment company are 
offered to variable life insurance separate accounts of unaffiliated 
life insurance companies.
    The use of a common management investment company as the underlying 
investment medium for variable life separate accounts of unaffiliated 
insurance companies is referred to herein as ``shared funding''.
    2. Applicants state that the basis for the relief granted by Rule 
6e-2(b)(15) is not affected by the purchase of shares of the Funds by 
Qualified Plans. However, because the relief under Rules 6e-2(b)(15) 
and 6e-3(b)(15) is available only where shares of the underlying fund 
are offered exclusively to separate accounts of insurance companies, 
additional exemptive relief is necessary if shares of the Funds are 
also to be sold to Qualified Plans.
    3. In connection with the funding of flexible premium variable life 
insurance contracts issued through a separate account registered under 
the 1940 Act as a unit investment trust, Rule 6e-3(T)(b)(15) provides 
partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 
1940 Act. However, these exemptions are available only where all of the 
assets of the separate account consist of shares of one or more 
registered management investment companies which offers their shares 
``exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance company, offering either scheduled contracts 
or flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company'' (emphasis supplied). Therefore, 
Rule 6e-3(T) permits mixed funding with respect to a flexible premium 
variable life insurance separate account subject to certain conditions. 
However, Rule 6e-3(T) does not permit shared funding because the relief 
granted by Rule 6e-3(T)(b)(15) is not available with respect to a 
flexible premium variable life insurance separate account that owns 
shares of an investment company that also offers its shares to separate 
accounts (including variable annuity and flexible premium and scheduled 
premium variable life insurance separate accounts) of unaffiliated life 
insurance companies.
    4. In addition, Applicants state that because the relief granted 
under Rule 6e-3(T)(b)(15) is available only when shares of the 
underlying fund are offered exclusively to separate accounts, exemptive 
relief is necessary if shares of the Funds are also to be sold to 
Qualified Plans.
    5. Applicants state that changes in the tax law subsequent to the 
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) afford the Trusts the 
opportunity to increase their respective asset bases by selling shares 
of the Funds to Qualified Plans. Section 817(h) of the Internal Revenue 
code of 1986, as amended (the ``Code''), imposes certain 
diversification standards on the assets underlying variable annuity 
contracts and variable life insurance contracts such as those held in 
the Funds. The Code provides that a variable contract shall not be 
treated as an annuity contract or life insurance contract for any 
period (or any subsequent period) for which the investments of the 
underlying assets are not, in accordance with regulations issued by the 
Treasury Department (the ``Regulations''), adequately diversified. On 
March 2, 1989, the Treasury Department issued Regulations (Treas. Reg. 
1.817-5) which established diversification requirements for investment 
companies' portfolios underlying variable contracts. The Regulations 
provide that, in order to meet the diversification requirements, all of 
the beneficial interests in the underlying investment company must be 
held by the segregated asset account of one or more life insurance 
companies. However, the Regulations also contain certain exceptions to 
this requirement, one of which allows shares of an investment company 
to be held by the trustee of a qualified pension or retirement plan, 
without adversely affecting the status of the investment company as an 
adequately diversified underlying investment for variable life 
contracts issued through such segregated asset accounts (Treas. Reg. 
1.817-5(f)(3)(iii).
    6. Applicants also note that the promulgation of Rules 6e-2(b)(15) 
and 6e-3(T)(b)(15) preceded the issuance of the Regulations, which made 
it possible for shares of an investment company to be held by the 
trustee of a Qualified Plan without adversely affecting the ability of 
shares in the same investment company to also be held by the separate 
accounts of insurance companies in connection with their variable 
contracts.
    7. In general, Section 9(a) of the 1940 Act disqualifies any person 
convicted of certain offenses, and any company affiliated with that 
person, from serving in various capacities with respect to an 
underlying registered management investment company. More specifically, 
Section 9(a)(3) provides that it is unlawful for any company to serve 
as investment adviser to or principal underwriter for any registered 
open-end investment company if an affiliated person of the company is 
subject to a disqualification enumerated in Sections 9(a)(1) or (2) of 
the 1940 Act. However, Rules 6e-2(b)(15)(i) and (ii) and 6e-
3(T)(b)(15)(i) and (ii) provide exemptions from Section 9(a) under 
certain circumstances, subject to the limitations on mixed and shared 
funding. These exemptions limit the application of the eligibility 
restrictions to affiliated individuals or companies that directly 
participate in the management or administration of the underlying 
investment company.
    8. Applicants state that Rules 6e-2(b)(15) and 6e-3(T)(b)(15) 
recognize that it is not necessary for the protection of investors or 
the purposes fairly intended by the policy and provisions of the 1940 
Act to apply the provisions of Section 9(a) to the many individuals 
involved in a large insurance company complex, most of whom typically 
will have no involvement in matters pertaining to investment companies 
funding the Separate Accounts. The Participating Insurance Companies 
are not expected to play any role in the management or administration 
of the Funds. Therefore, Applicants assert that applying the 
restrictions of Section 9(a) serves no regulatory purpose. Applicants 
further assert that such restrictions could reduce the net rates of 
return realized by contractowners due to increased monitoring costs.
    9. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-
3(T)(b)(15)(iii) provide partial exemptions from Sections 13(a), 15(a) 
and 15(b) of the 1940 Act to the extent that those sections have been 
deemed by the Commission to require ``pass-through''

