[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