[Federal Register Volume 61, Number 233 (Tuesday, December 3, 1996)]
[Notices]
[Pages 64178-64183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30679]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22351; File No. 812-10248]
The Chubb Series Trust, et al.
November 25, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'' or
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``the 1940 Act'').
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APPLICANTS: The Chubb Series Trust (the ``Trust''), Chubb Investment
Advisory Corporation (``Chubb Investment Advisory'') and Morgan
Guaranty Trust Company of New York (``Morgan'').
RELEVANT ACT SECTIONS: Order requested pursuant to Section 6(c) of the
1940 Act from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and
subparagraph (b)(15) of Rules 6e-2 and 6e-3(T) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order granting exemptions
from the 1940 Act to the extent necessary to permit shares of any
current or future series of the Trust and shares of any other
investment company that is designed to fund variable insurance products
and for which Chubb Investment Advisory or Morgan or any of their
affiliates may serve as investment adviser, administrator, manager,
principal underwriter or sponsor (the Trust and such other investment
companies are hereinafter referred to collectively as the ``Funds'') to
be sold to and held by: (i) variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life
insurance companies (``Participating Insurance Companies''); and (ii)
qualified pension and retirement plans outside the separate account
context (``Plans'').
FILING DATE: The application was filed on July 12, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on December 20,
1996, and should be accompanied by proof of service on Applicants in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Secretary of the SEC.
ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, The Chubb Series Trust and Chubb Investment Advisory
Corporation, One Granite Place, Concord, New Hampshire 03301, Attn.
General Counsel, or Morgan Guaranty Trust Company of New York, 60 Wall
Street, New York, New York 10260, Attn. Funds Management Division.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Patrice M. Pitts, Branch Chief,
Office of Insurance Products, Division of Investment Management, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Public Reference Branch of the SEC.
Applicants' Representations
1. The Trust, organized as a Delaware business trust on October 28,
1993, is registered under the 1940 Act as an open-end management
investment company. The Trust currently consists of five separate
series. Additional series may be added in the future.
2. Chubb Investment Advisory, a wholly-owned subsidiary of Chubb
Life Insurance Company of America (``Chubb Life''), is registered under
the Investment Advisers Act of 1940, as amended, and serves as the
Trust's investment manager.
3. Morgan, a New York trust company which conducts a general
banking and trust business, serves as the Trust's sub-investment
adviser. Morgan is a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated, a bank holding company organized under the laws of
Delaware.
4. Trust shares currently are offered only to separate accounts
established by Chubb Life or its affiliated insurance companies to fund
flexible premium life insurance policies. Applicants desire that the
Funds have the flexibility to offer their shares to insurance company
separate accounts that fund variable annuity and variable life
insurance contracts (including single premium, scheduled premium,
modified single premium and flexible premium) (collectively, ``Variable
Contracts'') established be affiliated or unaffiliated insurance
companies.
5. Applicants state that Fund shares also may be offered directly
to Plans outside the separate account context. The Plans may choose any
of the Funds as the sole investment option under the Plan or as one of
several investment options. Fund shares sold to Plans will be held by
the trustee of the Plans as mandated by Section 403(a) of the Employee
Retirement Income Security Act (``ERISA'').
Applicants' Legal Analysis
1. In connection with the funding of scheduled premium variable
life insurance contracts issued through a separate account registered
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15)
provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act. The relief provided by Rule 6e-2 extends to a separate
account's investment adviser,
[[Page 64179]]
principal underwriter, and sponsor or depositor. The exemptions granted
by Rule 6e-2(b)(15) are available, however, only where the management
investment company underlying the separate account offers its shares
``exclusively to variable life insurance separate accounts of the life
insurer, or any affiliated life insurance company.''
2. The use of a common management investment company as the
underlying investment medium for both variable annuity and variable
life insurance separate accounts of a single insurance company (or of
two or more affiliated insurance companies) is referred to as ``mixed
funding.'' The use of a common management investment company as the
underlying investment medium for variable annuity and/or variable life
insurance separate accounts of unaffiliated insurance companies is
referred to as ``shared funding.'' ``Mixed and shared funding'' denotes
the use of a common management investment company to fund the variable
annuity and variable life insurance separate accounts of affiliated and
unaffiliated insurance companies. 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 underlying fund
that also offers its shares to a variable annuity separate account of
the same company or of any other affiliated or unaffiliated life
insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed and
shared funding.