[[Page 30455]]

voting with respect to management investment company shares held by a 
Separate Account to permit the Participating Insurance Company to 
disregard the voting instructions of its contractowner in certain 
limited circumstances. More specifically, Rules 6e-2(b)(15)(iii)(A) and 
6e-3(T)(b)(15)(iii)(A) provide that the Participating Insurance Company 
may disregard the voting instructions of its contractowner in 
connection with the voting shares of an underlying fund if such 
instructions would require such shares to be voted to cause such 
companies to make (or refrain from making) certain investments which 
would result in changes in the subclassification or investment 
objectives of such companies or to approve or disapprove any contract 
between a fund and its investment adviser, when required to do so by an 
insurance regulatory authority and subject to the provisions of 
paragraphs (b)(5)(i) and (b)(7)(ii)(A) of the Rules. In additions, 
Rules 6e-(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the 
insurance company may disregard voting instructions of contractowners 
if the contractowners initiate any change in the investment company's 
investment policies, principal underwriter or any investment adviser 
(subject to paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of the 
Rules).
    10. Applicants further represent that the Funds' sale of shares to 
Qualified Plans will not have any impact on the relief requested in 
this regard. Applicants state that shares of the Funds sold to 
Qualified Plans would be held by the trustees of such Qualified Plans 
as required by Section 403(a) of ERISA. Section 403(a) also provides 
that the trustee(s) must have exclusive authority and discretion to 
manage and control the Qualified Plan with two exceptions: (a) When the 
Qualified Plan expressly provides that the trustees are subject to the 
direction of a named fiduciary who is not a trustee, in which the 
trustee are subject to proper directions made in accordance with the 
terms of the Qualified Plan and not contrary to ERISA; and (b) when the 
authority to manage, acquire or dispose of asserts of the Qualified 
Plan is delegated to one or more investment managers pursuant to 
Section 402(c)(3) of ERISA. Unless one of the above two exceptions 
stated in Section 403(a) applies, Qualified Plan trustees have the 
exclusive authority and responsibility for voting proxies.
    11. Where a named fiduciary appoints and investment manager, the 
investment manager has the responsibility to vote the shares held 
unless the right to votes such shares is reserved to the trustees or 
the named fiduciary. The Qualified Plans may have their trustee(s) or 
other fiduciaries exercise voting rights attributable to investment 
securities held by the Qualified Plans in their discretion. Some 
Qualified 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.
    12. When a Qualified Plan does not provide participants with the 
right to give voting instructions, Applicants submit that there is no 
potential for material irreconcilable conflicts of interest between or 
among variable contract holders and Qualified Plan participants with 
respect to voting of the respective Fund's shares. Accordingly, 
Applicants note that unlike the case with insurance company separate 
accounts, the issue of the resolution of material irreconcilable 
conflicts with respect to voting is not present with respect to 
Qualified Plans since the Qualified Plans are not entitled to pass-
through voting privileges.
    13. Where a Qualified Plans provides participants with the right to 
give voting instructions, Applicants submit there is no reason to 
believe that participants in Qualified Plans generally or those in a 
particular Plan, either as a single group or in combination with 
participants in other Qualified Plans, would vote in a manner that 
would disadvantage contract holders. The purchase of shares of the 
Funds by Qualified Plans that provide voting rights does not present 
any complications not otherwise occasioned by mixed or shared funding.
    14. Applicants assert that no increased conflicts of interest would 
be presented by the granting of the requested relief. Shared funding 
does not present any issues that do not already exist where a single 
insurance company is licensed to do business in several states. Where 
insurers are domiciled in different states, it is possible that the 
particular state insurance regulatory body in a state in which one 
insurance company is domiciled could require action that is 
inconsistent with the requirement of insurance regulators of other 
states in which other insurance companies are domiciled. Applicants 
state that the fact that a single insurer and its affiliates offer 
their insurance products in different states doe not create a 
significantly different or enlarged problem.
    15. Applicants submit that shared funding is not 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 
under various circumstances. Applicants state that affiliation does not 
reduce the potential, if any exists, for differences in state 
regulatory requirements. In any event, Applicants submit that the 
conditions set forth in the application and included in this notice are 
designed to safeguard against and provide procedures for resolving any 
adverse effects that differences among state regulatory requirements 
may produce. For instance, if a particular state insurance regulator's 
decision conflict with the majority of other state regulators, the 
affected insurer may be required to withdraw its Separate Account's 
investment in the relevant Funds.
    16. Applicants further assert that affiliation does not eliminate 
the potential, of any exist, for divergent judgments as to the 
advisability or legality of a change in investment policies, principal 
underwriter, or investment adviser initiated by contractowners. The 
potential for disagreement is limited by the requirements in Rules 6e-2 
and 6e-3(T) that an insurance company's disregard of voting 
instructions be reasonable and based on specific good faith 
determinations. However, if the insurance company's decision to 
disregard contractowners' voting instructions represents a minority 
position or would preclude a majority vote, the insurer may be 
required, at the election of the relevant Fund, to withdraw its 
Separate Account's investment in such Funds, and no charge or penalty 
would be imposed upon contractowners as a result of such withdrawal.
    17. Applicants submit that no reason exists why the investment 
policies of the Funds with mixed funding would or should be materially 
different from what they would or should be if the Funds funded only 
variable annuity or only variable life insurance policies. Applicants 
represent that the Funds will be managed to attempt to achieve their 
investment objectives, and will not be managed to favor or disfavor any 
particular insurer or type of insurance product.
    18. Applicants do not believe that the sale of shares of the Funds 
to Qualified Plans 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 that which would otherwise exist between variable 
annuity and variable life insurance contractowners.

