[Federal Register Volume 62, Number 201 (Friday, October 17, 1997)]
[Notices]
[Pages 54139-54143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27545]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22848; File No. 812-10732]
Alexander Hamilton Life Insurance Company of America, et al.
October 9, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application for exemption pursuant to Section 26(b)
of the Investment Company Act of 1940 (the ``1940 Act'') approving a
proposed substitution of securities and pursuant to Section 17(b) of
the 1940 Act granting
[[Page 54140]]
exemptions from the provisions of Section 17(a)(1) and 17(a)(2) of the
1940 Act.
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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section
26(b) of the 1940 Act approving the substitution of shares of certain
registered management investment companies (``Substituted Funds'') for
shares of certain other registered management investment companies
currently serving as underlying investment options for variable annuity
contracts and variable life insurance policies (``Replaced Funds'').
Applicants also seek an order, pursuant to Sections 6(c) and 17(b) of
the 1940 Act, granting exemptions from Section 17(a) to permit
Applicants to carry out certain of the substitutions wholly or partly
in-kind.
Applicants: Alexander Hamilton Life Insurance Company of America
(``AH Life''), Alexander Hamilton Variable Annuity Separate Account
(``AH Separate Account'') (together, the ``AH Applicants''), Chubb Life
Insurance Company of America (``Chubb Life''), Chubb Separate Account A
(``Chubb Separate Account'') (together, the ``Chubb Applicants''),
Jefferson-Pilot Life Insurance Company (``JP Life'') and Jefferson-
Pilot Separate Account A (``JP Separate Account'') (together, the ``JP
Applicants'') (hereinafter referred to collectively as the
``Applicants,'' ``Life Company Applicants,'' and ``Separate Account
Applicants'' as appropriate).
Filing Date: The application was filed on July 22, 1997, and
amended on October 1, 1997.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing on this application by writing
to the Secretary of the SEC and serving Applicants with a copy of the
request, in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on November 3, 1997, and accompanied by proof
of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the interest, the reason for the request and issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, Shari J. Lease, Esq., Chubb Life Insurance Company of
America, One Granite Place, Concord, New Hampshire 03301.
FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or
Mark C. Amorosi, Branch Chief, Office of Insurance Products, Division
of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference of the SEC, 450 Fifth Street, NW., Washington, DC 20549 (tel.
(202) 942-8090).
Applicants' Representations
1. The Life Company Applicants are affiliated stock life insurance
companies wholly owned by Jefferson Pilot Corporation. Jefferson-Pilot
Corporation acquired AH Life on October 6, 1995, with an effective date
of September 30, 1995. The purchase of Chubb Life was closed on May 13,
1997, with an effective date of April 30, 1997.
2. AH Life, a stock life insurance company organized under the
insurance laws of Michigan, is engaged primarily in the sale of annuity
contracts and life insurance policies. AH Life is the sponsor and
depositor of the AH Separate Account.
3. Chubb Life, a stock life insurance company chartered under the
laws of Tennessee and redomesticated to New Hampshire on July 1, 1991,
is authorized to write life insurance business in Puerto Rico, the U.S.
Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands,
the District of Columbia, and all states of the United States except
New York. Chubb Life is the sponsor and depositor of the Chubb Separate
Account.
4. JP Life, a stock life insurance company organized under the
insurance laws of North Carolina, is primarily engaged in the writing
of whole life, term, endowment, and annuity policies on an individual
ordinary basis, plus industrial and group insurance. JP Life is the
sponsor and depositor of the JP Separate Account.
