Mutual of America Life Insurance Company, et al;, 73700-73705 [2012-29858]
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Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
raised by the Notice. The Commission
appoints James F. Callow to serve as
Public Representative in this docket.
Interested persons may submit
comments on whether the Postal
Service’s filing in the captioned docket
is consistent with the policies of 39
U.S.C. 3632 and 3633 and the
requirements of 39 CFR part 3015.
Comments are due no later than
December 14, 2012. The public portions
of this filing can be accessed via the
Commission’s Web site (https://
www.prc.gov). Information on obtaining
access to sealed material appears in 39
CFR part 3007.
IV. Ordering Paragraphs
It is ordered:
1. The Commission establishes Docket
No. CP2013–24 for consideration of
matters raised by the Postal Service’s
Notice.
2. Pursuant to 39 U.S.C. 505, James F.
Callow is appointed to serve as an
officer of the Commission (Public
Representative) to represent the
interests of the general public in this
proceeding.
3. Comments are due no later than
December 14, 2012.
4. The Secretary shall arrange for
publication of this order in the Federal
Register.
By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2012–29779 Filed 12–10–12; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–30292; File No. 812–14059]
Mutual of America Life Insurance
Company, et al; Notice of Application
December 5, 2012.
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of application for an
order approving the substitution of
certain securities pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘1940 Act’’ or
‘‘Act’’) and an order of exemption
pursuant to Section 17(b) of the Act
from Section 17(a) of the Act.
AGENCY:
Mutual of America Life
Insurance Company (‘‘Mutual of
America’’), Wilton Reassurance Life
Company of New York (‘‘Wilton,’’ and,
together with Mutual of America Life
Insurance Company, the ‘‘Insurance
Companies’’), Mutual of America
Separate Account No. 2 (the ‘‘Annuity
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APPLICANTS:
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Account’’), Mutual of America Separate
Account No. 3 (the ‘‘Life Account’’),
American Separate Account No. 2 (the
‘‘American Annuity Account’’), and
American Separate Account No. 3 (the
‘‘American Life Account,’’ and together
with the Annuity Account, the Life
Account, and the American Annuity
Account, the ‘‘Separate Accounts’’). The
Insurance Companies and the Separate
Accounts are referred to herein
collectively as the ‘‘Substitution
Applicants.’’ The Insurance Companies,
the Separate Accounts, and Mutual of
America Investment Corporation
(‘‘Investment Corporation’’) are also
collectively referred to as the ‘‘Section
17 Applicants.’’
SUMMARY OF APPLICATION: The
Substitution Applicants seek an order
pursuant to Section 26(c) of the 1940
Act, approving the substitution of shares
of: (a) the Vanguard International
Portfolio (‘‘Replacement International
Fund’’) of the Vanguard Variable
Insurance Fund (‘‘Vanguard Fund’’) for
Class A Shares of the DWS International
VIP Fund (‘‘Replaced International
Fund’’) of the DWS Variable Series I
(‘‘DWS Fund’’), and (b) the Mutual of
America Bond Fund (‘‘Replacement
Bond Fund’’) of Investment Corporation
for Class A Shares of the DWS Bond VIP
Fund (‘‘Replaced Bond Fund’’) of the
DWS Fund, under certain variable life
insurance and annuity contracts issued
by the Companies (collectively, the
‘‘Contracts’’). The Replacement
International Fund and the Replacement
Bond Fund are sometimes referred to
collectively as ‘‘Replacement Funds,’’
and the Replaced International Fund
and the Replaced Bond Fund are
sometimes referred to collectively as
‘‘Replaced Funds.’’ The Section 17
Applicants seek an order pursuant to
Section 17(b) of the 1940 Act exempting
them from Section 17(a) of the Act to
the extent necessary to permit them to
engage in certain in-kind transactions in
connection with the substitution.
FILING DATE: The application was filed
on July 17, 2012, and the amended and
restated application was filed on
November 21, 2012.
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 the
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 December 28, 2012, and
should be accompanied by proof of
service on the applicants in the form of
an affidavit or, for lawyers, a certificate
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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, SEC, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: Mutual of America Life
Insurance Company, Mutual of America
Separate Account No. 2, Mutual of
America Separate Account No. 3,
Wilton Reassurance Life Company of
New York, American Separate Account
No. 2, American Separate Account No.
3, and Mutual of America Investment
Corporation, all located at 320 Park
Avenue, New York, New York 10022–
68391.
FOR FURTHER INFORMATION CONTACT:
Deborah D. Skeens, Senior Counsel, or
Michael L. Kosoff, 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 for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Applicants’ Representations
1. The Insurance Companies, on their
own behalf and on behalf of their
respective separate accounts, propose to
substitute Class A shares of the
Replacement Funds for shares of the
Replaced Funds held by the Separate
Accounts to fund the Contracts.
2. Mutual of America is the depositor
and sponsor of the Annuity Account
and the Life Account. Wilton is the
depositor and sponsor of the American
Annuity Account and the American Life
Account.
3. Each of the Annuity Account, the
Life Account, the American Annuity
Account, and the American Life
Account is a ‘‘separate account’’ as
defined by Rule 0–1(e) under the Act
and each is registered under the Act as
a unit investment trust for the purpose
of funding the Contracts. Security
interests under the Contracts have been
registered under the Securities Act of
1933. The application sets forth the
registration statement file numbers for
the Contracts and the Separate
Accounts.
4. The DWS Fund and the Vanguard
Fund are registered open-end
management investment companies of
the series type (File Number 002–96461
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and 033–32216, respectively).
