[Federal Register Volume 75, Number 133 (Tuesday, July 13, 2010)]
[Notices]
[Pages 39994-40000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16987]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29338; File No. 812-13686]
AXA Equitable Life Insurance Company, et al.; Notice of
Application
July 7, 2010.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(c) of
the Investment Company Act of 1940 (``1940 Act'' or ``Act''), approving
certain substitutions of securities and for an order of exemption
pursuant to Section 17(b) of the Act.
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APPLICANTS: AXA Equitable Life Insurance Company (``AXA Equitable''),
Separate Account 45 of AXA Equitable (``Separate Account 45''),
Separate Account 49 of AXA Equitable (``Separate Account 49''),
Separate Account A of AXA Equitable (``Separate Account A''), Separate
Account FP of AXA Equitable (``Separate Account FP'') (together, ``AXA
Equitable Separate Accounts''), MONY Life Insurance Company of America
(``MLOA'') and MONY America Variable Account L (``MLOA Separate Account
L'') (collectively, the ``Section 26 Applicants''), Separate Account 65
of AXA Equitable (``Separate Account 65''), and the AXA Premier VIP
Trust (the ``Trust'') (Separate Account 65 and the Trust, together with
the Section 26 Applicants, the ``Section 17 Applicants'' or
``Applicants'').
SUMMARY OF APPLICATION: The Section 26 Applicants request an order
pursuant to Section 26(c) of the 1940 Act, approving the proposed
substitution of securities of the Multimanager Aggressive Equity
Portfolio (the ``Replacement Portfolio'') for securities of the
Multimanager Large Cap Growth Portfolio (the ``Removed Portfolio'')
(the ``Substitution''). Each of these portfolios currently serves as an
underlying investment option for certain variable annuity contracts
issued by AXA Equitable (``Annuity Contracts'') and/or variable life
insurance policies issued by AXA Equitable and MLOA (``Life Insurance
Contracts'') (collectively, the ``Contracts''), as more fully described
below.\1\ The Section 17 Applicants also request an order pursuant to
Section 17(b) of the 1940 Act exempting them
[[Page 39995]]
from Section 17(a) of the 1940 Act to the extent necessary to permit
in-kind redemptions of securities issued by the Removed Portfolio and
purchases of securities issued by the Replacement Portfolio (the ``In-
Kind Transactions'') in connection with the Substitution.
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\1\ AXA Equitable and MLOA are sometimes referred to herein
collectively as the ``Insurance Companies'' and individually as an
``Insurance Company.'' MLOA Separate Account L and the AXA Equitable
Separate Accounts are sometimes referred to herein collectively as
the ``Separate Accounts'' and individually as a ``Separate
Account.''
FILING DATE: The application was filed on August 27, 2009, and amended
on December 18, 2009, March 29, 2010, and June 10, 2010. Applicants
have agreed to file an amendment during the notice period, the
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substance of which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on July 28, 2010, 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 requester'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 Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, c/o AXA Equitable Life
Insurance Company, 1290 Avenue of the Americas, New York, NY 10104,
Attn: Steven M. Joenk, Senior Vice President.
FOR FURTHER INFORMATION CONTACT: Sonny Oh, Staff Attorney, or Harry
Eisenstein, Branch Chief, Office of Insurance Products, Division of
Investment Management at (202) 551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. AXA Equitable is a New York stock life insurance company
authorized to sell life insurance and annuities in 50 states, the
District of Columbia, Puerto Rico and the Virgin Islands. AXA Equitable
is an investment adviser registered under the Investment Advisers Act
of 1940, as amended, and is a wholly owned subsidiary of AXA Financial,
Inc. (``AXA Financial''). AXA Financial is an indirect, wholly owned
subsidiary of AXA, which is a publicly traded French holding company.
2. MLOA is an Arizona stock life insurance company licensed to sell
life insurance and annuities in 49 states (not including New York), the
District of Columbia, Puerto Rico, and the U.S. Virgin Islands. AXA
Financial is the parent company of MLOA.