5. The Separate Account Applicants are segregated asset accounts
registered under the 1940 Act as unit investment trusts. The AH
Separate Account is used to fund certain variable annuity contracts
issued by AH Life and is divided into eight sub-accounts, seven of
which invest in corresponding series (each a ``Fund'') of the Alexander
Hamilton Variable Insurance Trust (the ``Trust'') with the remaining
sub-account investing in the Federated Prime Money Fund II of the
Federated Insurance Series (``Federated Prime Money Fund II''). Chubb
Separate Account is used to fund certain variable life insurance
policies issued by Chubb Life and is divided into 13 sub-accounts, nine
of which invest in corresponding series (each a ``Portfolio'') of the
Chubb America Fund, Inc. (``CAF'') with the remaining sub-accounts
investing in the Templeton International Fund of Templeton Variable
Products Series Fund, the High Income Portfolio of Variable Insurance
Products Fund (``Fidelity VIP''), the Contrafund Portfolio and the
Index 500 Portfolio of Variable Insurance Products Fund II (``Fidelity
VIPII''). JP Separate Account is used to fund certain variable annuity
contracts issued by JP Life, and is divided into 16 sub-accounts, two
of which invest in shares of the Trust, two of which invest in shares
of Oppenheimer Variable Account Funds, eight of which invest in shares
of Fidelity VIP and Fidelity VIPII, two of which invest in shares of
The Alger American Fund, and two of which invest in shares of the MFS
Variable Insurance Trust.
6. The Trust is an open-end management investment company,
organized as a Massachusetts business trust. The Trust consists of
seven Funds, each of which operates as a separate investment fund, that
have differing investment objectives, policies, and sub-advisers.
Shares of the Funds are currently available to the public only through
the purchase of certain variable annuity contracts issued by AH Life
and JP Life and to retirement plans qualified under the Internal
Revenue Code of 1986, as amended (``qualified retirement plans'').
Alexander Hamilton Capital Management, Inc. acts as the Trust's
investment adviser and has retained other unaffiliated investment
advisers to act as sub-advisers who provide the day-to-day portfolio
management for each Fund.
7. CAF is an open-end, diversified management investment company
incorporated in Maryland. Shares of CAF's Portfolios are available for
purchase only by the divisions of Chubb Life's separate accounts and
qualified retirement plans. Chubb Investment Advisory Corporation
(``CIAC'') acts as CAF's investment manager and has retained other
investment advisers to act as sub-advisers in providing the day-to-day
portfolio management of each portfolio of CAF. CAF consists of nine
Portfolios, each of which is a separate investment portfolio, that have
differing investment objectives.
8. The Oppenheimer Bond Fund is one series of Oppenheimer Variable
Account Funds which is organized as a Massachusetts business trust.
Oppenheimer Variable Account Funds is a diversified open-end investment
company consisting of nine separate funds. Shares of Oppenheimer
Variable Account Funds are offered for purchase by insurance company
separate
[[Page 54141]]
accounts as the investment medium for variable life insurance policies
and variable annuity contracts. Oppenheimer Funds, Inc. acts as
investment adviser for the Oppenheimer Bond Fund.
9. The Federated Prime Money Fund II is an investment portfolio of
Federated Insurance Series, an open-end management investment company,
which is organized as a Massachusetts business trust. Federated
Advisers acts as investment adviser for Federated Prime Money Fund II.
10. Jefferson-Pilot Corporation, the parent company of the Life
Company Applicants, and the Life Company Applicants have determined to
maintain only one proprietary mutual fund as an underlying investment
option for the variable annuity contracts (``Contracts'') and variable
life insurance policies (``Policies'') issued by the Applicants as well
as other variable life insurance policies and variable annuity
contracts which the Applicants may offer in the future. Applicants
state that it has been determined that CAF should be the surviving
proprietary investment option. Applicants, therefore, are proposing the
substitutions described in the application and summarized below (the
``Substitutions''). After the Substitutions have been effected, the
Trust will be de-registered and will cease operations. Applicants will
continue to offer certain unaffiliated funds as investment options.
11. Applicants state that CAF has been in existence since 1984 and
as of March 31, 1997 had total net assets of $362.7 million. CIAC does
not waive or assume any of the expenses of CAF. In contrast, the Trust
has been in existence since 1994 and did not commence operations until
February 1996. As of March 31, 1997, the Trust had net assets of $37.3
million. As a result of the Trust's small size, the Trust's investment
adviser has voluntarily waived or assumed expenses for all of the
Trust's Funds. Moreover, the Trust's Funds have not generated
substantial interest among purchasers of the Contracts. The Life
Company Applicants believe that the CAF Portfolios are generally more
responsive to the preferences of purchasers of the Contracts, while
offering a larger fund with similar investment objectives, providing a
potential for economies of scale.