[[Page 30456]]

    19. As noted above, Section 817(h) of the Code imposes certain 
diversification standards on the underlying assets of variable annuity 
and variable life insurance contracts held in the portfolios of 
management investment companies. Treasury Regulation 1.817-
5(f)(3)(iii), which established diversification requirements for such 
portfolios, specifically permits, among other things, ``qualified 
pension or retirement plans`` and separate accounts to share the same 
underlying management investment company. Therefore, Applicants state 
that neither the Code, nor the Treasury Regulations, nor the Revenue 
Rulings thereunder present any inherent conflicts of interest between 
or among Qualified Plan participants and variable contractowners if 
Qualified Plans and variable annuity and variable life separate 
accounts all invest in the same management investment company.
    20. Applicants note that while there are differences in the manner 
in which distributions from variable contracts and Qualified Plans are 
taxed, the tax consequences do not raise any conflicts of interest. 
When distributions are to be made, and a Separate Account or Qualified 
Plan is unable to net purchase payments to make the distributions, the 
Separate Account and the Qualified Plan will redeem shares of the Funds 
at their net asset value 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 make 
distributions in accordance with the terms of the variable contract.
    21. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving voting rights to 
Separate Account contractowners and to Qualified Plans. Applicants 
represent that the Funds will inform each Separate Account and 
Qualified Plan of their respective share of ownership in the respective 
Fund. A Participating Insurance Company will then solicit voting 
instructions consistent with the ``pass through`` voting requirement. 
Qualified Plans and Separate Accounts will each have the opportunity to 
exercise voting rights with respect to their shares in the Funds, 
although only the Separate Accounts are required to pass through their 
vote to contractowners. The voting rights provided to Qualified Plans 
with respect to shares of Funds would be no different from the voting 
rights that are provided to Qualified Plans with respect to shares of 
funds offered to the general public.
    22. Applicants submit that the ability of the Funds to sell their 
respective shares directly to Qualified Plans does not create a 
``senior security,'' as such term is defined under Section 18(g) of the 
1940 Act, with respect to any variable annuity or variable life 
insurance contractowner as opposed to a Qualified Plan participant. As 
noted above, regardless of the rights and benefits of Qualified Plan 
participants, or contractowners under variable contracts, the Qualified 
Plan and the Separate Accounts have rights only with respect to their 
respective shares of the Funds. They can only redeem such shares at 
their net asset value. No shareholder of any Funds has any preference 
over any other shareholder with respect to distribution of assets or 
payment of dividends.
    23. Applicants submit that there are no conflicts between the 
contractowners of the Separate Accounts and the Qualified Plan 
participants with respect to state insurance commissioners' veto powers 
over investment objectives. State insurance commissioners have been 
given the veto power in recognition of the fact that insurance 
companies usually cannot simply redeem their separate accounts out of 
one fund and invest in another. Generally, time-consuming complex 