3. AXA Equitable serves as depositor for Separate Account 45,
Separate Account 49 and Separate Account A, which fund certain
Contracts, and for Separate Account FP, which funds certain Life
Insurance Contracts. AXA Equitable also serves as depositor for
Separate Account 65, which funds group pension and profit-sharing plans
under group Annuity Contracts issued by AXA Equitable (Separate Account
65 is also an ``AXA Equitable Separate Account'' and may be referred to
herein as a ``Separate Account'' and collectively with MLOA Separate
Account L and the AXA Equitable Separate Accounts, the ``Separate
Accounts'').
4. Each AXA Equitable Separate Account is a segregated asset
account of AXA Equitable and, except for Separate Account 65, is
registered with the Commission as a unit investment trust under the
1940 Act. Separate Account 65 is excluded from registration under the
1940 Act pursuant to Section 3(c)(11) of the 1940 Act. Units of
interest in the AXA Equitable Separate Accounts, except Separate
Account 65, are registered under the Securities Act of 1933, as amended
(``1933 Act''). Units of interest in Separate Account 65 are exempt
from registration under the 1933 Act, pursuant to Section 3(a)(2) of
the 1933 Act.
5. MLOA serves as depositor for MLOA Separate Account L, which
funds variable benefits available under certain Life Insurance
Contracts issued by MLOA.
6. MLOA Separate Account L is a segregated asset account of MLOA
and is registered with the Commission as a unit investment trust under
the 1940 Act. Units of interest in MLOA Separate Account L under the
Life Insurance Contracts are registered under the 1933 Act.
7. The Trust is organized as a Delaware statutory trust and is
registered as an open-end management investment company under the 1940
Act and its shares are registered under the 1933 Act on Form N-1A. The
Trust is a series investment company and currently offers 21 separate
series (each a ``Portfolio'' and collectively, the ``Portfolios'').
8. The Trust currently offers two classes of shares, Class A and
Class B shares. The Class A and Class B shares differ only in that
Class B shares are subject to a distribution plan adopted and
administered pursuant to Rule 12b-1 under the 1940 Act. The 12b-1 fees
with respect to the Class B Shares of each Portfolio of the Trust
currently are limited to an annual rate of 0.25% of the average daily
net assets attributable to the Class B shares of the Portfolio and may
be increased to an annual rate of 0.50% by the Board of Trustees
without shareholder approval.
9. AXA Equitable currently serves as investment manager
(``Manager'') of each of the Portfolios. The Trust has received an
exemptive order from the Commission that permits the Manager, or any
entity controlling, controlled by, or under common control (within the
meaning of Section 2(a)(9) of the 1940 Act) with the Manager, subject
to certain conditions, including approval of the Board of Trustees of
the Trust, and without the approval of shareholders, to appoint,
dismiss, or replace investment sub-advisers (``Advisers'') and to amend
investment advisory agreements.\2\ If a new Adviser is retained for a
Portfolio, Contract owners would receive notice of any such action.
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\2\ See EQ Advisors Trust and EQ Financial Consultants, Inc.,
Investment Company Act Release Nos. 23093 (March 30, 1998) (notice)
and 23128 (April 24, 1998) (order).
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10. Each Insurance Company, on its own behalf and on behalf of its
Separate Accounts, proposes to exercise its contractual right to
substitute a different underlying investment option for one of the
current underlying investment options offered as a funding option under
the Contracts. In particular, the Section 26 Applicants request an
order from the Commission pursuant to Section 26(c) of the 1940 Act
approving the proposed substitution (``Substitution'') of (i) Class A
shares of the Multimanager Aggressive Equity Portfolio for Class A
shares of the Multimanager Large Cap Growth Portfolio; and (ii) Class B
shares of the Multimanager Aggressive Equity Portfolio for Class B
shares of the Multimanager Large Cap Growth Portfolio.
11. The Section 26 Applicants propose the Substitution as part of a
continued and overall business plan by each of the Insurance Companies
to make its Contracts more attractive to existing Contract owners,
Participants or prospective purchasers, as the case may be, and more
efficient to administer and oversee.