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. The exemptive relief extends to a separate account's
investment adviser, principal underwriter, and sponsor or depositor.
The exemptions granted to a separate account by Rule 6e-3(T)(b)(15) are
available only where all of the assets of the separate account consist
of the shares of one or more registered management investment companies
which offer their shares ``exclusively to separate accounts of the life
insurer, or of any affiliated life insurance company, offering either
scheduled 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.'' Thus, Rule 6e-3(T)
permits mixed funding with respect to a flexible premium variable life
insurance separate account, but precludes shared funding.
4. Applicants state that various factors have kept certain
insurance companies from offering variable annuity and variable life
insurance contracts. These factors include: the cost of organizing and
operating an investment funding medium; the lack of expertise with
respect to investment managers (principally with respect to stock and
money market investments); and the lack of name recognition by the
public of certain insurers as investment professionals. Applicants
maintain that use of the Funds as common investment media for the
Variable Contracts would ease these concerns. Participating Insurance
Companies would benefit not only from the investment and administrative
expertise of the Funds' investment advisers, but also from the cost
efficiencies and investment flexibility afforded by a large pool of
funds. Applicants submit that mixed and shared funding would benefit
Variable Contract owners by: (a) eliminating a significant portion of
the costs of establishing and administering separate funds; (b)
permitting a greater amount of assets to be available for investment by
the Funds, thereby promoting economies of scale, permitting greater
safety of investments through greater diversification, and making the
addition of new portfolios more feasible; and (c) encouraging more
insurance companies to offer variable insurance contracts, resulting in
increased competition with respect to both the design and the pricing
of variable insurance contracts, which can be expected to result in
greater product variation and lower charges.
5. Applicants assert that the relief granted by sub-paragraph
(b)(15) of Rules 6e-2 and 6e-3(T) should not be affected by the
proposed sale of Fund shares to Plans Applicants note, however, that
because the relief under sub-paragraph (b)(15) of Rules 6e-2 and 6e-
3(T) is available only where shares are offered exclusively to separate
accounts of life insurance companies, additional exemptive relief is
necessary if shares of the Funds also are to be sold to Plans.
6. Applicants state that current tax law permits the Funds to
increase their asset base through the sale of Fund shares to the Plans.
Applicants state that Section 817(h) of the Internal Revenue Code of
1986, as amended (the ``Code''), imposes certain diversification
requirements on the underlying assets of Variable Contracts invested in
the Funds. The Code provides that such Variable Contracts shall not be
treated as an annuity contract or life insurance contract for any
period in which the underlying assets are not adequately diversified in
accordance with regulations prescribed by the Treasury Department. The
regulations provide that, to meet the diversification requirements, all
of the beneficial interests in the investment company must be held by
the segregated asset accounts of one or more insurance companies.
Treas. Reg. Sec. 1.817-5 (1989). The regulations do contain certain
exceptions to this requirement, however, one of which allows shares in
an investment company to be held by the trustee of a qualified pension
or retirement plan without adversely affecting the ability of shares in
the same investment company also to be held by the separate accounts of
insurance companies in connection with their variable contracts. Treas.
Reg. Sec. 1.817-5(f)(3)(iii).
7. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T)
under the 1940 Act preceded the issuance of these Treasury regulations,
and that the sale of shares of the same investment company to both
separate accounts and Plans could not have been envisioned at the time
of the adoption of Rules 6e-2 (b)(15) and 6e-3(T) (b)(15).
8. Applicants therefore request relief from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act, and sub-paragraph (b)(15) of Rules 6e-
2 and 6e-3(T) thereunder, to the extent necessary to permit shares of
the Funds to be offered and sold now and in the future to separate
accounts of Participating Insurance Companies in connection with both
mixed and shared funding and to be sold directly to Plans.
9. Section 9(a) of the 1940 Act provides that it is unlawful for
any person to serve as an investment adviser to, or principal
underwriter for, any registered open-end investment company if an
affiliated person of that person is subject to a disqualification
enumerated in Section 9(a)(1) or (2).