transactions must be undertaken to accomplish such redemptions and 
transfers. Conversely, trustees of Qualified Plans or the participants 
in participant-directed Qualified Plans can make the decision quickly 
and redeem their shares from the Funds and reinvest in another funding 
vehicle without the same regulatory impediments or, as is the case with 
most Qualified Plans, even hold cash pending suitable investment. 
Therefore, Applicants conclude that even if there should arise issues 
where the interests of contractowners and the interests of Qualified 
Plans are in conflict, the issues can be almost immediately resolved 
because the trustees of (or participants in) the Qualified Plans can, 
on their own, redeem the shares out of the Funds.
    24. Applicants also assert that there is no greater potential for 
material irreconcilable conflicts arising between the interests of 
Qualified Plan participants and contractowners of Separate Accounts 
from possible future changes in the federal tax laws than that which 
already exists between variable annuity contractowners and variable 
life insurance contractowners.
    25. Applicants state that various factors have limited the number 
of insurance companies that offer variable annuities and variable life 
insurance contracts. These factors include the costs of organizing and 
operating a funding medium, the lack of expertise with respect to 
investment management (principally with respect to stock and money 
market investments) and the lack of name recognition by the public 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 submit that use of the Funds as 
common investment vehicles for variable contracts helps alleviate these 
concerns because Participating Insurance Companies benefit not only 
from the investment advisory and administrative expertise of the Funds' 
investment adviser, but also from the cost efficiencies and investment 
flexibility afforded by a large pool of funds. Therefore, making the 
Funds available for mixed and shared funding may encourage more 
insurance companies to offer variable contracts, and accordingly could 
result in increased competition with respect to both variable contract 
design and pricing, which can be expected to result in more product 
variation and lower charges. Applicants assert that mixed and shared 
funding also would benefit contractowners by eliminating a significant 
portion of the costs of establishing and administering separate funds. 
Furthermore, Applicants assert that the sale of shares of the Funds to 
Qualified Plans in addition to Separate Accounts of Participating 
Insurance Companies will result in an increased amount of assets 
available for investment by the Funds. This may benefit contractowners 
by promoting economies of scale, by permitting increased safety of 
investments through greater diversification, and by making the addition 
of new portfolios more feasible.

Applicants' Conditions

    Applicants have consented to the following conditions:
    1. A majority of the Board of Trustees (each, a ``Board'') of each 
fund shall consist of persons who are not ``interested persons'' 
thereof, as defined by Section 2(a)(19) of the 1940 Act, and the rules 
thereunder, and as modified by any applicable orders of the Commission, 
except that if this condition is not met by reason of the death, 
disqualification or bona fide resignation of any Trustee or Director, 
then the operation of this condition shall be suspended: (a) for a 
period of 45 days if the vacancy or vacancies may be filled by the 
appropriate Board; (b) for a period of 60 days if a vote of

