[Federal Register Volume 63, Number 113 (Friday, June 12, 1998)]
[Notices]
[Pages 32266-32268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15631]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Release No. 23242; 812-10814]
Jefferson Pilot Variable Fund, Inc. and Jefferson Pilot
Investment Advisory Corporation; Notice of Application
June 5, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act, and from certain disclosure
requirements under the Act.
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SUMMARY OF APPLICATION: Applicants request an order that would permit
applicants to hire subadvisers and materially amend subadvisory
agreements without shareholder approval, and would grant relief from
certain disclosure requirements regarding advisory fees paid to
subadvisers.
APPLICANTS: Jefferson Pilot Variable Fund, Inc. (``Fund'') (formerly
Chubb America Fund, Inc.) and Jefferson-Pilot Investment Advisory
Corporation (``Manager'') (formerly Chubb Investment Advisory
Corporation).
FILING DATES: The application was filed on October 9, 1997, and amended
on May 29, 1998. Applicants have agreed to file an additional
amendment, the substance of which is incorporated in this notice,
during the notice period.
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 SEC's Secretary 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 June 30, 1998,
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Granite Place, Concord, N.H. 03301.
FOR FURTHER INFORMATION CONTACT: Annmarie J. Zell, Staff Attorney, at
(202) 942-0532 or Mary Kay Frech, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Fund is a Maryland corporation registered under the Act as
an open-end management investment company. The Fund is composed of
eleven separately managed portfolios (``Portfolios''), each of which
has its own investment objective, policies and restrictions.\1\ The
Portfolios serve as funding vehicles for variable annuity contracts
(``Contracts'') and variable life insurance policies (``Policies'')
offered through separate accounts (``Separate Accounts'') of Jefferson
Pilot Financial Insurance Company, Jefferson Pilot LifeAmerica
Insurance Company, Alexander Hamilton Life Insurance and Jefferson-
Pilot Life Insurance Company. Owners of the Contracts and Policies
(``Owners'') will be able to select sub-accounts of the Separate
Accounts that invest in the Portfolios to fund the Contracts and
Policies. Shares of the Portfolios will not be sold directly to the
public, but may be sold to qualified pension plans under the Internal
Revenue Code of 1986, as amended.
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\1\ Applicants also request relief with respect to future
Portfolios of the Fund.
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2. The Manager, a wholly-owned subsidiary of Jefferson-Pilot
Corporation, is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act''). The Manager serves
as investment adviser to the Fund pursuant to an investment advisory
agreement (``Management Agreement'') and is paid a fee for its services
based on the value of the average daily net assets of each Portfolio.
3. Pursuant to the Management Agreement and subject to the
supervision of the board of directors of the Fund (``Board''), the
Manager (i) selects and contracts at its own expense with investment
advisers registered under the Advisers Act (``Advisers'') to manage the
purchase, retention, and disposition of the investments,
[[Page 32267]]
securities and cash of each Portfolio; (ii) supervises and monitors the
performance of the Advisers, including their termination and
replacement; and (iii) allocates a Portfolio's assets between and among
its Advisers, where more than one Adviser will perform investment
management services for a particular Portfolio. The Manager also
provides the Portfolios with overall administrative services, generally
monitors the Fund's compliance with federal and state statutes,
supervises the Fund's relationship with other service providers,
carries out the directives of the Board, and provides necessary office
space, equipment, and personnel.
4. The Advisers serve as subadvisers to the Portfolios pursuant to
separate subadvisory agreements with the Manager (``Advisory
Agreements''). Subject to the general supervision and direction of the
Manager, each Adviser furnishes a continuous investment program for the
Portfolio it advises (or the portion for which it provides investment
advice), makes investment decisions for the Portfolio, and places all
orders to purchase and sell securities on behalf of the Portfolio. The
Manager pays each Adviser out of the management fees received from each
of the Portfolios. Currently, each Portfolio is advised by a single
Adviser but, in the future, the Portfolios may be advised by two or
more Advisers.
5. Applicants request an exemption from section 15(a) of the Act
and rule 18f-2 under the Act to permit the Manager to enter into and
make material changes to Advisory Agreements without obtaining
shareholder approval. The requested relief will not extend to an
Adviser that is an ``affiliated person,'' of either the Fund or the
Manager, as defined in section 2(a)(3) of the Act, other than by reason
of serving as an Adviser to one or more of the Portfolios (``Affiliated
Adviser''). Applicants also request an exemption to permit the
Portfolios to disclose (both as a dollar amount and as a percentage of
a Portfolio's net assets): (a) aggregate fees paid to the Manager; and
(b) aggregate fees paid to Advisers other than Affiliated Advisers
(``Aggregate Fee Disclosure''). Aggregate Fee Disclosure also will
include separate disclosure of any advisory fees paid to any Affiliated
Adviser.