Investment Corporation is a registered
open-end management investment
company of the series type (File Number
033–06486) which only sells its shares
to the separate accounts of Mutual of
America and Wilton that are used for
their variable annuity and variable life
insurance contracts, including the
Replacement Bond Fund.
5. The substitution will replace an
investment option (i.e., the Replaced
Bond Fund) managed by an entity that
is not affiliated with the Substitution
Applicants as of the date hereof (other
than by way of certain of the
Substitution Applicants owning more
than 5% of the shares of the Replaced
Funds) with an investment option (i.e.,
the Replacement Bond Fund) that is
managed by an investment manager that
is affiliated with Mutual of America.
Neither Investment Corporation nor
Replacement Bond Fund’s investment
adviser, Mutual of America Capital
Management Corporation (‘‘Capital
Management’’) is affiliated with Wilton
or its separate account. Both the
Replaced International Fund and the
Replacement International Fund are
managed by entities that are not
affiliated with the Substitution
Applicants as of the date hereof (other
than by way of certain of the
Substitution Applicants owning more
than 5% of the shares of the
Replacement Funds).
6. The Contracts are flexible premium
variable annuity and variable universal
life insurance contracts. Under each of
the Contracts (the proper form of which
is provided to every Contract owner) as
well as the prospectus for each Contract,
the issuing Company reserves the right
to substitute shares of one fund for
shares of another fund managed by
either the same investment adviser, or
by a different investment adviser.
7. Applicants represent that the
Replacement International Fund has an
investment objective virtually identical
to that of the Replaced International
Fund—the Replacement Fund seeks
long-term capital appreciation and the
Replaced Fund seeks long-term growth
of capital. Additionally, the Applicants
state that the principal investment
strategies of each Fund are substantially
similar. Both Funds primarily invest in
the common stock of foreign companies
(i.e., non-US domiciled companies) and
are generally well diversified both with
respect to geographic region and
industry. Both may also invest in
depositary receipts and convertible
securities. Both Funds permit exposure
to emerging markets and have
historically allocated assets to this
segment of the market. A comparison of
the investing strategies, risks, and
performance of the Replaced
International Fund and the Replacement
International Fund is included in the
application. The following table
compares the fees and expenses of the
Replaced International Fund (Class A
shares) and the Replacement
International Fund (Class A shares) as of
the year ended December 31, 2011 and
the six months ended June 30, 2012.
Neither the Replaced International Fund
nor the Replacement International Fund
is subject to a distribution plan or
shareholder service plan adopted under
Rule 12b–1 of the Act. Neither the
Replaced International Fund nor the
Replacement International Fund impose
a redemption fee.
Replaced International Fund
Replacement International Fund
DWS International VIP Fund
Vanguard International Fund
Year ended 12/
31/11
(percent)
Six months
ended
6/30/2012
(percent)
Year ended 12/
31/11
(percent)
Six months
ended
6/30/2012
(percent)
0.79
0.00
0.21
0.79
0.00
0.22
0.46
0.00
0.05
0.46
0.00
0.05
Total Annual Fund Operating Expenses ..........................................
1.00
1.01
0.51
0.51
Less Contractual Fee Waivers and Expense Reimbursements ..............
Net Annual Fund Operating Expenses ....................................................
Portfolio Turnover Rate ...........................................................................
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Advisory Fees ..........................................................................................
Distribution/Service (12b–1) Fee .............................................................
Other Expenses .......................................................................................
0.00
1.00
174
0.00
1.01
51
0.00
0.51
33
0.00
0.51
26
8. The Applicants state that the
Replacement Bond Fund has an
investment objective similar to that of
the Replaced Bond Fund. Both Funds
have objectives that relate to current
income as well as preservation of
capital. While the Replaced Bond Fund
also seeks to maximize total return, and
invests for capital appreciation in
addition to current income, its
investment approach, security selection
process and higher portfolio turnover
rates have resulted in a more risky
investment strategy than that of the
Replacement Bond Fund (as further
discussed below). Both Funds pursue
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their investment objectives by primarily
investing, under normal market
conditions, in publicly-traded,
investment-grade debt securities. Each
invests in investment grade bonds
issued by US corporations or by the US
Government or its agencies, such as
bonds, notes, debentures, zero coupon
securities and mortgage-backed
securities. Further, the Replacement
Bond Fund and the Replaced Bond
Fund both utilize the same benchmark,
the Barclay’s Capital U.S. Aggregate
Bond Index, to measure their relative
investment performance. A comparison
of the investing strategies, risks, and
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performance of the Replaced Bond Fund
and the Replacement Bond Fund is
included in the application. The
following table compares the fees and
expenses of the Replaced Bond Fund
(Class A shares) and the Replacement
Bond Fund (Class A shares) as of the
year ended December 31, 2011 and the
six months ended June 30, 2012. Neither
the Replaced Bond Fund nor the
Replacement Bond Fund is subject to a
distribution plan or shareholder service
plan adopted under Rule 12b–1 of the
Act. Neither the Replaced Bond Fund
nor the Replacement Bond Fund impose
a redemption fee.
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Replaced Bond Fund
Replacement Bond Fund
DWS Bond Fund
Mutual of America Bond Fund
Year ended
12/31/11
(percent)
Six months
ended
6/30/2012
(percent)
Year ended
12/31/11
(percent)
Six months
ended
6/30/2012
(percent)
Advisory Fees ..................................................................................................
Distribution/Service (12b–1) Fee .....................................................................
Other Expenses ...............................................................................................
0.39
0.00
0.23
0.39
0.00
0.22
0.40
0.00
0.15
1 0.40
Total Annual Fund Operating Expenses ..................................................