[[Page 30457]]

shareholders is required to fill the vacancy or vacancies; or (c) for 
such longer period as the Commission may prescribe by order upon 
application.
    2. Each Board will monitor its respective Funds for the existence 
of any material irreconcilable conflict among the interests of the 
contract holders of all Separate Accounts and of participants of 
Qualified Plans investing in the respective Funds 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 Funds are managed; (e) a 
difference in voting instructions given by owners of variable annuity 
contracts, owners of variable life insurance contracts and trustees of 
the Qualified Plans; (f) a decision by a Participating Insurance 
Company to disregard the voting instructions of contract holders; or 
(g) if applicable, a decision by a Qualified Plan to disregard the 
voting instructions of Qualified Plan participants.
    3. The Participating Insurance Companies, CSAM (or any other 
investment manager of a Fund), and any Plan that executes a fund 
participation agreement upon becoming an owner of 10% or more of the 
assets of the Fund (the ``Participants'') shall report any potential or 
existing conflicts to the Board of the relevant Trust. Participants 
will be responsible for assisting the appropriate Board in carrying out 
its responsibilities under these conditions by providing such Board 
with all information reasonably necessary for such Board to consider 
any issues raised. This responsibility includes, but is not limited to, 
an obligation by each insurance company Participant to inform the Board 
whenever it has determined to disregard contract holders' voting 
instructions, and, if pass-through voting is applicable, an obligation 
of each Qualified Plan to inform the Board whenever it has determined 
to disregard Qualified Plan participant voting instructions. The 
responsibility to report such conflicts and information, and to assist 
the respective Boards, will be contractual obligations of all 
Participants under their agreements governing participation in the 
Funds, and such agreements, in the case of insurance company 
Participants, shall be carried out with a view only to the interests of 
contract holders and, if applicable, Qualified Plan participants.
    4. If it is determined by a majority of the Board of a Trust, or a 
majority of its disinterested members, that a material irreconcilable 
conflict exists, the relevant Participant shall, at their expense and 
to the extent reasonably practicable (as determined by a majority of 
the disinterested members of such Board), take whatever steps are 
necessary to eliminate the material irreconcilable conflict, up to and 
including: (a) withdrawing the assets allocable to some or all of the 
Separate Accounts from the Funds and reinvesting such assets in a 
different investment medium, which may include another portfolio of the 
relevant Fund, if any, or, in the case of insurance company 
Participants, submitting the question whether such segregation should 
be implemented to a vote of all affected contract holders and, as 
appropriate, segregating the assets of any appropriate group (i.e., 
annuity contract holders, life insurance contract holders or variable 
contract holders of one of more Participant) that votes in favor of 
such segregation, or offering to the affected contract holders the 
option of making such a change; (b) in the case of participating 
Qualified Plans, withdrawing the assets allocable to some or all of the 
Qualified Plans from the relevant Fund and reinvesting those assets in 
a different investment medium; and (c) establishing a new registered 
management investment company or managed separate account. If a 
material irreconcilable conflict arises because of an insurance company 
Participant's decision to disregard contract holders' voting 
instructions and that decision represents a minority position or would 
preclude a majority vote, such Participant may be required, at the 
relevant Fund's election, to withdraw its separate account's investment 
in the Fund, and no charge or penalty will be imposed as a result of 
such withdrawal. 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 relevant Fund, to withdraw its 
investment in such Fund, and no charge or penalty imposed as a result 
of such withdrawal.
    The responsibility to take remedial action in the event of a 
determination by a Board of a material irreconcilable conflict, and to 
bear the cost of such remedial action, will be a contractual obligation 
of all Participants under their agreements governing participation in 
the Funds, and this responsibility will be carried out with a view only 
to the interests of contract holders and participants in Qualified 
Plans, as applicable. For purposes of this Condition 4, a majority of 
the disinterested members of a Board shall determine whether any 
proposed action adequately remedies any material irreconcilable 
conflict, but in no event will the relevant Fund or CSAM (or any other 
investment adviser of the Funds) be required to establish a new funding 
medium for any variable contract. No insurance company Participant will 
be required to establish a new funding medium for any variable 
contracts if an offer to do so has been declined by the vote of a 
majority of contract holders materially affected by the irreconcilable 
material conflict. Further, no Qualified Plan shall be required by this 
Condition 4 to establish a new funding medium 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 makes such decision without a 
Qualified Plan participant vote.
    5. The determination by a Board of the existence of a material 
irreconcilable conflict and its implications shall be made known 
promptly in writing to all Participants.
    6. Insurance company Participants will provide pass-through voting 
privileges to all contract holders to the extent that the Commission 
continues to interpret the 1940 Act to require pass-through voting for 
contract holders. Accordingly, such Participants, where applicable, 
will vote shares of a Fund held in its Separate Accounts in a manner 
consistent with voting instructions timely received from contract 
holders. Insurance company Participants shall be responsible for 
assuring that each Separate Account investing in a Fund calculates 
voting privileges in a manner consistent with other Participants. The 
obligation to calculate voting privileges as provided in the 
Application shall be a contractual obligation of all insurance company 
Participants under the agreement governing participation in a Fund. 
Each insurance company Participant will vote shares for which it has 
not received timely voting instructions as well as shares it owns in 
the same proportion as it votes those shares for which it has received 
instructions. Each Qualified

