[Federal Register Volume 59, Number 187 (Wednesday, September 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23992]


[Federal Register: September 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20567; No. 812-9082]


Jefferson-Pilot Life Insurance Company, et al.

September 21, 1994.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (``1940 Act'').

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APPLICANTS: Jefferson-Pilot Life Insurance Company (``Jefferson 
Pilot'') and Jefferson-Pilot Separate Account A (``Separate Account'') 
(collectively, ``Applicants'').

Relevant 1940 Act Section: Order requested under Section 26(b) of the 
1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order authorizing the 
substitution of shares of the Variable Insurance Products Fund's (``VIP 
Fund'') Money Market Portfolio (``VIP Money Market Portfolio'') for 
shares of the Jefferson-Pilot Money Market Fund, Inc. (``J-P Money 
Market Fund''). The VIP Money Market Portfolio, together with other VIP 
Fund portfolios and certain other registered mutual funds, will serve 
as the eligible funding vehicles for certain individual variable 
annuity contracts and other forms of variable annuity contracts that 
may in the future be offered by Jefferson Pilot through the Separate 
Account.

FILING DATE: The application was filed on June 30, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 17, 1994, 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 
requestor's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. Applicants, c/o J. Gregory Poole, 
Esq., Jefferson-Pilot Life Insurance Company, 100 North Greene Street, 
Greensboro, North Carolina 27401.

FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Senior Counsel, at (202) 942-0670, Office of 
Insurance Products (Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application is available for a fee from the 
Commission's Public Reference Branch.