0.62
0.61
0.55
0.57
Less Contractual Fee Waivers and Expense Reimbursements ......................
Net Annual Fund Operating Expenses ............................................................
Portfolio Turnover ............................................................................................
0.00
0.62
219
0.00
0.61
144
0.00
0.55
30
0.00
0.57
16.97
0.00
0.17
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1 Applicants represent that if an order of the Commission is granted pursuant to Section 26(c) of the Act approving the substitution described
herein, then on or before the date of substitution, the investment adviser to the Replacement Bond Fund will amend its investment advisory contract to reduce its advisory fee by 0.01% to equal 0.39% of average daily net assets for all shareholders of the fund.
9. The Substitution Applicants state
that the proposed substitution is part of
the Companies’ ongoing efforts to
provide the Contracts with investment
options that have: (1) A competitive fee
structure relative to other funds in the
same asset class peer group; (2)
demonstrated the ability to achieve
competitive long-term investment
returns relative to other funds in the
same asset class peer group; and (3)
contributed to and enhanced the goal of
offering an attractive array of investment
options covering many various
investment styles, objectives, and
categories in the risk/return spectrum.
The Substitution Applicants further
state that substituting the Replacement
Funds for the Replaced Funds will
provide Contract owners with
investment options that have not only
virtually identical investment objectives
and substantially similar principal
investment strategies and principal
investment risks to their respective
Replaced Fund, but are, overall, less
expensive relative to other funds in
their respective asset classes, better
positioned to achieve consistent longterm above-average investment
performance, and have substantially
greater potential for continued growth
in assets under management.
Substitution Applicants further state
that following the substitution Contract
owners will have reasonable continuity
with respect to their investment
expectations. For these reasons and the
reasons discussed below, the
Substitution Applicants believe that
substituting the Replacement Funds for
the Replaced Funds is appropriate and
in the best interest of Contract owners.
10. As shown in more detail in the
application, the total operating expense
ratios for the Replacement International
Fund and Replacement Bond Fund are
lower than the net expense ratio for
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Class A shares of, respectively, the
Replaced International Fund and the
Replaced Bond Fund. Substitution
Applicants also state that the
Replacement International Fund
outperformed the Replaced
International Fund significantly and
consistently for the one-, five-, and tenyear periods ended June 30, 2012.
Similarly, Substitution Applicants state
that the Replacement Bond Fund
outperformed the Replaced Bond Fund
significantly and consistently for the
one-, five-, and ten-year periods ended
June 30, 2012. Applicants assert that the
Replacement Funds are appropriate
replacements for the Replaced Funds for
each Contract, and that each
Replacement Fund represents an
investment option that is appropriate
and suitable given the investment
objectives, principal investment
strategies, and principal investment
risks of the corresponding Replaced
Fund and that offers the opportunity for
lower fees and expenses and higher
long-term investment returns in the
future. Moreover, Applicants further
assert that the replacement of the
Replacement Funds with the Replaced
Funds is consistent with the protection
of Contract owners and the purposes
fairly intended by the policy and
provisions of the Act and, thus, meets
the standards necessary to support an
order pursuant to Section 26(c) of the
Act.
11. By supplements to the Contract
prospectuses, the Companies have
notified existing Contract owners (and
will notify new Contract owners who
purchase a Contract subsequent to the
date of the supplement but prior to the
date of substitution) of their intention to
take the necessary actions, including
seeking the order requested by this
Application, to carry out the proposed
substitution as described herein. The
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supplements advised Contract owners
that the Companies intended to file an
application to seek approval of the
substitution, and that if the substitution
is approved, any Contract value
allocated to a subaccount investing in a
Replaced Fund on the date of
substitution would be automatically
transferred to the subaccount investing
in the corresponding Replacement
Fund. In addition, the supplements
disclosed that any Contract owner not
wanting his or her entire Contract value
in the Replaced Fund(s) to be
automatically transferred to the
respective Replacement Fund on the
date of substitution should consider
transferring the Contract value in the
Replaced Fund(s) to other investment
options available under the Contract or,
subject to the provisions of the
Employer’s Plan or the applicable
Contract, to another provider prior to
the date of substitution. The
supplements also disclosed to Contract
owners that the Companies do not
impose charges in connection with the
transfer among or withdrawal from any
of the investment options available
under the Contract, nor do they impose
restrictions on transfers (other than
frequent transfer restrictions). Finally,
the supplements disclosed that the
Companies would bear all expenses
related to the substitution, and that
there would be no tax consequences for
Contract owners as a result of the
substitution. Within five days following
the date of substitution, Contract owners
affected by the substitution will be
notified in writing that the substitution
was carried out. This notice will restate
the information set forth in the
prospectus supplements described
above. The current prospectus for each
Replacement Fund will have been
provided to all Contract owners prior to
the date of substitution and all Contract
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owners will have been given sufficient
advance notice of the date on which the
substitution will take effect.
12. The proposed substitution will
take place at relative net asset value
with no change in the amount of any
Contract owner’s Contract value or
death benefit or in the dollar value of
his or her investment in any of the
separate accounts.