[[Page 30458]]

Plan shall vote as required by applicable law and its governing 
Qualified Plan documents.
    7. 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 the shares of the Fund), and, 
in particular, each Fund will either provide for annual meetings 
(except to the extent that the Commission may interpret Section 16 of 
the 1940 Act not to require such meetings) or comply with Section 16(c) 
of the 1940 Act (although the Funds are not one of the trusts described 
in Section 16(c) of the 1940 Act), as well as with Section 16(a), and, 
if applicable, Section 16(b) of the 1940 Act. Further, each Fund will 
act in accordance with the Commission's interpretation of the 
requirements of Section 16(a) with respect to periodic elections of 
directors (or trustees) and with whatever rules the Commission may 
promulgate with respect thereto.
    8. Each Fund will notify all Participants that disclosure in 
Separate Account or Qualified Plan prospectuses, or other disclosure 
documents, regarding potential risks of mixed and shared funding may be 
appropriate. Each Fund shall disclose in its prospectus that: (a) 
shares of the Fund may be offered to insurance company separate 
accounts of both annuity and life insurance variable contracts, an 
Qualified Plans; (b) due to differences of tax treatment and other 
considerations, the interests of various contract holders participating 
in the Funds and the interests of Qualified Plans investing in the 
Funds may at some time be in conflict; and (c) the Board will monitor 
events in order to identify the existence of any material 
irreconcilable conflicts and to determine what action, if any, should 
be taken in response to any such conflict.
    9. The Participants shall at least annualy submit to each Board 
such reports, materials or data as such Boards may reasonably request 
so that such Boards 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 Boards. The obligations of the Participants to provide these 
reports, materials and data to the appropriate Board when it so 
reasonably requests, shall be a contractual obligation of all 
Participants under the agreement governing their participation in the 
Funds.
    10. All reports received by a board with respect to potential or 
existing conflicts and all board action with regard to (a) 
determination of the existence of a conflict, (b) notification of 
Participants of the existence of a conflict and (c) determination of 
whether any proposed action adequately remedies a conflict, will be 
properly recorded in the minutes of the meetings of the appropriate 
Board or other appropriate records, and such minutes or other records 
will be made available to the Commission upon request.
    11. If and to the extent Rule 6-92 or 6-93(T) is amended, or 
proposed Rule 6-93 is adopted, to provide exemptive relief from any 
provision of the 1940 Act or the rules thereunder with respect to mixed 
and shared funding on terms and conditions materially different from 
any exemptions granted in the order requested by Applicants, then the 
Funds and/or the Participants, as appropriate, shall take such steps as 
may be necessary to comply with Rule 6-92 or 6-93(T), as amended, or 
Rule 6-93, as adopted, to the extent such rules are applicable.
    12. None of the Funds will accept a purchase order from a Qualified 
Plan if such purchase would make the Qualified Plan shareholder an 
owner of 10% or more of the assets of a Fund unless such Qualified Plan 
executes a fund participation agreement with such Fund that includes 
the conditions set forth herein to the extent applicable. A Qualified 
Plan will execute an application containing an acknowledgment of this 
condition at the time of its initial purchase of shares of a Fund.

Conclusion

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

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-11864 Filed 5-10-00; 8:45 am]
BILLING CODE 8010-01-M