Applicants' Representations

    1. Jefferson-Pilot, a stock life insurance company, is a wholly-
owned subsidiary of Jefferson-Pilot Corporation, a publicly held 
corporation.\1\ Jefferson-Pilot is licensed to sell insurance and 
annuities in 44 states, the District of Columbia, the Virgin Islands, 
and Puerto Rico.
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    \1\Delcor, Inc. (``Delcor''), a wholly-owned subsidiary of 
Golden Eagle Industries, Inc. (``Golden Eagle''), Golden Eagle, C.D. 
Spangler, Jr., a director of Golden Eagle, and W.D. Cornwell, Jr., a 
director and officer of Delcor and Golden Eagle, together own 
beneficially and of record 6.35% of Jefferson-Pilot Corporation's 
outstanding stock.
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    2. The Separate Account is a separate account organized by 
Jefferson-Pilot and registered under the 1940 Act as a unit investment 
trust for the purpose of funding certain individual variable annuity 
contracts (``Contracts''). The Separate Account consists of nine sub-
accounts (``Subaccounts''), each investing in shares of a corresponding 
fund or series of funds available under the Contracts, including shares 
of the J-P Money Market Fund.
    3. The J-P Money Market Fund is an open-end diversified management 
investment company registered under the 1940 Act. Share of the J-P 
Money Market Fund are purchased, without any sales charge, by the Money 
Market Subaccount at net asset value. Shares are redeemed without any 
charge or fee to the Separate Account. At May 31, 1994, 26.27% and 
73.73% of the J-P Money Market Fund's outstanding shares were owned 
beneficially and of record, respectively, by the Contract owners 
through the Separate Account and by Jefferson-Pilot. Jefferson-Pilot's 
shares represent its ``seed money'' investment held directly in its 
General Account.
    4. The VIP Fund is a Massachusetts business trust registered under 
the 1940 Act as an open-end, diversified management investment company. 
The VIP Fund is divided into separate investment portfolios, including 
the VIP Money Market Portfolio.
    5. On March 31, 1994, J-P Money Market Fund had $21,116,199 in net 
assets and the VIP Money Market Portfolio had $572 million in net 
assets. For the year ended March 31, 1994, total expenses for the J-P 
Money Market Fund and the VIP Money Market Portfolio were .65% and .27% 
of average net assets, respectively. For the year ended March 31, 1994, 
the VIP Money Market Portfolio had a management fee of .19% of average 
net assets, and the J-P Money Market Fund had an annual investment 
advisory and management fee of .50% of average daily net assets.
    6. The primary investment objective of the J-P Money Market Fund is 
maximum current income consistent with liquidity and stability of 
principal. The VIP Money Market Portfolio seek to obtain as high a 
level of current income as is consistent with preserving capital and 
providing liquidity through investment in high-quality U.S. dollar-
denominated money market securities of domestic and foreign issuers.
    7. JP Investment Management Company (``JP Management'') provides 
investment advice and management services to the J-P Money Market Fund. 
JP Management is a registered investment adviser and wholly-owned 
subsidiary of Jefferson-Pilot Corporation and is an affiliate of 
Jefferson-Pilot. JP Management receives an annual investment advisory 
and management fee on an annual basis of .50% of the PJ-P Money Market 
Fund's average daily net assets.
    8. Fidelity Management & Research Company (``Fidelity 
Management''), a registered investment adviser, is the investment 
adviser for the VIP Fund, including the VIP Money Market Portfolio. 
Fidelity Management is a wholly-owned subsidiary of FMR Corporation, 
which is not an affiliate of Jefferson-Pilot.
    Prior to January 1, 1994, Fidelity Management's advisory fee was 
based on the VIP Money Market Portfolio's gross income, as follows: (a) 
Monthly gross income equivalent to an annualized yield of 5% or less 
was subject to an annual fee rate of 4% of the Portfolio's gross 
income; (b) monthly gross income in excess of an annualized yield of 5% 
was subject to an annual rate of 6% of that excess; and (c) the 
management fee was limited to a weighted average of a graduated series 
of annual limitation rates ranging from 0.5% of its average monthly net 
assets up to $1.5 billion to 0.4% of its average monthly net assets in 
excess of $6 billion.
    As of January 1, 1994, Fidelity Management's advisory fee for the 
VIP Money Market Portfolio is comprised of: (a) A basic fee rate, and 
(b) an income-based component. The basic fee rate is the sum of two 
parts: (a) a group fee rate based on the monthly average net assets of 
all funds advised by Fidelity Management, and (b) an individual fund 
fee rate of .03%. The group fee rate ranges from a maximum of .37% to a 
marginal rate of .1325% if total assets in all of the funds advised by 
Fidelity Management rise. One-twelfth of the combined annual fee rate 
is applied to the VIP Money Market Portfolio's net assets averaged over 
the most recent month, giving a dollar amount which is the fee for that 
month. If the VIP Money Market Portfolio's gross yield is 5% or less, 
the basic fee is the total management fee. The income-based component 
is added to the basic fee only when the VIP Money Market Portfolio's 
yield is greater than 5%. The income-based fee is 6% of that portion of 
the VIP Money Market Portfolio's yield that represents a gross yield of 
more than 5% per year. The maximum income-based component is .24%.
    9. Applicants propose to substitute shares of the VIP Money Market 
Portfolio for all outstanding shares of the J-P Money Market Fund 
attributable to the Contracts (``Substitution'') as soon as practicable 
following the issuance of the Commission's order. Applicants state that 
Jefferson-Pilot will supplement the prospectus for the Separate Account 
to reflect the proposed Substitution.
    10. At the close of business on the date of the Substitution, 
Jefferson-Pilot will redeem for cash all shares of the PJ-P Money 
Market Fund it currently holds on behalf of the Separate Account. On 
the business day following the Substitution, Jefferson-Pilot will 
redeem for cash all shares of the J-P Money Market Fund that it 
currently owns, representing its ``seed money'' investment held 
directly in its General Account. The J-P Money Market Fund will process 
a redemption request and, simultaneously, the VIP Money Market 
Portfolio will process a purchase order for the exact amount of the 
redemption proceeds. The redemption request and the purchase order will 
be at prices based on the current net assets values per share next 
computed after receipt thereof and, therefore, in a manner consistent 
with Rule 22c-1 under the 1940 Act. Monies attributable to Contract 
owners currently invested in the J-P Money Market Fund will be fully 
invested at all times. The full net asset value of and number of 
redeemed J-P Money Market Fund shares held by the Separate Account will 
be reflected in the Contract owner's accumulation unit values following 
the Substitution.
    11. All expenses and transaction costs of the Substitution, 
including applicable brokerage commissions, will be assumed by 
Jefferson-Pilot and reflected in the redemption proceeds.
    12. Within five days after the Substitution, Contract owners will 
be sent a written notice of the Substitution (``Notice''), the 
prospectus for the VIP Fund, and the supplement to the prospectus for 
the Separate Account describing the Substitution. The Notice will 
advise Contract owners that for a period of thirty days from the 
mailing of the Notice (``Free Transfer Period''), Contract owners may 
transfer all assets, as substituted, to any other available Subaccount, 
without limitation and without charge. Following the Substitution, 
Contract owners will be afforded the same contract rights, including 
surrender and other transfer rights, with regard to amounts they have 
currently invested under the Contracts. There are no currently 
applicable surrender fees or redemption charges under the Contracts. 
Applicable deferred sales charges, however, will be imposed.