10. Rules 6e-2 (b)(15) and 6e-3(T)(b)(15) provide exemptions from
Section 9(a) under certain circumstances, subject to the limitations on
mixed and shared funding. The relief provided by sub-paragraph
(b)(15)(i) of Rules 6e-2 and 6e-3(T) permits a person disqualified
under Section 9(a) to serve as an officer, director, or employee of the
life insurer, or any of its affiliates, so long as that person does not
participate directly in the management or administration of the
underlying fund. The relief provided by sub-paragraph (b)(15)(ii) of
Rules 6e-2 and 6e-3(T) permits the life insurer to serve as the
underlying fund's investment adviser or principal underwriter, provided
that none of the insurer's personnel who are ineligible
[[Page 64180]]
pursuant to Section 9(a) participate in the management or
administration of the fund.
11. Applicants state that the partial relief from Section 9(a)
found in sub-paragraph (b)(15) of Rules 6e-2 and
6e-3(T), in effect, limits the amount of monitoring necessary to ensure
compliance with Section 9 to that which is appropriate in light of the
policy and purposes of that Section. Applicants state that those rules
recognize that it is not necessary for the protection of investors or
the purposes fairly intended by the policy and provisions of the 1940
Act to apply the provisions of Section 9(a) to the many individuals in
an insurance company complex, most of whom will have no involvement in
matters pertaining to investment companies within that organization.
Applicants note that the Participating Insurance Companies are not
expected to play any role in the management or administration of the
Funds. Therefore, Applicants assert, applying the restrictions of
Section 9(a) serves no regulatory purpose. Applicants state that the
relief requested should not be affected by the proposed sale of Fund
shares to the Plans because the Plans are not investment companies and
are not, therefore, subject to Section 9(a).
12. Sections 13(a), 15(a) and 15(b) of the 1940 Act require ``pass-
through'' voting with respect to underlying investment company shares
held by a separate account. Sub-paragraph (b)(15)(iii) of Rules 6e-2
and 6e-3(T) under the 1940 Act provides partial exemptions from the
pass-through voting requirement. More specifically, sub-paragraph
(b)(15)(iii)(A) of Rules 6e-2 and 6e-3(T) provides that the insurance
company may disregard the voting instructions of its contract owners
with respect to the investment of an underlying investment company, or
any contract between an investment company and its investment adviser,
when required to do so by an insurance regulatory authority.
13. Sub-paragraph (b)(15)(iii)(B) of Rule 6e-2 and sub-paragraph
(b)(15)(iii)(A)(2) of Rule 6e-3(T) provide that the insurance company
may disregard voting instructions of its contract owners if the
contract owners initiate any change in underlying investment company's
investment objectives, 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)
and (b)(7)(ii) (B) and (C) of each rule.
14. Applicants state that Rule 6e-2 recognizes that variable life
insurance contracts have important elements unique to insurance
contracts and are subject to extensive state regulation of insurance.
Applicants maintain, therefore, that in adopting Rule 6e-2, the
Commission expressly recognized that exemptions from pass-through
voting requirements were necessary ``to assure the solvency of the life
insurer and the performance of its contractual obligations by enabling
an insurance regulatory authority or the life insurer to act when
certain proposals reasonably could be expected to increase the risks
undertaken by the life insurer.'' Applicants state that flexible
premium variable life insurance contracts and variable annuity
contracts are subject to substantially the same state insurance
regulatory authority, and therefore, corresponding provisions of Rule
6e-3(T) presumably were adopted in recognition of the same
considerations as the Commission applied in adopting Rule 6e-2.
Applicants submit that these considerations are no less important or
necessary when an insurance company funds its separate accounts on a
mixed and shared funding basis, and that such funding does not
compromise the goals of the insurance regulatory authorities or of the
Commission.
15. Applicants further state that the sale of Fund shares to Plans
does not affect the relief requested in this regard. As previously
noted, Fund shares sold to Plans will be held by the trustees of such
Plans as required by Section 403(a) of ERISA. Section 403(a) also
provides that the trustees must have exclusive authority and discretion
to manage and control the assets of the Plan with two exceptions: (a)
when the Plan expressly provides that the trustees are subject to the
direction of a named fiduciary who is not a trustee, in which case the
trustees are subject to proper directions made in accordance with the
terms of the Plan and not contrary to ERISA; and (b) when the authority
to manage, acquire or dispose of assets of the Plan is delegated to one
or more investment managers pursuant to Section 402(c)(3) of ERISA.
16. Unless one of the two exceptions stated in Section 403(a)
applies, Plan trustees have the exclusive authority and responsibility
for voting proxies. Where a named fiduciary appoints an investment
manager, the investment manager has the responsibility to vote the
shares held unless the right to vote such shares is reserved to the
trustees or to the named fiduciary. In any event, there is no pass-
through voting to the participants in such Plans. 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 Plans.
