[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

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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

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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

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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

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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]
BILLING CODE 8010-01-M