13. It is anticipated that the proposed
substitution will occur on or about
March 22, 2013. The Companies’
separate accounts may carry out the
proposed substitution by redeeming
some or all shares of the Replaced
Funds in-kind on a pro-rata basis, such
that each Replacement Fund will
receive an approximate proportionate
share of every security position in the
corresponding Replaced Fund’s
portfolio in accordance with the
conditions set forth in the Commission’s
no-action letter issued to Signature
Financial Group, Inc. (available
December 28, 1999) (‘‘Signature
Letter’’). The adviser(s) to each
Replacement Fund will review the
proportionate share of securities
holdings of the corresponding Replaced
Fund to determine whether its portfolio
holdings would be suitable investments
for the Replacement Fund in the overall
context of that Fund’s investment
objectives and policies and consistent
with the management of that Fund. If a
Replacement Fund declines to accept
particular securities of the
corresponding Replaced Fund for the
purchase of in-kind of shares of the
Replacement Fund, then the Replaced
Fund will liquidate those portfolio
securities and shares of the Replacement
Funds will be purchased with cash
equal in value to the liquidated portfolio
securities. In either event, the proceeds
of such redemptions will be used to
purchase shares of the Replacement
Funds. Redemption requests and
purchase orders will be placed
simultaneously so that Contract values
will remain fully invested at all times.
All redemptions of shares of the
Replaced Funds and purchases of shares
of the Replacement Funds will be
effected in accordance with Section
22(c) of the Act and Rule 22c–1
thereunder.
14. Contract owners will not incur
any fees or charges as a result of the
substitution, nor will their rights or the
Companies’ obligations under the
Contracts be altered in any way, and the
substitution will not change Contract
owners’ insurance benefits under the
Contracts. All applicable expenses
incurred in connection with the
substitution, including brokerage
commissions and legal, accounting, and
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other fees and expenses, will be paid by
the Companies. In addition, the
substitution will not impose any tax
liability on Contract owners. The
substitution will not cause the Contract
fees and charges currently being paid by
existing Contract owners to be greater
after the substitution than before the
substitution. Because the Contracts do
not limit the number of transfers
permitted among investment options
(other than certain limitations to deter
frequent trading activity), and do not
impose (or reserve the right to impose)
any charges or fees for transfers or
withdrawals, Contract owners will be
able to transfer Contract value from the
subaccounts investing in the Replaced
Funds (before the date of substitution)
or the Replacement Funds (after the date
of substitution) to other investment
options without restriction. Certain
Contract owners may also transfer their
Contract value, subject to the provisions
of their Employer’s Plan or the
applicable Contract, to a new provider
without charge.
15. With respect to the substitution
involving the Replaced Bond Fund and
the Replacement Bond Fund, for those
who are Contract owners on the date of
the proposed substitution, each
Company will reimburse, on the last
business day of each fiscal period (not
to exceed a fiscal quarter) during the
twenty-four months following the date
of the proposed substitution, Contract
owners investing in the Replacement
Bond Fund to the extent that the sum of
the Replacement Bond Fund’s total
annual fund operating expenses as
expressed as a percentage of the average
assets of the fund (after any applicable
fee waiver and/or expense
reimbursement) and subaccount
expenses for such period exceed, on an
annualized basis, the sum of the
corresponding Replaced Bond Fund’s
total annual fund operating expenses
(after any applicable fee waiver and/or
expense reimbursement) and
subaccount expenses for the fiscal year
preceding the date of the proposed
substitution. In addition, for twenty-four
months following the proposed
substitution, each Company will not
increase Contract charges or asset-based
fees of the subaccount investing in the
Replacement Bond Fund for Contracts
outstanding on the date of the proposed
substitution.
16. With respect to the substitution
involving the Replaced International
Fund and the Replacement International
Fund, the Applicants represent that they
will not receive, for three years from the
date of the substitution, any direct or
indirect benefits paid by the
Replacement International Fund, its
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advisors or underwriters (or their
affiliates), in connection with assets
attributable to Contracts affected by the
substitution, at a higher rate than
Applicants have received from the
corresponding Replaced International
Fund, its advisors or underwriters (or
their affiliates), including without
limitation Rule 12b–1 fees, shareholder
service, administration, or other service
fees, revenue sharing, or other
arrangements in connection with such
assets. Applicants represent that the
substitution involving the Replaced
International Portfolio and the
Replacement International Portfolio and
the selection of the Replacement
International Fund were not motivated
by any financial consideration paid or to
be paid by the Replacement
International Fund, its advisors,
underwriters, or their respective
affiliates.
17. Additionally, with respect to the
Replacement Bond Fund, the
Applicants represent that, if an order of
the Commission is granted pursuant to
Section 26(c) of the Act approving the
substitution described herein, then on
or before the date of substitution,
Capital Management, the adviser to the
Replacement Bond Fund, will amend its
investment advisory contract to reduce
its advisory fee by 0.01% to equal
0.39% of average daily net assets. In
other words, on or before the date of
substitution, the advisory fee for the
Replacement Bond Fund will be equal
to the advisory fee of the Replaced Bond
Fund. Applicants further represent that,
following this reduction, the advisory
fee for the Replacement Bond Fund will
not be increased without first obtaining
shareholder approval.
18. The Companies are also seeking
approval of the proposed substitution
from any state insurance regulators
whose approval may be necessary or
appropriate.
Legal Analysis and Conditions
Section 26(c) Relief
1. The Substitution Applicants
request that the Commission issue an
order pursuant to Section 26(c) of the
Act approving the proposed
substitution. Section 26(c) of the Act
requires the depositor of a registered
unit investment trust holding the
securities of a single issuer to obtain
Commission approval before
substituting the securities held by the
trust.
2. Applicants assert that the proposed
substitution is not the type of
substitution that Section 26(c) was
designed to prevent. Unlike traditional
unit investment trusts where a depositor
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could only substitute an investment
security in a manner which
permanently affected all the investors in
the trust, the Contracts provide each
Contract owner with the right to
exercise his or her own judgment and
transfer Contract values into other
subaccounts and the fixed account.