[[Page 39996]]
12. Among the principal purposes of the Substitutions, the Section
26 Applicants assert the proposed Substitution is designed and intended
to simplify the prospectuses and related materials with respect to the
Contracts and the investment options available through the Separate
Accounts. The Section 26 Applicants believe that the Replacement
Portfolio and the Removed Portfolio overlap and largely duplicate one
another by having substantially similar investment objectives, policies
and risks, and that consolidating the Removed Portfolio into the
Replacement Portfolio would simplify the Contract prospectuses and
related materials provided to Contract owners, thereby reducing the
potential for Contract owner confusion.
13. The Section 26 Applicants believe that the deletion of an
overlapping investment option should not adversely affect Contract
owners and Participants given that a similar investment option will
remain available under the Contracts and the Contracts will offer the
same number of investment options or, in those cases where the number
of investment options is being reduced, continue to offer a significant
number of alternative investment options offering a full range of
investment objectives, strategies and Advisers (currently expected to
range in number from 27 to 66 after the Substitution versus 28 to 67
before the Substitution).
14. The Removed Portfolio and the Replacement Portfolio have
identical investment objectives and substantially similar investment
policies. Each Portfolio seeks long-term growth of capital as its
investment objective. Under normal circumstances, each Portfolio
invests at least 80% of its net assets, plus borrowings for investment
purposes, in equity securities. Under normal circumstances, the Removed
Portfolio invests at least 80% of its net assets in the equity
securities of U.S. large capitalization companies, and the Replacement
Portfolio invests at least 80% of its net assets in equity securities,
primarily investing in the securities of large capitalization growth
companies but also investing, to a lesser extent, in the equity
securities of small- and mid-capitalization growth companies. Although
the Replacement Portfolio may invest in a broader range of companies to
a greater extent than the Removed Portfolio, both Portfolios seek to
achieve the same long-term investment goal by emphasizing investments
in large capitalization U.S. companies.
15. Each Portfolio invests primarily in common stocks, but may
invest in other securities that its respective Advisers believe provide
opportunities for capital growth, such as preferred stocks, warrants
and securities convertible into common stock. In addition, each
Portfolio may invest in derivatives: the Removed Portfolio may invest
up to approximately 10% of its net assets in futures and options, while
the Replacement Portfolio may invest up to 25% of its net assets in
derivatives, such as exchange-traded futures and options contracts on
indices or other similar instruments.
16. To achieve its investment objectives, each Portfolio combines
active and passive management strategies. With respect to each
Portfolio, AXA Equitable allocates approximately 50% of the Portfolio's
net assets to a portion of the Portfolio that seeks to achieve the
total return performance of an index (the Russell 1000 Growth Index in
the case of the Removed Portfolio and the Russell 3000 Growth Index for
the Replacement Portfolio) while maintaining as minimal tracking error
as possible (``Index Allocated Portion''). The Russell 1000 Growth
Index includes those Russell 1000 companies (the 1,000 largest
companies of the Russell 3000 Index) with higher price-to-book ratios
and higher forecasted growth values, while the Russell 3000 Growth
Index includes those Russell 3000 companies (the 3,000 largest U.S.
securities) with higher price-to-book ratios and higher forecasted
growth values. The Russell 3000 Growth Index generally has greater
exposure to small- and mid-capitalization companies than the Russell
1000 Growth Index, and thus has greater exposure to the risks of
investing in such companies. However, the average weighted market
capitalization of each Portfolio is almost the same (approximately
$76.3 billion for the Russell 1000 Growth Index and approximately $70.7
billion for the Russell 3000 Growth Index, each as of December 31,
2009).
17. With respect to each Portfolio, AXA Equitable allocates the
remaining 50% of the Portfolio's net assets among the other portions of
the Portfolio that are actively managed by multiple Advisers (the
``Active Allocated Portions'') utilizing similar growth style
strategies. The Active Allocated Portions of each Portfolio may invest,
to a limited extent, in illiquid securities and in securities of
foreign companies, including companies based in developing countries.
The Replacement Portfolio's Active Allocated Portions may invest up to
25% of their total assets in foreign securities. The Active Allocated
Portions of the Removed Portfolio also may invest in foreign
securities, to a limited extent, but have no stated limit. Given the
similarity between the Portfolios' holdings and investment objectives
and strategies, the Trust intends to retain the Advisers to the Active
Allocated Portions of the Removed Portfolio to manage the assets of the
Active Allocated Portions of the Removed Portfolio that are transferred
to the Replacement Portfolio in connection with the Substitution.