Applicants' Legal Analysis
Shareholder Voting
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered investment company except
pursuant to a written contract that has been approved by a majority of
the investment company's outstanding voting securities. Rule 18f-2
under the Act provides that each series or class of stock in a series
company affected by a matter must approve the matter if the Act
requires shareholder approval.
2. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that the exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Applicants request relief under section 6(c) from section 15(a) of the
Act and rule 18f-2 under the Act.
3. Applicants submit that by purchasing a Contract or Policy an
Owner is indirectly hiring the Manager to manage the assets of the
Portfolios by using external portfolio managers, rather than the
Manager's own personnel. Applicants point out that the Fund's
prospectus, on which prospective Owners rely in making their sub-
account investment decisions, specifies that the Manager is principally
responsible for selecting, evaluating, and terminating Advisers, and
that the Manager is compensated for this service. Applicants believe
that requiring Owner approval of every change of Advisers or change in
an Advisory Agreement, would frustrate Owners' expectation that the
Manager is to perform these duties.
4. Applicants state that relief is appropriate in the public
interest because it would allow the Manager to more efficiently perform
its principal functions of selecting, monitoring, and making changes in
the role of Advisers by permitting the Manager to promptly replace an
Adviser that is not performing its duties adequately. Applicants also
submit that the relief is consistent with the protection of investors
because it permits the Fund to avoid the administrative burden and
expenses associated with a formal proxy solicitation, while providing
adequate disclosure to investors. Applicants note that the Fund's
prospectus will disclose information concerning the identity,
ownership, and qualifications of the Advisers in full compliance with
Form N-1A (except with respect to the Aggregate Fee Disclosure) and if
a new Adviser is retained, the Manager will furnish Owners, within 60
days, all the information that would have been provided in a proxy
statement (except with respect to Aggregate Fee Disclosure).
5. Applicants believe that the requested relief will continue to
provide protection for prospective Owners because (i) a Portfolio will
not rely on the requested order unless the operation of the Portfolio
in the manner described in the application is approved by a majority of
its outstanding voting securities and disclosed in the Fund's
prospectus; (ii) the Manager and its selection of Advisers is subject
to oversight by the Board; and (iii) the Management Agreement will
remain fully subject to the requirements of section 15(a) and rule 18f-
2 under the Act.
Fee Disclosure
6. Items 2, 5(b) (iii), and 16(a)(iii) of Form N-1A (and after the
effective date of the amendments to Form N-1A, items 3, 6(a)(1)(ii),
and 15(a)(3)), the registration statement used by open-end investment
companies, require disclosure of the method and amount of the
investment adviser's compensation.
7. Item 3 of Form N-14, the registration form for business
combinations involving open-end investment companies, requires the
inclusion of a ``table showing the current fees for the registrant and
the company being acquired and pro forma fees, if different, for the
registrant after giving effect of the transaction.''
8. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``Exchange Act''). Item 22(a)(3)(iv)
of Schedule 14A requires a proxy statement for a shareholder meeting at
which a new fee will be established or an existing fee increased to
include a table of the current and pro forma fees. Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8), and 22(c)(9), taken together, require a proxy
statement for a shareholder meeting at which the advisory contract will
be voted upon to include the ``rate of compensation of the investment
adviser,'' the ``aggregate amount of the investment adviser's fees,'' a
description of ``the terms of the contract to be acted upon,'' and, if
a change in the advisory fee is proposed, the existing and proposed
fees and the difference between the two fees.
9. Form N-SAR is the semi-annual report filed with the SEC by
registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
investment advisers.
10. Regulation S-X specifies the requirements for financial
statements required to be included as part of the investment company
registration statements and shareholder reports filed with SEC.
Sections 6-07(2)(a), (b) and
[[Page 32268]]
(c) of Regulation S-X require that investment companies include in
their financial statements certain information about investment
advisory fees.