Moreover, the Contracts will offer
Contract owners the opportunity to
transfer amounts out of the affected
subaccounts into any of the remaining
subaccounts without cost or limitation.
In addition, Contract owners always
have the right to change their
allocations at any time without
restrictions or charges of any sort. The
proposed substitution, therefore, will
not result in the type of costly forced
redemption that Section 26(c) was
designed to prevent. In addition,
Contract owners have the right to
transfer their Contract value, subject to
the provisions of their Employer’s Plan
or the applicable Contract, to a new
provider and the Companies will not
impose a fee or charge for such transfer.
3. The Substitution Applicants submit
that the proposed substitution meets the
standards set forth in Section 26(c) and
that, if implemented, the substitution
would not raise any of the concerns that
Congress intended to address when the
Act was amended to include this
provision. In addition, the Applicants
submit that the proposed substitution
meets the standards that the
Commission and its Staff have applied
to substitutions that have been approved
in the past.
Section 17(b) Relief
1. The Section 17 Applicants request
an order under Section 17(b) of the Act
exempting them from the provisions of
Section 17(a) to the extent necessary to
permit the Companies to carry out the
proposed substitution as described
herein.
2. Section 17(a)(1) of the Act, in
relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such person, acting as principal, from
knowingly selling any security or other
property to that company. Section
17(a)(2) of the Act generally prohibits
the persons acting as principals, from
knowingly purchasing any security or
other property from the registered
investment company.
3. Shares held by an insurance
company separate account are legally
owned by the insurance company. Thus,
because Investment Corporation sells its
shares exclusively to the Companies’
separate accounts, the Companies
collectively own all of the shares of
Investment Corporation, and separately
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
Mutual of America owns at least 25% of
the shares of the Replacement Bond
Fund. Accordingly, Investment
Corporation and its portfolios, including
the Replacement Bond Fund, are
arguably under the control of the
Companies, as per Section 2(a)(9)
(notwithstanding the fact that the
Contract Owners are the beneficial
owners of those shares held in the
separate accounts). If Investment
Corporation is under the control of the
Companies, then each Company is an
affiliated person of Investment
Corporation and its portfolios, including
the Replacement Bond Fund. If
Investment Corporation and its
portfolios are under the control of the
Companies, then Investment
Corporation and its respective affiliates
are affiliated persons of the Companies.
Moreover, Mutual of America owns of
record more than 5% of the shares of the
Replacement Bond Fund, and therefore
Mutual of America is an affiliated
person of Investment Corporation and
the Replacement Bond Fund. Likewise,
Investment Corporation and the
Replacement Bond Fund are each an
affiliated person of Mutual of America.
Further, Mutual of America indirectly
controls Capital Management, its
wholly-owned indirect subsidiary, and
Capital Management is therefore
controlled by Mutual of America.
Furthermore, because Capital
Management, as the investment adviser
to Investment Corporation, is an
affiliated person of Investment
Corporation, Mutual of America and
Investment Corporation (and its
portfolios) is each an affiliated person of
an affiliated person of the other. Finally,
Mutual of America owns of record more
than 5% of the shares of the
Replacement International Fund.
Therefore Mutual of America is an
affiliated person of the Replacement
International Fund and the Replacement
International Fund is an affiliated
person of Mutual of America. Because
the proposed substitution may be
effected, in whole or in part, by means
of in-kind redemptions and subsequent
purchases of shares, the proposed
substitution may be deemed to involve
one or more purchases or sales of
securities or property between affiliated
persons. The proposed substitution may
involve a transfer of portfolio securities
by the Replaced Funds to the
Companies; immediately thereafter, the
Companies would purchase shares of
the Replacement Funds with the
portfolio securities received from the
Replaced Funds. Accordingly, as the
Companies and the Replacement Funds
could be viewed as affiliated persons of
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
one another, it is conceivable that this
aspect of the proposed substitution
could be viewed as being prohibited by
Section 17(a). The 17(a) Applicants have
determined that it is prudent to seek
relief from Section 17(a) in the context
of this Application for the in-kind
purchases and sales of the Replacement
Funds’ shares.
4. The 17(a) Applicants submit that
the terms of the proposed in-kind
purchases of shares of the Replacement
Funds, including the consideration to be
paid and received, as described in this
Application, are reasonable and fair and
do not involve overreaching on the part
of any persons concerned. The 17(a)
Applicants also submit that the
proposed in-kind purchases will be
consistent with the investment policies
of the Vanguard Fund, the DWS Fund,
and the Investment Corporation, and the
Replaced and Replacement Funds, as
recited in the current registration
statements and reports filed by them
under the Act. Finally, the 17(a)
Applicants submit that the proposed
substitution is consistent with the
general purposes of the Act. The 17(a)
Applicants assert that, to the extent that
the in-kind purchases are deemed to
involve principal transactions among
affiliated persons, the procedures
described below should be sufficient to
assure that the terms of the proposed
transactions are reasonable and fair to
all Contract owners. The 17(a)
Applicants maintain that the terms of
the proposed in-kind purchase
transactions, including the
consideration to be paid and received by
each fund involved, are reasonable, fair
and do not involve overreaching on the
part of any person principally because
the transactions will conform with all
but one of the conditions enumerated in
Rule 17a–7. The proposed transactions
will take place at relative net asset
values as of the date of substitution in
conformity with the requirements of
Section 22(c) of the Act and Rule 22c–
1 thereunder with no change in the
amount of any Contract owner’s
Contract value or death benefit or in the
dollar value of his or her investment in
any of the separate accounts. Contract
owners will not suffer any adverse tax
consequences as a result of the
substitution. The fees and charges under
the Contracts will not increase because
of the substitution. Even though the
17(a) Applicants may not rely on Rule
17a–7, the 17(a) Applicants believe that
the Rule’s conditions outline the type of
safeguards that result in transactions
that are fair and reasonable to registered
investment company participants and
preclude overreaching in connection
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11DEN1
tkelley on DSK3SPTVN1PROD with
Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
with an investment company by its
affiliated persons.