18. The Portfolios have substantially similar risk profiles. Each
Portfolio is subject to the following principal risks: derivatives
risk, equity risk, index strategy risk, large-cap company risk and
leverage risk. The primary differences between the principal risks of
the Portfolios are that the Replacement Portfolio also is subject to
foreign securities risk, which is not a principal risk of the Removed
Portfolio, and the Removed Portfolio also is subject to investment
style risk, which is not a principal risk of the Replacement Portfolio.
However, the Section 26 Applicants do not believe that these
differences are significant. While the Replacement Portfolio has the
flexibility to invest in foreign securities to a greater extent than
the Removed Portfolio, each Portfolio's investments in foreign
securities generally have been limited to a relatively small percentage
of the Portfolio's assets. For instance, as of May 31, 2010, the
Removed and Replacement Portfolios had invested approximately 1.8% and
3.8%, respectively, in foreign securities. In addition, while the
Removed Portfolio is subject to investment style risk because its
Advisers primarily utilize growth investing styles, both of the
Portfolios seek long-term growth of capital, invest in similar types of
securities and generally are classified by third party mutual fund
rating organizations as aggressive equity portfolios (e.g., Morningstar
currently classifies each Portfolio as a large cap growth portfolio).
19. As provided in the chart below, the Section 26 Applicants
anticipate that the Replacement Portfolio's total annual operating
expense ratio (taking into account any expense waivers or
reimbursements) will be lower than that of the Removed Portfolio
immediately after the Substitution. The chart below compares the
advisory fees and total annual operating expenses of the Class A and
Class B shares of the Removed Portfolio and the Replacement Portfolio
for the fiscal year ended December 31, 2009. Class A shares of each
Portfolio are not subject to plans adopted pursuant to Rule 12b-1 under
the 1940 Act.
[[Page 39997]]
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Removed portfolio Replacement portfolio
Multimanager large cap Multimanager aggressive
growth portfolio equity portfolio
(Class A) (percent) (Class A) (percent)
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Management Fee \3\............................................ 0.75 0.59
Rule 12b-1 Fee................................................ N/A N/A
Other Expenses................................................ 0.32 0.23
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Total Expenses............................................ 1.07 0.82
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Removed portfolio Replacement portfolio
Multimanager large cap Multimanager aggressive
growth portfolio equity portfolio
(Class A) (percent) (Class A) (percent)
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Management Fee \3\............................................ 0.75 0.59
Rule 12b-1 Fee................................................ 0.25 0.25
Other Expenses................................................ 0.32 0.23
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Total Expenses............................................ 1.32 1.07
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As of December 31, 2009, the assets of the Replacement Portfolio
were approximately $1.34 billion, while the assets of the Removed
Portfolio were approximately $270 million.
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\3\ The management fee schedule for the Removed Portfolio on an
annual basis is equal to 0.750% on the first $750 million, 0.700% on
the next $1 billion, 0.675% on the next $3 billion, 0.650% on the
next $5 billion and 0.625% thereafter. The management fee schedule
for the Replacement Portfolio on an annual basis is equal to 0.600%
on the first $750 million, 0.550% on the next $1 billion, 0.525% on
the next $3 billion, 0.500% on the next $5 billion and 0.475%
thereafter.
