[Federal Register Volume 63, Number 113 (Friday, June 12, 1998)]
[Notices]
[Pages 32266-32268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15631]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Release No. 23242; 812-10814]


Jefferson Pilot Variable Fund, Inc. and Jefferson Pilot 
Investment Advisory Corporation; Notice of Application

June 5, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 15(a) 
of the Act and rule 18f-2 under the Act, and from certain disclosure 
requirements under the Act.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order that would permit 
applicants to hire subadvisers and materially amend subadvisory 
agreements without shareholder approval, and would grant relief from 
certain disclosure requirements regarding advisory fees paid to 
subadvisers.

APPLICANTS: Jefferson Pilot Variable Fund, Inc. (``Fund'') (formerly 
Chubb America Fund, Inc.) and Jefferson-Pilot Investment Advisory 
Corporation (``Manager'') (formerly Chubb Investment Advisory 
Corporation).

FILING DATES: The application was filed on October 9, 1997, and amended 
on May 29, 1998. Applicants have agreed to file an additional 
amendment, the substance of which is incorporated in this notice, 
during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 30, 1998, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, One Granite Place, Concord, N.H. 03301.

FOR FURTHER INFORMATION CONTACT: Annmarie J. Zell, Staff Attorney, at 
(202) 942-0532 or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Fund is a Maryland corporation registered under the Act as 
an open-end management investment company. The Fund is composed of 
eleven separately managed portfolios (``Portfolios''), each of which 
has its own investment objective, policies and restrictions.\1\ The 
Portfolios serve as funding vehicles for variable annuity contracts 
(``Contracts'') and variable life insurance policies (``Policies'') 
offered through separate accounts (``Separate Accounts'') of Jefferson 
Pilot Financial Insurance Company, Jefferson Pilot LifeAmerica 
Insurance Company, Alexander Hamilton Life Insurance and Jefferson-
Pilot Life Insurance Company. Owners of the Contracts and Policies 
(``Owners'') will be able to select sub-accounts of the Separate 
Accounts that invest in the Portfolios to fund the Contracts and 
Policies. Shares of the Portfolios will not be sold directly to the 
public, but may be sold to qualified pension plans under the Internal 
Revenue Code of 1986, as amended.
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to future 
Portfolios of the Fund.
---------------------------------------------------------------------------

    2. The Manager, a wholly-owned subsidiary of Jefferson-Pilot 
Corporation, is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act''). The Manager serves 
as investment adviser to the Fund pursuant to an investment advisory 
agreement (``Management Agreement'') and is paid a fee for its services 
based on the value of the average daily net assets of each Portfolio.
    3. Pursuant to the Management Agreement and subject to the 
supervision of the board of directors of the Fund (``Board''), the 
Manager (i) selects and contracts at its own expense with investment 
advisers registered under the Advisers Act (``Advisers'') to manage the 
purchase, retention, and disposition of the investments,

[[Page 32267]]

securities and cash of each Portfolio; (ii) supervises and monitors the 
performance of the Advisers, including their termination and 
replacement; and (iii) allocates a Portfolio's assets between and among 
its Advisers, where more than one Adviser will perform investment 
management services for a particular Portfolio. The Manager also 
provides the Portfolios with overall administrative services, generally 
monitors the Fund's compliance with federal and state statutes, 
supervises the Fund's relationship with other service providers, 
carries out the directives of the Board, and provides necessary office 
space, equipment, and personnel.
    4. The Advisers serve as subadvisers to the Portfolios pursuant to 
separate subadvisory agreements with the Manager (``Advisory 
Agreements''). Subject to the general supervision and direction of the 
Manager, each Adviser furnishes a continuous investment program for the 
Portfolio it advises (or the portion for which it provides investment 
advice), makes investment decisions for the Portfolio, and places all 
orders to purchase and sell securities on behalf of the Portfolio. The 
Manager pays each Adviser out of the management fees received from each 
of the Portfolios. Currently, each Portfolio is advised by a single 
Adviser but, in the future, the Portfolios may be advised by two or 
more Advisers.
    5. Applicants request an exemption from section 15(a) of the Act 
and rule 18f-2 under the Act to permit the Manager to enter into and 
make material changes to Advisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to an 
Adviser that is an ``affiliated person,'' of either the Fund or the 
Manager, as defined in section 2(a)(3) of the Act, other than by reason 
of serving as an Adviser to one or more of the Portfolios (``Affiliated 
Adviser''). Applicants also request an exemption to permit the 
Portfolios to disclose (both as a dollar amount and as a percentage of 
a Portfolio's net assets): (a) aggregate fees paid to the Manager; and 
(b) aggregate fees paid to Advisers other than Affiliated Advisers 
(``Aggregate Fee Disclosure''). Aggregate Fee Disclosure also will 
include separate disclosure of any advisory fees paid to any Affiliated 
Adviser.