5. The boards of the Replacement
Funds have adopted procedures, as
required by paragraph (e)(1) of Rule
17a–7, pursuant to which their series
may purchase and sell securities to and
from their affiliates. The 17(a)
Applicants will carry out the proposed
in-kind purchases in conformity with all
of the conditions of Rule 17a–7 and the
Replacement Funds’ procedures
adopted thereunder, except that the
consideration paid for the securities
being purchased or sold may not be
entirely cash. The investment advisers
of the Replacement Funds will examine
any securities received from an in-kind
redemption, and accept any securities
that they would otherwise have
purchased for cash for the respective
portfolio to hold. The circumstances
surrounding the proposed substitution
will be such as to offer the Replacement
Funds the same degree of protection
from overreaching that Rule 17a–7
provides to them generally in
connection with their purchase and sale
of securities under that Rule in the
ordinary course of their business. In
particular, the proposed transactions
will not be effected at a price that is
disadvantageous to the Replacement
Funds. Although the transactions may
not be entirely for cash, each will be
effected based upon (1) the independent
market price of the portfolio securities
valued as specified in paragraph (b) of
Rule 17a–7, and (2) the net asset value
per share of each Fund involved valued
in accordance with the procedures
disclosed in its registration statement
and as required by Rule 22c–1 under the
Act. Moreover, consistent with Rule
17a–7(d), no brokerage commissions,
fees, or other cost or remuneration will
be paid in connection with the proposed
transactions, except for any brokerage
commissions paid in connection with
the liquidation of the securities that are
not distributed as part of the in-kind
redemption, which will be borne by the
Companies and not by the Contract
owners.
6. Applicants state that, consistent
with Section 17(b) and Rule 17a–7(c),
any in-kind redemptions and purchases
for purposes of the proposed
substitution will be transacted in a
manner consistent with the investment
objectives and policies of the Vanguard
Fund, the DWS Fund, and the
Investment Corporation, as recited in
their registration statements. Any inkind redemptions will be effected on a
pro-rata basis, where each Replacement
Fund will receive an approximate
proportionate share of every security
position in the corresponding Replaced
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
Fund’s portfolio in accordance with the
Signature Letter. The adviser(s) to each
Replacement Fund will review the
proportionate share of securities
holdings of the corresponding Replaced
Fund to determine whether such
holdings would be suitable investments
for the Replacement Fund in the overall
context of that Fund’s investment
objectives and policies and consistent
with the management of that Fund. If
the adviser declines to accept particular
portfolio securities of the Replaced
Fund for purchase in-kind of shares of
the Replacement Fund, the Replaced
Fund will liquidate those portfolio
securities as necessary and shares of the
Replacement Fund will be purchased
with cash equal in value to the
liquidated portfolio securities. In
addition, the redeeming and purchasing
values of such securities will be the
same.
Conclusion
For the reasons and upon the facts set
forth above and in the application, the
Substitution Applicants and the Section
17 Applicants believe that the requested
orders meet the standards set forth in
Section 26(c) of the Act and Section
17(b) of the Act, respectively, and
should therefore, be granted.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–29858 Filed 12–10–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68354; File No. SR–
NYSEMKT–2012–73]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 472—
Equities, Which Addresses
Communications With the Public,
Adopting New Rule Text To Conform to
the Changes Adopted by the Financial
Industry Regulatory Authority, Inc. for
Research Analysts and Research
Reports as Required by the Jumpstart
Our Business Startups Act
December 4, 2012.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on November
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00095
Fmt 4703
27, 2012, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’ or
‘‘SEC’’) the proposed rule change as
described in Items I and II below, which
Items have been substantially prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 472—Equities, which addresses
communications with the public, to
adopt new rule text to conform to the
changes adopted by the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) for research analysts and
research reports as required by the
Jumpstart Our Business Startups Act
(the ‘‘JOBS Act’’).4 The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 472—Equities, which addresses
communications with the public, to
adopt new rule text to conform to the
changes adopted by FINRA for research
analysts and research reports as
required by the JOBS Act.5
4 Public
Law 112–106, 126 Stat. 306.
Securities Exchange Act Release No. 68037
(October 11, 2012), 77 FR 63908 (October 17, 2012)
(SR–FINRA–2012–045). See also FINRA Regulatory
Notice 12–49.
5 See
1 15
Sfmt 4703
73705
E:\FR\FM\11DEN1.SGM
11DEN1
]]>Agencies
[Federal Register Volume 77, Number 238 (Tuesday, December 11, 2012)]
[Notices]
[Pages 73700-73705]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29858]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30292; File No. 812-14059]
Mutual of America Life Insurance Company, et al; Notice of
Application
December 5, 2012.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order approving the substitution
of certain securities pursuant to Section 26(c) of the Investment
Company Act of 1940, as amended (the ``1940 Act'' or ``Act'') and an
order of exemption pursuant to Section 17(b) of the Act from Section
17(a) of the Act.