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20. The Section 26 Applicants currently expect that the proposed
Substitution will be carried out on or about August 1, 2010, or as soon
as reasonably practicable thereafter (``Substitution Date'') and by
supplements to the prospectuses for the Contracts and Separate
Accounts, which were delivered to Contract owners and Participants at
least thirty (30) days before the proposed Substitution, each Insurance
Company will notify all Contract owners and Participants of its
intention to take the necessary actions, including seeking the order
requested by the application, to substitute shares of the Replacement
Portfolio for the Removed Portfolio as described herein. The
supplements advised Contract owners and Participants that, from the
date of the supplement until the date of the proposed Substitution,
Contract owners and Participants are permitted to make transfers of
Contract value (or annuity unit value) out of a Removed Portfolio
subaccount to one or more other subaccounts without the transfers (or
exchanges) being treated as one of a limited number of permitted
transfers (or exchanges) or a limited number of transfers (or
exchanges) permitted without a transfer charge, as applicable. The
supplements also will inform Contract owners and Participants that the
Insurance Companies will not exercise any rights reserved under any
Contract to impose additional restrictions on transfers until at least
30 days after the proposed Substitution.\4\ The supplement also will
advise Contract owners and Participants how to instruct the relevant
Insurance Company, if so desired in light of the proposed Substitution,
to reallocate Contract value from a Removed Portfolio subaccount to any
other subaccount available for investment under their Contracts. In
addition, the supplements will advise Contract owners and Participants
that any Contract value remaining in a Removed Portfolio subaccount on
the Substitution Date will be transferred to a Replacement Portfolio
subaccount and that the proposed Substitution will take place at
relative net asset value. The supplements will also advise Contract
owners and Participants that for at least 30 days following the
proposed Substitution, the Insurance Companies will permit Contract
owners and Participants to make transfers of Contract value (or annuity
unit value) out of a Replacement Portfolio subaccount to one or more
other subaccounts without the transfers (or exchanges) being treated as
one of a limited number of permitted transfers (or exchanges) or a
limited number of transfers (or exchanges) permitted without a transfer
charge, as applicable.
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\4\ One exception to this is that the Insurance Companies may
impose restrictions on transfers to prevent or limit disruptive
transfer and other ``market timing'' activities by Contract owners,
Participants or agents of Contract owners or Participants as
described in the prospectuses for the Separate Accounts and the
Portfolios.
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21. Each Insurance Company also has sent or will send Contract
owners and Participants prospectuses for the Replacement Portfolio
prior to the Substitution. The Section 26 Applicants have sent or will
send the appropriate prospectus supplement (or other notice, in the
case of Contracts no longer actively marketed and for which there are a
relatively small number of existing Contract owners or Participants),
containing this disclosure to all existing Contract owners and
Participants. Prospective purchasers and new purchasers of Contracts
will be provided with a Contract prospectus and the supplement
containing disclosure regarding the proposed Substitution, as well as a
prospectus and supplement for the Replacement Portfolio. The Contract
prospectus and supplement, and the prospectus and supplement for the
Replacement Portfolio will be delivered to purchasers of new Contracts
in accordance with all applicable legal requirements.
22. In addition to the prospectus supplements distributed to
Contract owners and Participants, within five business days after the
Substitution Date, Contract owners and Participants will be sent a
written notice of the Substitution informing them that the Substitution
was carried out and that they may transfer all Contract value or cash
value under a Contract in a subaccount invested in the Replacement
Portfolio on the date of the notice to one or more other subaccounts
available under their Contract at no cost and without regard to the
usual limit on the frequency of transfers among the variable account
options. The notice will also reiterate that (other than with respect
to implementing policies and procedures designed to prevent
[[Page 39998]]
disruptive transfers and other market timing activity) each Insurance
Company will not exercise any rights reserved by it under the Contracts
to impose additional restrictions on transfers or, to the extent
transfer charges apply to a Contract, to impose any charges on
transfers until at least 30 days after the Substitution Date. The
Insurance Companies will also send each Contract owner and Participant
a current prospectus for the Replacement Portfolio if they have not
previously received a current version.
23. Each Insurance Company also is seeking approval of the proposed
Substitution from any state insurance regulators whose approval may be
necessary or appropriate. The proposed Substitution will take place at
relative net asset value determined on the Substitution Date pursuant
to Section 22 of the 1940 Act and Rule 22c-1 thereunder with no change
in the amount of any Contract owner's or Participant's Contract value,
cash value, or death benefit or in the dollar value of his or her
investment in the Separate Accounts. The proposed Substitution will be
effected by redeeming shares of the Removed Portfolio in cash and/or
in-kind on the Substitution Date at their net asset value and using the
proceeds of those redemptions to purchase shares of the Replacement
Portfolio at their net asset value on the same date. All in-kind
redemptions will be effected in accordance with the conditions set
forth in the no-action letter issued by the staff of the Commission to
Signature Financial Group, Inc. (pub. avail. Dec. 28, 1999).