12. Applicants note that the one exception to substituting the CAF
Portfolios relates to the CAF Bond Portfolio. Given the sale of Chubb
Life to Jefferson-Pilot Corporation, the former owner of Chubb Life and
Jefferson-Pilot Corporation have determined that Chubb Asset Managers,
Inc. will no longer be available to act as sub-adviser for the CAF Bond
Portfolio. It has been determined that the Oppenheimer Bond Fund
provides a better investment alternative than continuation of the CAF
Bond Portfolio with a new adviser.
13. In addition, the substitution involving the unaffiliated mutual
fund, Federated Prime Money Fund II, is being proposed. The actual
expense ratio of the CAF Money Market Portfolio is lower than that of
the Federated Prime Money Fund II, and its performance is slightly
better since inception.
The Proposed Transactions
1. The AH Applicants propose that AH Life substitute: (1) Shares of
the Money Market Portfolio of CAF for shares of the Federated Prime
Money Fund II; (2) shares of the Balanced Portfolio of CAF for shares
of the Balanced Fund of the Trust; (3) shares of the Growth and Income
Portfolio of CAF for shares of the Growth & Income Fund of the Trust;
(4) shares of the Capital Growth Portfolio of CAF for shares of the
Growth Fund of the Trust; (5) shares of the Emerging Growth Portfolio
of CAF for shares of the Emerging Growth Fund for the Trust; (6) shares
of the World Growth Stock Portfolio of CAF for shares of the
International Equity Fund of the Trust; (7) shares of the Oppenheimer
Bond Fund for shares of the Investment Grade Bond Fund of the Trust;
and (8) shares of the Oppenheimer Bond Fund for shares of the High
Yield Bond Fund of the Trust.
2. The Chubb Applicants propose that Chubb Life substitute shares
of the Oppenheimer Bond Fund for shares of the Bond Portfolio of CAF.
3. The JP Applicants propose that JP Life substitute: (1) Shares of
the Capital Growth Portfolio of CAF for shares of the Growth Fund of
the Trust; and (2) shares of the Emerging Growth Portfolio of CAF for
shares of the Emerging Growth Fund of the Trust.
4. Applicants state that each of the Life Company Applicants will
redeem for cash or kind of the shares of each Replaced Fund that it
currently holds on behalf of its applicable Separate Account Applicant
at the close of business on the date selected for the Substitutions. It
is anticipated that the redemptions of the Federated Prime Money Fund
II, the Trust Investment Grade Bond Fund, the Trust High Yield Bond
Fund and the CAF Bond Fund will be redeemed all for cash. The Trust
Investment Grade Bond Fund, the Trust High Yield Fund, and the CAF Bond
Fund will be replaced by the Oppenheimer Bond Fund. With regard to all
other Replaced Funds, it is anticipated that redemptions will be partly
or wholly in-kind, and thus purchases of the applicable Substituted
Funds will be paid for partly or wholly with portfolio securities.
Thus, the Replaced Funds whose shares will be redeemed wholly or partly
in-kind are the Trust's Balanced, Growth and Income, Growth, Emerging
Growth and International Equity Funds.
5. The Life Company Applicants, each on behalf of its applicable
Separate Account Applicant, will simultaneously place a redemption
request with each applicable Replaced Fund and a purchase order with
each applicable Substituted Fund so that each purchase will be for the
exact amount of the redemption proceeds. As a result, at all times,
monies attributable to contract owners and policy owners (``Owners'')
then invested in the Replaced Funds will remain fully invested and will
result in no change in the amount of any Owner's contract or policy
value, death benefit or investment in the applicable Separate Account
Applicant.
6. The Trust will effect the redemptions-in-kind and the transfers
of portfolio securities in a manner that is consistent with the
investment objectives, policies and restrictions, and federal tax law
and 1940 Act diversification requirements applicable to the Substituted
Fund. AH Life and JP Life each will take appropriate steps to assure
that the portfolio securities selected for redemptions-in-kind are
suitable investments for the Substituted Funds.