-----------------------------------------------------------------------
APPLICANTS: Mutual of America Life Insurance Company (``Mutual of
America''), Wilton Reassurance Life Company of New York (``Wilton,''
and, together with Mutual of America Life Insurance Company, the
``Insurance Companies''), Mutual of America Separate Account No. 2 (the
``Annuity Account''), Mutual of America Separate Account No. 3 (the
``Life Account''), American Separate Account No. 2 (the ``American
Annuity Account''), and American Separate Account No. 3 (the ``American
Life Account,'' and together with the Annuity Account, the Life
Account, and the American Annuity Account, the ``Separate Accounts'').
The Insurance Companies and the Separate Accounts are referred to
herein collectively as the ``Substitution Applicants.'' The Insurance
Companies, the Separate Accounts, and Mutual of America Investment
Corporation (``Investment Corporation'') are also collectively referred
to as the ``Section 17 Applicants.''
SUMMARY OF APPLICATION: The Substitution Applicants seek an order
pursuant to Section 26(c) of the 1940 Act, approving the substitution
of shares of: (a) the Vanguard International Portfolio (``Replacement
International Fund'') of the Vanguard Variable Insurance Fund
(``Vanguard Fund'') for Class A Shares of the DWS International VIP
Fund (``Replaced International Fund'') of the DWS Variable Series I
(``DWS Fund''), and (b) the Mutual of America Bond Fund (``Replacement
Bond Fund'') of Investment Corporation for Class A Shares of the DWS
Bond VIP Fund (``Replaced Bond Fund'') of the DWS Fund, under certain
variable life insurance and annuity contracts issued by the Companies
(collectively, the ``Contracts''). The Replacement International Fund
and the Replacement Bond Fund are sometimes referred to collectively as
``Replacement Funds,'' and the Replaced International Fund and the
Replaced Bond Fund are sometimes referred to collectively as ``Replaced
Funds.'' The Section 17 Applicants seek an order pursuant to Section
17(b) of the 1940 Act exempting them from Section 17(a) of the Act to
the extent necessary to permit them to engage in certain in-kind
transactions in connection with the substitution.
FILING DATE: The application was filed on July 17, 2012, and the
amended and restated application was filed on November 21, 2012.
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 the 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 December 28, 2012, and should be 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 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, SEC, 100 F Street NE., Washington, DC 20549-1090.
Applicants: Mutual of America Life Insurance Company, Mutual of America
Separate Account No. 2, Mutual of America Separate Account No. 3,
Wilton Reassurance Life Company of New York, American Separate Account
No. 2, American Separate Account No. 3, and Mutual of America
Investment Corporation, all located at 320 Park Avenue, New York, New
York 10022-68391.
FOR FURTHER INFORMATION CONTACT: Deborah D. Skeens, Senior Counsel, or
Michael L. Kosoff, 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 for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. The Insurance Companies, on their own behalf and on behalf of
their respective separate accounts, propose to substitute Class A
shares of the Replacement Funds for shares of the Replaced Funds held
by the Separate Accounts to fund the Contracts.
2. Mutual of America is the depositor and sponsor of the Annuity
Account and the Life Account. Wilton is the depositor and sponsor of
the American Annuity Account and the American Life Account.
3. Each of the Annuity Account, the Life Account, the American
Annuity Account, and the American Life Account is a ``separate
account'' as defined by Rule 0-1(e) under the Act and each is
registered under the Act as a unit investment trust for the purpose of
funding the Contracts. Security interests under the Contracts have been
registered under the Securities Act of 1933. The application sets forth
the registration statement file numbers for the Contracts and the
Separate Accounts.
4. The DWS Fund and the Vanguard Fund are registered open-end
management investment companies of the series type (File Number 002-
96461
[[Page 73701]]
and 033-32216, respectively). Investment Corporation is a registered
open-end management investment company of the series type (File Number
033-06486) which only sells its shares to the separate accounts of
Mutual of America and Wilton that are used for their variable annuity
and variable life insurance contracts, including the Replacement Bond
Fund.
5. The substitution will replace an investment option (i.e., the
Replaced Bond Fund) managed by an entity that is not affiliated with
the Substitution Applicants as of the date hereof (other than by way of
certain of the Substitution Applicants owning more than 5% of the
shares of the Replaced Funds) with an investment option (i.e., the
Replacement Bond Fund) that is managed by an investment manager that is
affiliated with Mutual of America. Neither Investment Corporation nor
Replacement Bond Fund's investment adviser, Mutual of America Capital
Management Corporation (``Capital Management'') is affiliated with
Wilton or its separate account. Both the Replaced International Fund
and the Replacement International Fund are managed by entities that are
not affiliated with the Substitution Applicants as of the date hereof
(other than by way of certain of the Substitution Applicants owning
more than 5% of the shares of the Replacement Funds).
6. The Contracts are flexible premium variable annuity and variable
universal life insurance contracts. Under each of the Contracts (the
proper form of which is provided to every Contract owner) as well as
the prospectus for each Contract, the issuing Company reserves the
right to substitute shares of one fund for shares of another fund
managed by either the same investment adviser, or by a different
investment adviser.
7. Applicants represent that the Replacement International Fund has
an investment objective virtually identical to that of the Replaced
International Fund--the Replacement Fund seeks long-term capital
appreciation and the Replaced Fund seeks long-term growth of capital.