17. Applicants further assert that investment in the Funds by Plans
will not create any of the voting complications occasioned by mixed and
shared funding because Plan investor voting rights cannot be frustrated
by veto rights of insurers or state regulators.
18. Applicants state that some Plans may provide participants with
the right to give voting instructions. Applicants submit that there is
no reason to believe that participants in Plans generally, or those in
a particular Plan, either as a single group or in combination with
other Plans, would vote in a manner that would disadvantage Variable
Contract owners. Accordingly, Applicants assert that the purchase of
Fund shares by Plans that provide voting rights to participants does
not present any complications not otherwise occasioned by mixed and
shared funding.
19. Applicants state that no increased conflicts of interest would
be present by the granting of the requested relief. Applicants assert
that 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. Applicants note that where different Participating
Insurance Companies are domiciled in different states, it is possible
that the state insurance regulatory body in a state in which one
Participating Insurance Company is domiciled could require action that
is inconsistent with the requirements of insurance regulators in one or
more other states in which other Participating Insurance Companies are
domiciled. Applicants submit that this possibility is no different or
greater than exists where a single insurer and its affiliates offer
their insurance products in several states.
20. Applicants further submit that affiliation does not reduce the
potential for differences in state regulatory requirements. In any
event, the conditions (adapted from the conditions included in Rule 6e-
3(T) (b)(15)) discussed below are designed to safeguard against any
adverse effects that these differences may produce. If a particular
state insurance regulator's decision conflicts with the majority of
other state regulators, the affected insurer may be required to
withdraw its separate account's investment in the relevant Funds.
21. Applicants also argue that affiliation does not eliminate the
potential, if any exists, for divergent judgments as to when a
Participating Insurance Company could disregard
[[Page 64181]]
Variable Contract owner voting instructions. Potential disagreement is
limited by the requirement that the Participating Insurance Company's
disregard of voting instructions be both reasonable and based on
specified good faith determinations. However, if a Participating
Insurance Company's decision to disregard Variable Contract owner
instructions represents a minority position or would preclude a
majority vote approving a particular change, such Participating
Insurance Company may be required, at the election of the relevant
Fund, to withdraw its separate account's investment in that Fund. No
charge or penalty will be imposed as a result of such a withdrawal.
22. Applicants submit that there is no reason why the investment
policies of a Fund with mixed funding would, or should, be materially
different from what those policies would, or should, be if such
investment company or series thereof funded only variable annuity or
variable life insurance contracts. Applicants therefore argue that
there is no reason to believe that conflicts of interest would result
from mixed funding. Moreover, Applicants represent that the Funds will
not be managed to favor or disfavor any particular insurer or type of
Variable Contract.
23. Applicants note that Section 817(h) of the Code imposes certain
diversification requirements on the underlying assets of variable
annuity and variable life insurance contracts held in the portfolios of
management investment companies. Treasury Regulation Sec. 1.817-
5(f)(3)(iii), which established diversification requirements for such
portfolios, specifically permits ``qualified pension or retirement
plans'' and separate accounts to share the same underlying management
investment company. Therefore, Applicants have concluded that neither
the Code, the Treasury regulations, nor the revenue rulings thereunder
present any inherent conflicts of interest if Plans, variable annuity
and variable life insurance separate accounts all invest in the same
management investment company.
24. Applicants note that while there are differences in the manner
in which distributions are taxed for variable annuity contracts,
variable life insurance contracts and Plans, these tax consequences do
not raise any conflicts of interest. When distributions are to be made,
and the separate account or the Plan is unable to net purchase payments
to make the distributions, the separate account or the Plan will redeem
shares of the Funds at their respective net asset value. The Plan will
then make distributions in accordance with the terms of the Plan. The
life insurance company will make distributions in accordance with the
terms of the Variable Contract.
25. Applicants state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of
participants under the Plans and owners of the Variable Contracts
issued by the separate accounts of Participating Insurance Companies
from possible future changes in the federal tax laws than that which
already exists between variable annuity contract owners and variable
life insurance contract owners.
26. With respect to voting rights, Applicants state that it is
possible to provide an equitable means of giving such voting rights to
Variable Contract owners and to Plans. Applicants represent that a Fund
will inform each shareholder, including each separate account and Plan,
of information necessary for the shareholder meeting, including their
respective share ownership in the respective Funds. A Participating
Insurance Company will then solicit voting instructions in accordance
with the ``pass-through'' voting requirements of Rules 6e-2 and 6e-
3(T).