Applicants' Legal Analysis

    1. The Applicants request that the Commission issue an order under 
Section 26(b) of the 1940 Act to the extent necessary to permit the 
substitution of shares of the VIP Money Market Portfolio for the shares 
of the PJ-P Money Market Fund held by Separate Account.\2\ Thereafter, 
the VIP Money Market Portfolio will serve as one of the eligible 
funding vehicles for the Contracts.
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    \2\Applicants state that to the extent that any aspect of the 
Substitution may be deemed to require approval under Section 11 of 
the 1940 Act, they intend to rely on the exemptive provisions of 
Rule 11a-2 under the 1940 Act.
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    2. Section 26(b) of the 1940 Act makes it unlawful for any 
depositor or trustee of a registered unit investment trust holding the 
security of a single issuer ``* * * to substitute another security for 
such security unless the Commission shall have approved such 
substitution. The Commission shall issue an order approving such 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of this title.''
    3. Applicants state that the purposes, terms, and conditions of the 
Substitution are consistent with the principals and purposes of Section 
26(b), do not entail any of the abuses that Section 26(b) is designed 
to prevent, including costly forced redemptions, and are consistent 
with the protection of investors and the purposes fairly intended by 
the 1940 Act. Applicants further state that the Substitution has been 
determined by Jefferson-Pilot to be in the best interests of Contract 
owners for the following reasons.
    4. Applicants state that the objectives, policies and restrictions 
of the J-P Money Market Fund and the VIP Money Market Portfolio are 
substantially similar--both are money market funds that seek to comply 
with Rule 2a-7 under the 1940 Act. Further, given Rule 2a-7 
requirements, the credit quality, maturity and diversification 
requirements applicable to each Fund are identical.
    5. Applicants state that, due to the J-P Money Market Fund's 
relatively insignificant total net assets ($21,116,119 at March 31, 
1994), J-P Management has had greater difficulty making appropriate 
investments than it would have had if that Fund had greater assets. 
Applicants submit that, due to the VIP Money Market Portfolio's larger 
asset size, it is not expected to experience the type of difficulties 
experienced by the J-P Money Market Fund with its smaller asset base in 
adhering to diversification requirements applicable to money market 
funds under Rule 2a-7. Additionally, Fidelity Management, the VIP Money 
Market Portfolio's investment adviser, has specialized in the 
management of mutual funds since 1946 and is a widely recognized expert 
in money management.
    6. Applicants state that the expense ratio of the VIP Money Market 
Portfolio (.27%) is lower than that of the J-P Money Market Fund 
(.65%), which has remained relatively high for this type of fund. 
Further, because a large portion of the J-P Money Market Fund expenses 
is fixed and the size of the Fund is relatively small and unlikely to 
grow significantly, these fixed expenses currently represent, and may 
continue to represent, a relatively large percentage of the Fund's 
average daily net assets. In contrast, the expense ratio of the VIP 
Money Market Portfolio has remained at or near the .27% level for many 
years and is likely to continue to be lower because of the Portfolio's 
larger asset base. Consequently, Applicants assert that, following the 
Substitution, Contract owners will not be exposed to higher expenses 
and should benefit from the VIP Money Market Portfolio's lower expense 
ratio. Additionally, lower expense ratios generally indicate higher 
possible investment returns for Contract owners. For the seven days 
ended May 31, 1994, the yield and effective yield were 3.338% and 
3.43%, respectively, for the J-P Money Market Fund, and 4.09% and 
4.18%, respectively, for the VIP Money Market Portfolio.
    7. Applicants states that the assets of the J-P Money Market Fund 
on March 31, 1994 were $21,116,119, and that the Fund has not exceeded 
a $25 million asset level during the past ten years ended March 31, 
1994, a level that the Fund is not expected to exceed in the future. In 
comparison, the VIP Money Market Portfolio's assets at March 31, 1994 
were $572 million and are expected to increase. Further, while shares 
of the VIP Money Market Portfolio are offered to separate accounts of 
insurance companies, whether or not affiliated with Fidelity 
Management, shares of the J-P Money Market Fund are actively marketed 
only to Jefferson-Pilot. Applicants thus submit that the VIP Money 
Market Portfolio is more likely to increase in size than the J-P Money 
Market Fund.
    8. Applicant state that the Contracts reserve Jefferson-Pilot the 
right to replace shares of the J-P Money Market Fund held by the 
Separate Account with shares of another registered investment company, 
such as the VIP Fund, if (i) shares of the J-P Money Market Fund are no 
longer available for investment by the Separate Account, or (ii) in 
Jefferson-Pilot's judgment, subject to Commission approval, further 
investment in the J-P Money Market Fund should become inappropriate. 
Jefferson-Pilot represents that further investment in shares of the J-P 
Money Market Fund is no longer appropriate in view of the purposes of 
the Contracts.
    9. Contract owners will incur no transfer fees in connection with 
the Substitution. Applicants represent that the Substitution will have 
no adverse federal income tax consequences for the Contract owners. 
Additionally, the Substitution will in no way alter the insurance 
benefits to Contract owners or the contractual obligations of 
Jefferson-Pilot. Contract owners will continue to look to Jefferson-
Pilot with regard to their rights under the Contracts.
    10. Applicants consent to the following terms of and conditions to 
the issuance of an order granting an exemption under Section 26(b):\3\