7. Applicants state that the Life Company Applicants have
undertaken to assume all transaction costs and expenses relating to the
Substitutions, including any direct or indirect costs of liquidating
the assets of the Replaced Funds so that the full net asset value of
redeemed shares of the Replaced funds held by the each Separate Account
Applicant will be reflected in the Owners' Policy values' accumulation
unit or annuity unit values following the Substitutions.
8. As part of the Substitutions, AH Life will combine the sub-
accounts invested in the Trust's Investment Grade Bond Fund and the
Trust's High Yield Bond Fund and designate the continuing sub-account
as the Oppenheimer Bond Fund Sub-account.
9. Each of the Life Company Applicants will supplement the
prospectus for the applicable Separate Account Applicant to reflect the
proposed Substitutions. Within five days after the Substitutions, the
[[Page 54142]]
Applicants will send to their respective Owners written notice of the
Substitutions (the ``Notice'') identifying the shares of the Replaced
Funds which have been eliminated and the shares of the Substituted
Funds which have been substituted. Applicants will include in such
mailing the prospectuses for the Substituted Funds and the applicable
revised prospectus or supplement for the Contracts and Policies of the
Separate Account Applicants describing the Substitutions. Owners will
be advised in the Notice that for a period of 31 days from the date of
the Notice, Owners may transfer all assets, as substituted, to any
other available sub-account, without limitation, without charge and
without any such transfer counting as one of the limited number of
transfers permitted in a contract or policy year free of charge (``Free
Transfer Period'').
10. Following the Substitution, Owners will be afforded the same
contract rights, including surrender and other transfer rights with
regard to amounts invested under the Contracts and Policies, as they
currently have.
Applicants' Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides, in pertinent part, that
``[i]t shall be unlawful for any depositor or trustee of a registered
unit investment trust holding the security of a single issuer to
substitute another security unless the Commission shall have approved
such substitution.'' The purpose of Section 26(b) is to protect the
expectation of investors in a unit investment trust that the unit
investment trust will accumulate the shares of a particular issuer, and
to prevent scrutinized substitutions which might, in effect, force
shareholders dissatisfied with the substituted security to redeem their
shares, thereby possibly incurring either a loss of the sales load
deducted from initial purchase payments, an additional sales load upon
reinvestment of the redemption proceeds, or both.
2. Applicants represent that the purposes, terms and conditions of
the Substitutions are consistent with the principles and purposes of
Section 26(b) and do not entail any of the abuses Section 26(b) was
designed to prevent. Applicants submit that the Substitutions involving
the Trust are appropriate solutions to the insufficient size of the
Trust which makes it difficult to achieve consistent investment
performance and reduce operating expenses. Given the longer operating
history of CAF and attendant investment performance, as well as its
much larger asset size and resultant lack of fee waivers or assumption
of expenses, Applicants maintain that it is in the best interest of the
Owners to have CAF act as an underlying investment option for the
variable products as opposed to the Trust. With regard to the CAF Bond
Portfolio, the Chubb Applicants represent that the unavailability of
the current sub-adviser as a result of the sale of Chubb Life to
Jefferson-Pilot Corporation supports the selection of the Oppenheimer
Bond Fund as an alternative investment.
3. Applicants represent that the Substitution will not result in
the type of costly forced redemption that Section 26(b) was designed to
guard against and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act for the following reasons:
(a) The Replaced Funds have objectives, policies and restrictions
sufficiently similar to the objectives of the Substituted Funds so as
to continue to fulfill the Owners' objectives and risk expectations;
(b) after receipt of the Notice informing an Owner of the
Substitutions, an Owner may request that assets be reallocated to
another sub-account or division selected by the Owner, and the Free
Transfer Period provides sufficient time for Owners to consider their
reinvestment options; (c) the Substitutions, in all cases, will take
place at the net asset value of the respective shares, without the
imposition of any transfer or similar charge; (d) the Life Company
Applicants have undertaken to assume the expenses and transaction
costs, including, but not limited to, legal and accounting fees and any
brokerage commissions relating to the Substitution and are effecting
the redemption of shares in a manner that attributes all transaction
costs to the Life Company Applicants; (e) the Substitutions in no way
will alter the insurance benefits to Owners or the contractual
obligations of the Life Company Applicants; (f) the Substitutions in no
way will alter the tax benefits to Owners; and (g) the Substitutions
are expected to confer certain economic benefits on Owners by virtue of
the enhanced asset size and lower expenses of the Substituted Funds, as
described in the application.
4. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
of a registered investment company. Section 17(a)(2) of the 1940 Act
prohibits any affiliated person of a registered investment company, or
an affiliated person of such affiliated person, from selling any
security or other property to such registered investment company, or an
affiliated person of an affiliated person, from purchasing any security
or other property from such registered investment company.
5. Applicants state that certain of the Substitutions will be
effected, partly or wholly, through redemptions and purchases in-kind
and may be deemed to entail the indirect purchase of shares of the
related Substituted Funds with portfolio securities of the Replaced
Funds, and the indirect sale of securities of the Replaced Funds for
shares of the Substituted Funds, and thus may entail each such Fund in
the purchase and sale of such securities, acting as principal, to the
other Fund in contravention of Section 17(a).
6. Moreover, immediately following the Substitutions, AH Life will
combine the sub-accounts invested in the Trust's Investment Grade Bond
and High Yield Bond Funds and designate the continuing sub-account as
the Oppenheimer Bond Fund Sub-Account. AH Life could be said to be
transferring unit values between its sub-accounts. The transfer of unit
values could be said to involve purchase and sale transactions between
sub-accounts that are affiliated persons. The sale and purchase
transactions between sub-accounts could be said to come within the
scope of Sections 17(a)(1) and 17(a)(2) of the 1940 Act, respectively.
7. Section 17(b) of the 1940 Act provides that the Commission may,
upon application, grant an order exempting any transaction from the
prohibitions of Section 17(a) if the evidence establishes that: (a) The
terms of the proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned; (b) the proposed
transaction is consistent with the policy of each registered investment
company concerned, as recited in its registration statement and reports
filed under the 1940 Act; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
8. Applicants represent that the terms of the proposed
transactions: (a) Are reasonable and fair, including the consideration
to be paid and received, and do not involve overreaching; (b) are
consistent with the investment policies of the Replaced Funds of the
Trust; and (c) are consistent with the general purposes of the 1940
Act. Applicants state that the transactions effecting the Substitutions
will be effected in conformity with Section 22(c) of the 1940 Act and
Rule 22c-1 thereunder. Moreover, Applicants state that, in effecting
the redemptions in-kind and transfers, the Trust will comply with the
requirements of Rule 17a-7 under the 1940 Act to the extent possible
and the
[[Page 54143]]
procedures established thereunder by the Board of Trustees of the
Trust. Applicants submit that Owner interests after the Substitution,
in practical economic terms, will not differ in any measurable way from
such interests immediately prior to the Substitution. In each case,
Applicants assert that the consideration to be received and paid is,
therefore, reasonable and fair.
9. Applicants assert that the investment objectives of each of the
Substituted Funds are sufficiently similar to the investment objectives
of the Replaced Funds. In this regard, the Substitutions are consistent
with Commission precedent pursuant to Section 17 of the 1940 Act.
Applicants also assert that the Substitutions are consistent with the
general purposes of the 1940 Act, as enunciated in the Findings and
Declaration of Policy in Section 1 of the 1940 Act. The proposed
transactions do not present any of the issues or abuses that the 1940
Act is designed to prevent.
10. Section 6(c) of the 1940 Act provides that the Commission may
grant an order exempting persons and transactions from any provision or
provisions of the 1940 Act as may be necessary or 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. Applicants submit that the proposed transactions will be effected
in a manner consistent with the public interest and the protection of
investors, as required by Section 6(c) of the 1940 Act. Owners will be
fully informed of the terms of Substitutions through the prospectus
supplements and the Notice, and will have an opportunity to reallocate
investments prior to and following the Substitutions.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the Substitutions and related transactions
involving in-kind redemptions and the combination of certain separate
account sub-accounts should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27545 Filed 10-16-97; 8:45 am]
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