27. Applicants argue that the ability of the Funds to sell their
respective shares directly to Plans does not create a ``senior
security,'' as such terms is defined under Section 18(g) of the 1940
Act, with respect to any Variable Contract owner as opposed to a
participant under a Plan. Regardless of the rights and benefits of Plan
participants and Variable Contract owners under the respective Plans
and Variable Contracts, the Plans and the separate accounts have rights
only with respect to their shares of the Funds. Such shares may be
redeemed only at net asset value. No shareholder of any of the Funds
has any preference over any other shareholder with respect to
distributions of assets or payment of dividends.
28. Applicants state that there are no conflicts of interest
between Variable Contract owners and Plan participants with respect to
the state insurance commissioners' veto powers over investment
objectives. The state insurance commissioners have been given the veto
power in recognition of the fact that insurance company separate
accounts cannot simply redeem or transfer Fund shares; to accomplish
such redemptions and transfers, complex and time consuming transactions
must be undertaken. By contrast, trustees of Plans or the participants
in participant-directed Plans can make the decision quickly and
implement redemption of shares from a Fund and reinvest the monies in
another funding vehicle without the same regulatory impediments or, as
in the case with most Plans, even hold cash pending a suitable
investment. Based on the foregoing, Applicants represent that even
should the interests of Variable Contract owners and the interests of
Plans and Plan participants conflict, the conflicts can be resolved
almost immediately in that trustees of the Plans can, independently,
redeem shares out of the Funds.
29. Applicants state that, regardless of the types of Fund
shareholders, a Fund's adviser is legally obligated to manage the Funds
in accordance with each Fund's investment objectives, policies and
restrictions as well as any guidelines established by the Fund's Board.
Applicants assert that Chubb Investment Advisory and Morgan will manage
the Funds without consideration for the identity of shareholders.
Applicant's Conditions
Applicants have consented to the following conditions:
1. A majority of the Board of Trustees or Directors (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 death, disqualification, or bona fide resignation of any
Board member, 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 Board; (b) for a period of 60 days, if a vote of shareholders is
required to fill the vacancy or vacancies; or (c) for such longer
period as the Commission may prescribe by order upon application.
2. Each Fund's Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of Variable
Contract owners of all separate accounts and of Plan participants and
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
[[Page 64182]]
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by owners
or variable annuity and variable life insurance contracts; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Variable Contract owners; or (g) if applicable, a
decision by a Plan to disregard the voting instruction of Plan
participants.
3. Chubb Investment Advisory and Morgan (or any other investment
adviser of a Fund), any Participating Insurance Company and any Plan
that executes a fund participation agreement upon becoming an owner of
10% or more of the assets of a Fund (collectively, ``Participants'')
will report any potential or existing conflicts to the relevant Board.
Participants will be obligated to assist the relevant Board in carrying
out its responsibilities under these conditions by providing the Board
with all information reasonably necessary for the Board to consider any
issues raised. This 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 Plan
to inform the Board whenever Plan participant voting instructions are
disregarded. The responsibility to report such information and
conflicts and to assist the Boards will be contractual obligations of
all Participating Insurance Companies and Plans investing in the Funds
under their agreements governing participation in the Funds, and such
agreements shall provide that these responsibilities will be carried
out only with a view to the interests of Variable Contract owners and,
if applicable, Plan participants.
4. If a majority of a Fund's Board members, or a majority of its
disinterested Board members, determine that a material irreconcilable
conflict exists, the relevant Participating Insurance Companies and
Plans, at their expense and to the extent reasonably practical (as
determined by a majority of the disinterested Board members), shall
take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict. Such steps could include: (a) withdrawing the
assets allocable to some or all of the separate accounts from the Fund
or any of its series and reinvesting such assets in a different
investment medium, which may include another series of the Fund or
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.,
variable annuity or variable life insurance contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the
option of making such a change; and (c) establishing a new registered
management investment company or managed separate account. If a
material irreconcilable conflict arises because of a Participating
Insurance Company's decision to disregard contract owner voting
instructions and that decision represents a minority position or would
preclude a majority vote, the Participating Insurance Company may be
required, at the election of the Fund, to withdraw its separate
account's investment in such Fund, and no charge or penalty will be
imposed as a result of such withdrawal. If a material irreconcilable
conflict arises because of a Plan's decision to disregard Plan
participant voting instructions, if applicable, and that decisions
represents a minority position or would preclude a majority vote, the
Plan may be required, at the election of the Fund, to withdraw its
investment in such 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 Participating Insurance Companies and
Plans under their agreements governing participating in the Funds.