Applicants' Legal Analysis

Shareholder Voting

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
under the Act provides that each series or class of stock in a series 
company affected by a matter must approve the matter if the Act 
requires shareholder approval.
    2. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that the exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants request relief under section 6(c) from section 15(a) of the 
Act and rule 18f-2 under the Act.
    3. Applicants submit that by purchasing a Contract or Policy an 
Owner is indirectly hiring the Manager to manage the assets of the 
Portfolios by using external portfolio managers, rather than the 
Manager's own personnel. Applicants point out that the Fund's 
prospectus, on which prospective Owners rely in making their sub-
account investment decisions, specifies that the Manager is principally 
responsible for selecting, evaluating, and terminating Advisers, and 
that the Manager is compensated for this service. Applicants believe 
that requiring Owner approval of every change of Advisers or change in 
an Advisory Agreement, would frustrate Owners' expectation that the 
Manager is to perform these duties.
    4. Applicants state that relief is appropriate in the public 
interest because it would allow the Manager to more efficiently perform 
its principal functions of selecting, monitoring, and making changes in 
the role of Advisers by permitting the Manager to promptly replace an 
Adviser that is not performing its duties adequately. Applicants also 
submit that the relief is consistent with the protection of investors 
because it permits the Fund to avoid the administrative burden and 
expenses associated with a formal proxy solicitation, while providing 
adequate disclosure to investors. Applicants note that the Fund's 
prospectus will disclose information concerning the identity, 
ownership, and qualifications of the Advisers in full compliance with 
Form N-1A (except with respect to the Aggregate Fee Disclosure) and if 
a new Adviser is retained, the Manager will furnish Owners, within 60 
days, all the information that would have been provided in a proxy 
statement (except with respect to Aggregate Fee Disclosure).
    5. Applicants believe that the requested relief will continue to 
provide protection for prospective Owners because (i) a Portfolio will 
not rely on the requested order unless the operation of the Portfolio 
in the manner described in the application is approved by a majority of 
its outstanding voting securities and disclosed in the Fund's 
prospectus; (ii) the Manager and its selection of Advisers is subject 
to oversight by the Board; and (iii) the Management Agreement will 
remain fully subject to the requirements of section 15(a) and rule 18f-
2 under the Act.

Fee Disclosure

    6. Items 2, 5(b) (iii), and 16(a)(iii) of Form N-1A (and after the 
effective date of the amendments to Form N-1A, items 3, 6(a)(1)(ii), 
and 15(a)(3)), the registration statement used by open-end investment 
companies, require disclosure of the method and amount of the 
investment adviser's compensation.
    7. Item 3 of Form N-14, the registration form for business 
combinations involving open-end investment companies, requires the 
inclusion of a ``table showing the current fees for the registrant and 
the company being acquired and pro forma fees, if different, for the 
registrant after giving effect of the transaction.''
    8. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``Exchange Act''). Item 22(a)(3)(iv) 
of Schedule 14A requires a proxy statement for a shareholder meeting at 
which a new fee will be established or an existing fee increased to 
include a table of the current and pro forma fees. Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8), and 22(c)(9), taken together, require a proxy 
statement for a shareholder meeting at which the advisory contract will 
be voted upon to include the ``rate of compensation of the investment 
adviser,'' the ``aggregate amount of the investment adviser's fees,'' a 
description of ``the terms of the contract to be acted upon,'' and, if 
a change in the advisory fee is proposed, the existing and proposed 
fees and the difference between the two fees.
    9. Form N-SAR is the semi-annual report filed with the SEC by 
registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
investment advisers.
    10. Regulation S-X specifies the requirements for financial 
statements required to be included as part of the investment company 
registration statements and shareholder reports filed with SEC. 
Sections 6-07(2)(a), (b) and

[[Page 32268]]