24. Moreover, the Section 26 Applicants state that Contract owners
and Participants will not incur any fees or charges as a result of the
proposed Substitution, nor will their rights or insurance benefits or
the Insurance Companies' obligations under the Contracts be altered in
any way. Consequently, all expenses incurred in connection with the
proposed Substitution, including any brokerage, legal, accounting, and
other fees and expenses, will be paid by the Insurance Companies. In
addition, the proposed Substitution will not impose any tax liability
on Contract owners or Participants. The proposed Substitution will not
cause the Contract fees and charges currently being paid by Contract
owners and Participants to be greater after the Substitution than
before the Substitution; all Contract-level fees will remain the same
after the Substitution. In addition, because the Substitution will not
be treated as a transfer for purposes of assessing transfer charges or
computing the number of permissible transfers under the Contracts, no
fees will be charged on the transfers made at the time of the
Substitution.
25. The Section 26 Applicants represent that with respect to those
Contract owners or Participants on the date of the Substitution, the
Insurance Companies will reimburse the subaccounts investing in the
Replacement Portfolio for a period of two years after the date of the
Substitution, on the last business day of each fiscal period (not to
exceed a fiscal quarter), such that the sum of the Replacement
Portfolio's total operating expense ratio (taking into account any
expense waivers and reimbursements) and subaccount expense ratio
(asset-based fees and charges deducted on a daily basis from subaccount
assets and reflected in the calculations of subaccount unit value) for
such period will not exceed, on an annualized basis, the sum of the
Removed Portfolio's total operating expense ratio (taking into account
any expense waivers and reimbursements) and subaccount expense ratio
for fiscal year 2009.
Applicants' Legal Analysis
1. Section 26(c) of the 1940 Act prohibits the depositor of a
registered unit investment trust that invests in the securities of a
single issuer from substituting the securities of another issuer
without Commission approval. Section 26(c) provides that ``[t]he
Commission shall issue an order approving such substitution if the
evidence establishes that it is consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of this title.''
2. The Section 26 Applicants assert that the proposed Substitution
involves a substitution of securities within the meaning of Section
26(c) of the 1940 Act and therefore request an order from the
Commission pursuant to Section 26(c) approving the proposed
Substitutions.
3. The Section 26 Applicants state they have reserved the right
under the Contracts to substitute shares of another underlying
investment option for one of the current underlying investment options
offered as a funding option under the Contracts both to protect
themselves and their Contract owners and Participants in situations
where either might be harmed or disadvantaged by events affecting the
issuer of the securities held by a Separate Account and to preserve the
opportunity to replace such shares in situations where a substitution
could benefit the Insurance Companies and their respective Contract
owners and Participants.
4. The Section 26 Applicants argue that the Removed Portfolio and
the Replacement Portfolio have identical investment objectives and
substantially similar investment policies and risks. In addition, the
Section 26 Applicants clarify that the proposed Substitution retains
for Contract owners and Participants the investment flexibility that is
a central feature of the Contracts. The Section 26 Applicants assert
that any impact on the investment programs of affected Contract owners
and Participants, including the appropriateness of the available
investment options, should therefore be negligible.
5. Furthermore, the Section 26 Applicants claim that the
Substitution will permit the Insurance Companies to present information
to their Contract owners and Participants in a simpler and more concise
manner. It is anticipated that after the Substitution, Contract owners
and Participants will be provided with disclosure documents that
contain a simpler presentation of the available investment options
under their Contracts.
6. In addition, the Section 26 Applicants point out that as a
result of the proposed Substitution, Contract owners and Participants
with subaccount balances currently invested in the Removed Portfolio
will have a lower total operating expense ratio after the Substitution
as Contract owners or Participants with subaccount balances invested in
the Replacement Portfolio. In this regard, each Insurance Company has
agreed to impose certain expense limits, as discussed earlier in the
application, to ensure that Contract owners and Participants do not
incur higher expenses as a result of the Substitution for a period of
two years after the Substitution.