These responsibilities shall be carried out only with a view to the
interests of Contract owners and, as applicable, Plan participants.
5. For purposes of condition 4, a majority of the disinterested
members of the relevant Board shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. In no
event will a Fund or Chubb Investment Advisory or Morgan (or any other
investment adviser of the Funds) be required to establish a new funding
medium for any Variable Contract. No Participating Insurance Company
shall be required by condition 4 to establish a new funding medium for
any Variable Contract if a majority of Variable Contract owners
materially and adversely affected by the irreconcilable material
conflict vote to decline such offer. No Plan shall be required by
condition 4 to establish a new funding medium for such Plan if (a) a
majority of Plan participants materially and adversely affected by the
material irreconcilable material conflict vote to decline such offer,
or (b) pursuant to governing plan documents and applicable law, the
Plan makes such decision without a vote by Plan participants.
6. Participants will be informed promptly in writing of a Board's
determination of the existence of a material irreconcilable conflict
and its implications.
7. Participating Insurance Companies will provide pass-through
voting privileges to all Variable Contract owners so long as the
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for Variable Contract owners. Accordingly,
such Participating Insurance Companies, where applicable, will vote
shares of the Fund held in its separate accounts in a manner consistent
with voting instructions timely received from Variable Contract owners.
In addition, each Participating Insurance Company will vote shares of a
Fund held in its separate accounts for which it has not received timely
voting instructions, as well as shares it owns, in the same proportion
as those shares for which it has received voting instructions.
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 with all other Participating
Insurance Companies. The obligation to calculate voting privileges and
to vote a Fund's shares in a manner consistent with all other separate
accounts investing in the Fund will be a contractual obligation of all
Participating Insurance Companies under the agreements governing their
participation in the Fund. Each Plan will vote as required by
applicable law and governing Plan documents.
8. All reports of potential or existing conflicts of interest
received by a Board, and all Board action with regard to (a)
determining the existence of a conflict, (b) notifying Participants of
a conflict, and (c) determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of the
appropriate Board or other appropriate records. Such minutes or other
records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that
separate account prospectus disclosure regarding potential risks of
mixed and
[[Page 64183]]
shared funding may be appropriate. Each Fund shall disclose in its
prospectus that: (a) Its shares may be offered to insurance company
separate accounts that fund both variable annuity and variable life
insurance contracts, and to Plans; (b) differences in tax treatment or
other considerations may cause the interests of various Variable
Contract owners participating in the Fund and the interests of Plans
investing in the Fund to conflict; and (c) the Board will monitor the
Fund for any material conflicts and determine what action, if any,
should be taken.
10. Each Fund will comply with all the provisions of the 1940 Act
requiring voting by shareholders (for these purposes, the persons
having a voting interest in the shares of the Funds). In particular,
each such Fund either will 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 none of the Funds shall be one of the trusts described in
Section 16(c) of the 1940 Act) as well as 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 Board members
and with whatever rules the Commission may promulgate with respect
thereto.
11. If and to the extent Rule 6e-2 or Rule 6e-3(T) is amended, or
if Rule 6e-3 under the 1940 Act is adopted, to provide exemptive relief
from any provisions 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 6e2 or
Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
12. No less than annually, the Participants shall submit to each
Board such reports, materials or data as each Board may reasonably
request so that such Boards may carry out fully the obligations imposed
upon them by the conditions stated in this application. Such reports,
materials and data shall be submitted more frequently if deemed
appropriate by the Boards. The obligations of Participating Insurance
Companies and Plans to provide these reports, materials and data upon
reasonable request of a Board shall be a contractual obligation of all
Participating Insurance Companies and Plans under the agreements
governing their participation in the Funds.
13. If a Plan should become an owner of 10% or more of the assets
of a Fund, such Plan will execute a participation agreement with such
Fund which includes the conditions set forth herein to the extent
applicable. A Plan will execute an application containing an
acknowledgment of this condition upon such Plan's initial purchase of
the shares of any Fund.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and 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. 96-30679 Filed 12-2-96; 8:45 am]
BILLING CODE 8010-01-M