11. Applicants request relief from the above disclosure
requirements under section 6(c). Applicants argue that, with the
information provided in the Aggregate Fee Disclosure, Owners will have
adequate information to compare the management and advisory fees of the
Portfolios with those of other funds. Applicants believe that, while
the amount of the total fees retained by the Manager is relevant to the
Owners' determination of the value of the Manager's services, the
specific portion of the total fee paid to an individual adviser
provides no useful information since the Owner has engaged the Manager
to select, monitor, and compensate the Advisers. Applicants also
believe that because most investment advisers price their services
based on ``posted'' fee rates, the Manager, without the requested
relief, may only be able to obtain a specific Adviser's services by
paying higher fee rates than if would otherwise be able to negotiate if
the rates paid were not disclosed publicly.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Before a Portfolio may rely on the requested order, the
operation of the Portfolio as described in the application will be
approved by a majority of its outstanding voting securities, as defined
in the Act, pursuant to voting instructions provided by Owners with
assets allocated to any sub-account of a registered Separate Account
for which a Portfolio serves as a funding medium or, in the case of a
new Portfolio whose shareholders (i.e., Separate Accounts) purchased
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the sole initial shareholder
before offering shares of that Portfolio to prospective Owners through
a Separate Account.
2. The Fund will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to the application.
In addition, the Fund will hold itself out to the public as employing
the management structure described in the application. The prospectus
relating to the Fund will prominently disclosure that the Manager has
ultimate responsibility to oversee Advisers and recommend their hiring,
termination, and replacement.
3. Within 60 days of the hiring of any new Adviser, Owners with
assets allocated to any sub-account of any registered Separate Account
for which a Portfolio serves as a funding medium will be furnished all
information about a new Adviser or Advisory Agreement that would be
included in a proxy statement, except as modified by the order to
permit Aggregate Fee Disclosure. This information will include
Aggregate Fee Disclosure and any change in such disclosure caused by
the addition of a new Adviser. The Manager will meet this condition by
providing these Owners with an information statement meeting the
requirements of Regulation 14C and Schedule 14C under the Exchange Act
and item 22 of Schedule 14A under the Exchange Act.
4. The Manager will not enter into an Advisory Agreement with any
Affiliated Adviser without that Advisory Agreement, including the
compensation to be paid under that agreement, being approved by the
Owners with assets allocated to any sub-account of a Separate Account
for which the applicable Portfolio serves as a funding medium.
5. At all times, a majority of the Board will not be ``interested
persons'' of the Fund as defined in section 2(a)(19) of the Act
(``Independent Directors''), and the nomination of new or additional
Independent Directors will continue to be at the discretion of the then
existing Independent Directors.
6. When an Adviser change is proposed for a Portfolio with an
Affiliated Adviser, the Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the Board's
minutes, that the change is in the best interests of the Portfolio and
Owners with assets allocated to any sub-account of a separate account
for which a Portfolio serves as a funding medium and does not involve a
conflict of interest from which the Manager or the Affiliated Adviser
derives an inappropriate advantage.
7. Independent counsel knowledgeable about the Act and the duties
of Independent Directors will be engaged to represent the Independent
Directors of the Fund. The selection of such counsel will be within the
discretion of the Independent Directors.
8. The Manager will provide the Board, no less frequently than
quarterly, with information about the Manager's profitability on a per-
Portfolio basis. This information will reflect the impact on
profitability of the hiring or termination of any Adviser during the
applicable quarter.
9. Whenever an Adviser is hired or terminated, the Manager will
provide the Board information showing the expected impact on the
Manager's profitability.
10. The Manager will provide general management services to the
Fund and its Portfolios, including overall supervisory responsibility
for the general management and investment of each Portfolio's
securities portfolio, and, subject to review and approval by the Board,
will: (i) set each Portfolio's overall investment strategies; (ii)
select Advisers; (iii) allocate and, when appropriate, reallocate a
Portfolio's assets among multiple Advisers; (iv) monitor and evaluate
the performance of Advisers; and (v) implement procedures reasonably
designed to ensure that the Advisers comply with the Portfolio's
investment objective, policies, and restrictions.
11. No director or officer of the Fund or director or officer of
the Manager will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by that director or
officer) any interest in an Adviser, except for: (i) ownership of
interests in the Manager or any entity that controls, is controlled by,
or is under common control with the Manager; or (ii) ownership of less
than 1% of the outstanding securities of any class of equity or debt of
a publicly traded company that is either an Adviser or an entity that
controls, is controlled by, or is under common control with an Adviser.
12. The Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15631 Filed 6-11-98; 8:45 am]
BILLING CODE 8010-01-M