7. In addition to the foregoing, the Section 26 Applicants
generally submit that the proposed Substitution meets the standards
that the Commission and its staff have applied to similar substitutions
that the Commission previously has approved. The Section 26 Applicants
also submit that the proposed Substitution is not of the type that
Section 26(c) was designed to prevent. Unlike traditional unit
investment trusts where a depositor could only substitute investment
securities in a manner that permanently affected all the investors in
the trust, the Contracts provide each Contract owner or Participant
with the right to exercise his or her own judgment, and transfer
Contract values and cash values into and among other investment options
available to Contract owners or Participants under their Contracts.
[[Page 39999]]
Additionally, the Section 26 Applicants assert that the proposed
Substitution will not reduce in any manner the nature or quality of the
available investment options.
8. Moreover, the Section 26 Applicants will offer Contract owners
and Participants the opportunity to transfer amounts out of the
affected subaccounts without any cost or other penalty (other than
those necessary to implement policies and procedures designed to
prevent disruptive transfer and other market timing activity) that may
otherwise have been imposed for a period beginning on the date of the
supplement notifying Contract owners and Participants of the proposed
Substitution and ending no earlier than thirty (30) days after the
Substitution. The proposed Substitution, therefore, will not result in
the type of costly forced redemption that Section 26(c) was designed to
prevent.
9. The Section 26 Applicants also note that the proposed
Substitution is also unlike the type of substitution that Section 26(c)
was designed to prevent in that by purchasing a Contract or
participating in a group Contract, Contract owners and Participants
select much more than a particular underlying fund in which to invest
their Contract values; they also select the specific type of insurance
coverage offered by the Section 26 Applicants under the applicable
Contract, as well as numerous other rights and privileges set forth in
the Contract. Contract owners and Participants also may have considered
the Insurance Company's size, financial condition, and its reputation
for service in selecting their Contract. These factors will not change
as a result of the proposed Substitution, nor will the annuity, life or
tax benefits afforded under the Contracts held by any of the affected
Contract owners or Participants.
10. The Section 17 Applicants request an order pursuant to Section
17(b) of the 1940 Act exempting them from the provisions of Section
17(a) of the 1940 Act to the extent necessary to permit them to carry
out the In-Kind Transactions in connection with the proposed
Substitution.
11. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits
any affiliated person of a registered investment company, or any
affiliated person of such a person, acting as principal, from knowingly
selling any security or other property to that company. Section
17(a)(2) of the 1940 Act generally prohibits the same persons, acting
as principals, from knowingly purchasing any security or other property
from the registered investment company.
12. Section 17(b) of the 1940 Act provides that the Commission may,
upon application, issue an order exempting any proposed transaction
from the provisions of Section 17(a) if: (i) the terms of the proposed
transactions are reasonable and fair and do not involve overreaching on
the part of any person concerned; (ii) the proposed transactions are
consistent with the policy of each registered investment company
concerned; and (iii) the proposed transactions are consistent with the
general purposes of the 1940 Act.
13. The Removed Portfolio and the Replacement Portfolio may be
deemed to be affiliated persons of one another, or affiliated persons
of an affiliated person. Shares held by a separate account of an
insurance company are legally owned by the insurance company. Thus, the
Insurance Companies and their affiliates collectively own substantially
all of the shares of the Trust. Accordingly, the Trust and its
respective Portfolios may be deemed to be under the control of the
Insurance Companies notwithstanding the fact that the Contract owners
and Participants may be considered the beneficial owners of those
shares held in the Separate Accounts. If the Trust is under the common
control of the Insurance Companies, then each Insurance Company is an
affiliated person or an affiliated person of an affiliated person of
the Trust and its respective Portfolios. If the Trust and its
respective Portfolios are under the control of the Insurance Companies,
then the Trust and its respective affiliates are affiliated persons of
the Insurance Companies.
14. Regardless of whether the Insurance Companies can be considered
to control the Trust and its Portfolios, the Insurance Companies may be
deemed to be affiliated persons of the Trust and its Portfolios,
including the Removed Portfolio and the Replacement Portfolio, because
the Insurance Companies (which are under common control) and their
affiliates own of record more than 5% of the outstanding shares.