    \3\Counsel for Applicants represents that an amended application 
consenting to the terms and conditions will be filed during the 
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notice period.

    (a) The Substitution is of shares of the J-P Money Market Fund, 
which is a money market fund whose objectives, policies and 
restrictions and substantially similar to those of the VIP Money 
Market Portfolio so as to continue fulfilling Contract owners' 
objectives and risk expectations;
    (b) If a Contract owner requests, during the Free Transfer 
Period, asserts will be reallocated for investment in a Contract 
owner selected Subaccount. The Free Transfer Period is sufficient 
time for Contract owners to reconsider the Substitution;
    (c) The Substitution will, in all cases, be at net asset value 
of the respective shares, without the imposition of any transfer or 
similar charges;
    (d) Jefferson-Pilot will assume all expenses and transaction 
costs, including, among others, legal and accounting fees and any 
brokerage commissions, relating to the Substitution in a manner that 
attributes all transaction costs to Jefferson-Pilot;
    (e) The Substitution in no way will alter the insurance benefits 
to the Contract owners, the contractual obligations of Jefferson-
Pilot;
    (f) The Substitution in no way will alter the tax benefits to 
Contract owners;
    (g) Contract owners may choose to withdraw amounts credited to 
them following the Substitution under conditions that currently 
exist under the Contracts, subject to any applicable deferred sales 
charge; and
    (h) The Substitution is expected to confer certain modest 
economic benefits to Contract owners by virtue of the enhanced asset 
size of the VIP Money Market Portfolio.

Conclusion

    Applicants submit that the exemptive relief requested under Section 
26(b) of the 1940 Act is necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policies and provisions of the 1940 
Act. Accordingly the Applicants request that the Commission grant the 
necessary exemptions and approvals pursuant to Section 26(b) of the 
1940 Act permitting the Substitution.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23992 Filed 9-27-94; 8:45 am]
BILLING CODE 8010-01-M