(c) of Regulation S-X require that investment companies include in 
their financial statements certain information about investment 
advisory fees.
    11. Applicants request relief from the above disclosure 
requirements under section 6(c). Applicants argue that, with the 
information provided in the Aggregate Fee Disclosure, Owners will have 
adequate information to compare the management and advisory fees of the 
Portfolios with those of other funds. Applicants believe that, while 
the amount of the total fees retained by the Manager is relevant to the 
Owners' determination of the value of the Manager's services, the 
specific portion of the total fee paid to an individual adviser 
provides no useful information since the Owner has engaged the Manager 
to select, monitor, and compensate the Advisers. Applicants also 
believe that because most investment advisers price their services 
based on ``posted'' fee rates, the Manager, without the requested 
relief, may only be able to obtain a specific Adviser's services by 
paying higher fee rates than if would otherwise be able to negotiate if 
the rates paid were not disclosed publicly.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Before a Portfolio may rely on the requested order, the 
operation of the Portfolio as described in the application will be 
approved by a majority of its outstanding voting securities, as defined 
in the Act, pursuant to voting instructions provided by Owners with 
assets allocated to any sub-account of a registered Separate Account 
for which a Portfolio serves as a funding medium or, in the case of a 
new Portfolio whose shareholders (i.e., Separate Accounts) purchased 
shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering shares of that Portfolio to prospective Owners through 
a Separate Account.
    2. The Fund will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, the Fund will hold itself out to the public as employing 
the management structure described in the application. The prospectus 
relating to the Fund will prominently disclosure that the Manager has 
ultimate responsibility to oversee Advisers and recommend their hiring, 
termination, and replacement.
    3. Within 60 days of the hiring of any new Adviser, Owners with 
assets allocated to any sub-account of any registered Separate Account 
for which a Portfolio serves as a funding medium will be furnished all 
information about a new Adviser or Advisory Agreement that would be 
included in a proxy statement, except as modified by the order to 
permit Aggregate Fee Disclosure. This information will include 
Aggregate Fee Disclosure and any change in such disclosure caused by 
the addition of a new Adviser. The Manager will meet this condition by 
providing these Owners with an information statement meeting the 
requirements of Regulation 14C and Schedule 14C under the Exchange Act 
and item 22 of Schedule 14A under the Exchange Act.
    4. The Manager will not enter into an Advisory Agreement with any 
Affiliated Adviser without that Advisory Agreement, including the 
compensation to be paid under that agreement, being approved by the 
Owners with assets allocated to any sub-account of a Separate Account 
for which the applicable Portfolio serves as a funding medium.
    5. At all times, a majority of the Board will not be ``interested 
persons'' of the Fund as defined in section 2(a)(19) of the Act 
(``Independent Directors''), and the nomination of new or additional 
Independent Directors will continue to be at the discretion of the then 
existing Independent Directors.
    6. When an Adviser change is proposed for a Portfolio with an 
Affiliated Adviser, the Board, including a majority of the Independent 
Directors, will make a separate finding, reflected in the Board's 
minutes, that the change is in the best interests of the Portfolio and 
Owners with assets allocated to any sub-account of a separate account 
for which a Portfolio serves as a funding medium and does not involve a 
conflict of interest from which the Manager or the Affiliated Adviser 
derives an inappropriate advantage.
    7. Independent counsel knowledgeable about the Act and the duties 
of Independent Directors will be engaged to represent the Independent 
Directors of the Fund. The selection of such counsel will be within the 
discretion of the Independent Directors.
    8. The Manager will provide the Board, no less frequently than 
quarterly, with information about the Manager's profitability on a per-
Portfolio basis. This information will reflect the impact on 
profitability of the hiring or termination of any Adviser during the 
applicable quarter.
    9. Whenever an Adviser is hired or terminated, the Manager will 
provide the Board information showing the expected impact on the 
Manager's profitability.
    10. The Manager will provide general management services to the 
Fund and its Portfolios, including overall supervisory responsibility 
for the general management and investment of each Portfolio's 
securities portfolio, and, subject to review and approval by the Board, 
will: (i) set each Portfolio's overall investment strategies; (ii) 
select Advisers; (iii) allocate and, when appropriate, reallocate a 
Portfolio's assets among multiple Advisers; (iv) monitor and evaluate 
the performance of Advisers; and (v) implement procedures reasonably 
designed to ensure that the Advisers comply with the Portfolio's 
investment objective, policies, and restrictions.
    11. No director or officer of the Fund or director or officer of 
the Manager will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by that director or 
officer) any interest in an Adviser, except for: (i) ownership of 
interests in the Manager or any entity that controls, is controlled by, 
or is under common control with the Manager; or (ii) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either an Adviser or an entity that 
controls, is controlled by, or is under common control with an Adviser.
    12. The Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15631 Filed 6-11-98; 8:45 am]
BILLING CODE 8010-01-M