Likewise, each of the Trust's Portfolios may be deemed to be an
affiliated person of each Insurance Company. As a result of these
relationships, the Removed Portfolio may be deemed to be an affiliated
person of an affiliated person (the Insurance Companies or the Separate
Accounts) of the Replacement Portfolio, and vice versa.
15. The proposed In-Kind Transactions could be seen as the indirect
purchase of shares of the Replacement Portfolio with portfolio
securities of the Removed Portfolio and the indirect sale of portfolio
securities of the Removed Portfolio for shares of the Replacement
Portfolio. Pursuant to this analysis, the proposed In-Kind Transactions
also could be categorized as a purchase of shares of the Replacement
Portfolio by the Removed Portfolio, acting as principal, and a sale of
portfolio securities by the Removed Portfolio, acting as principal, to
the Replacement Portfolio. In addition, the proposed In-Kind
Transactions could be viewed as a purchase of securities from the
Removed Portfolio and a sale of securities to the Replacement Portfolio
by each Insurance Company (or the Separate Accounts), acting as
principal. If categorized in this manner, the proposed In-Kind
Transactions may be deemed to contravene Section 17(a) due to the
affiliated status of these participants.
16. The Section 17 Applicants assert that the In-Kind Transactions
will be effected at the respective net asset values of the Removed
Portfolio and the Replacement Portfolio, as determined in accordance
with the procedures disclosed in the registration statement for the
Trust and as required by Rule 22c-1 under the 1940 Act. The In-Kind
Transactions will not change the dollar value of any Contract owner's
or Participant's investment in any of the Separate Accounts, the value
of any Contract, the accumulation value or other value credited to any
Contract, or the death benefit payable under any Contract. Immediately
after the proposed In-Kind Transactions, the value of a Separate
Account's investment in the Replacement Portfolio will equal the value
of its investments in the Removed Portfolio (together with the value of
any pre-existing investments in the Replacement Portfolio) immediately
before the In-Kind Transactions.
17. Rule 17a-7 under the 1940 Act exempts from the prohibitions of
Section 17(a), subject to certain enumerated conditions, a purchase or
sale transaction between registered investment companies or separate
series of registered investment companies, which are affiliated
persons, or affiliated persons of affiliated persons, of each other,
between separate series of a registered investment company, or between
a registered investment company or a separate series of a registered
investment company and a person which is an affiliated person of such
registered investment company (or affiliated person of such person)
solely by reason of having a common investment adviser or investment
advisers which are affiliated persons of
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each other, common directors, and/or common officers.
18. However, one of the conditions enumerated in Rule 17a-7
requires that the transaction be a purchase or sale for no
consideration other than cash payment against prompt delivery of a
security for which market quotations are readily available. If the
proposed In-Kind Transactions are viewed as purchases and sales of
securities, the consideration in the proposed redemptions of shares of
the Removed Portfolio and the proposed purchases of shares of the
Replacement Portfolio would not be cash, but rather, the portfolio
securities received from the Removed Portfolio.
19. The Section 17 Applicants will ensure that the Trust will carry
out the proposed In-Kind Transactions in conformity with the conditions
of Rule 17a-7, except that the consideration paid for the securities
being purchased or sold will not be cash.
20. For the reasons stated above, the Section 17 Applicants submit
that the terms of the proposed In-Kind Transactions, including the
consideration to be paid and received, as described in the application,
are reasonable and fair and do not involve overreaching on the part of
any person concerned. Furthermore, the Section 17 Applicants represent
that the proposed In-Kind Transactions will be consistent with the
policies of the Removed and corresponding Replacement Portfolios, as
recited in their respective current registration statements, and that
the proposed In-Kind Transactions are consistent with the general
purposes of the 1940 Act and do not present any conditions or abuses
that the 1940 Act was designed to prevent.
Conclusion
For the reasons set forth in the application, the Applicants each
respectively request that the Commission issue an order of approval
pursuant to Section 26(c) of the 1940 Act and an order of exemption
pursuant to Section 17(b) of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16987 Filed 7-12-10; 8:45 am]
BILLING CODE 8010-01-P