Additionally, the Applicants state that the principal investment
strategies of each Fund are substantially similar. Both Funds primarily
invest in the common stock of foreign companies (i.e., non-US domiciled
companies) and are generally well diversified both with respect to
geographic region and industry. Both may also invest in depositary
receipts and convertible securities. Both Funds permit exposure to
emerging markets and have historically allocated assets to this segment
of the market. A comparison of the investing strategies, risks, and
performance of the Replaced International Fund and the Replacement
International Fund is included in the application. The following table
compares the fees and expenses of the Replaced International Fund
(Class A shares) and the Replacement International Fund (Class A
shares) as of the year ended December 31, 2011 and the six months ended
June 30, 2012. Neither the Replaced International Fund nor the
Replacement International Fund is subject to a distribution plan or
shareholder service plan adopted under Rule 12b-1 of the Act. Neither
the Replaced International Fund nor the Replacement International Fund
impose a redemption fee.
----------------------------------------------------------------------------------------------------------------
Replaced International Fund Replacement International Fund
---------------------------------------------------------------
DWS International VIP Fund Vanguard International Fund
---------------------------------------------------------------
Six months Six months
Year ended 12/ ended 6/30/ Year ended 12/ ended 6/30/
31/11 2012 31/11 2012
(percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Advisory Fees................................... 0.79 0.79 0.46 0.46
Distribution/Service (12b-1) Fee................ 0.00 0.00 0.00 0.00
Other Expenses.................................. 0.21 0.22 0.05 0.05
---------------------------------------------------------------
Total Annual Fund Operating Expenses........ 1.00 1.01 0.51 0.51
----------------------------------------------------------------------------------------------------------------
Less Contractual Fee Waivers and Expense 0.00 0.00 0.00 0.00
Reimbursements.................................
Net Annual Fund Operating Expenses.............. 1.00 1.01 0.51 0.51
Portfolio Turnover Rate......................... 174 51 33 26
----------------------------------------------------------------------------------------------------------------
8. The Applicants state that the Replacement Bond Fund has an
investment objective similar to that of the Replaced Bond Fund. Both
Funds have objectives that relate to current income as well as
preservation of capital. While the Replaced Bond Fund also seeks to
maximize total return, and invests for capital appreciation in addition
to current income, its investment approach, security selection process
and higher portfolio turnover rates have resulted in a more risky
investment strategy than that of the Replacement Bond Fund (as further
discussed below). Both Funds pursue their investment objectives by
primarily investing, under normal market conditions, in publicly-
traded, investment-grade debt securities. Each invests in investment
grade bonds issued by US corporations or by the US Government or its
agencies, such as bonds, notes, debentures, zero coupon securities and
mortgage-backed securities. Further, the Replacement Bond Fund and the
Replaced Bond Fund both utilize the same benchmark, the Barclay's
Capital U.S. Aggregate Bond Index, to measure their relative investment
performance. A comparison of the investing strategies, risks, and
performance of the Replaced Bond Fund and the Replacement Bond Fund is
included in the application. The following table compares the fees and
expenses of the Replaced Bond Fund (Class A shares) and the Replacement
Bond Fund (Class A shares) as of the year ended December 31, 2011 and
the six months ended June 30, 2012. Neither the Replaced Bond Fund nor
the Replacement Bond Fund is subject to a distribution plan or
shareholder service plan adopted under Rule 12b-1 of the Act. Neither
the Replaced Bond Fund nor the Replacement Bond Fund impose a
redemption fee.
[[Page 73702]]
----------------------------------------------------------------------------------------------------------------
Replaced Bond Fund Replacement Bond Fund
---------------------------------------------------------
DWS Bond Fund Mutual of America Bond
------------------------------ Fund
---------------------------
Year ended 12/ Six months Six months
31/11 ended 6/30/ Year ended ended 6/30/
(percent) 2012 12/31/11 2012
(percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Advisory Fees......................................... 0.39 0.39 0.40 \1\ 0.40
Distribution/Service (12b-1) Fee...................... 0.00 0.00 0.00 0.00
Other Expenses........................................ 0.23 0.22 0.15 0.17
---------------------------------------------------------
Total Annual Fund Operating Expenses.............. 0.62 0.61 0.55 0.57
----------------------------------------------------------------------------------------------------------------
Less Contractual Fee Waivers and Expense 0.00 0.00 0.00 0.00
Reimbursements.......................................
Net Annual Fund Operating Expenses.................... 0.62 0.61 0.55 0.57
Portfolio Turnover.................................... 219 144 30 16.97
----------------------------------------------------------------------------------------------------------------
\1\ Applicants represent that if an order of the Commission is granted pursuant to Section 26(c) of the Act
approving the substitution described herein, then on or before the date of substitution, the investment
adviser to the Replacement Bond Fund will amend its investment advisory contract to reduce its advisory fee by
0.01% to equal 0.39% of average daily net assets for all shareholders of the fund.
9. The Substitution Applicants state that the proposed substitution
is part of the Companies' ongoing efforts to provide the Contracts with
investment options that have: (1) A competitive fee structure relative
to other funds in the same asset class peer group; (2) demonstrated the
ability to achieve competitive long-term investment returns relative to
other funds in the same asset class peer group; and (3) contributed to
and enhanced the goal of offering an attractive array of investment
options covering many various investment styles, objectives, and
categories in the risk/return spectrum. The Substitution Applicants
further state that substituting the Replacement Funds for the Replaced
Funds will provide Contract owners with investment options that have
not only virtually identical investment objectives and substantially
similar principal investment strategies and principal investment risks
to their respective Replaced Fund, but are, overall, less expensive
relative to other funds in their respective asset classes, better
positioned to achieve consistent long-term above-average investment
performance, and have substantially greater potential for continued
growth in assets under management. Substitution Applicants further
state that following the substitution Contract owners will have
reasonable continuity with respect to their investment expectations.
For these reasons and the reasons discussed below, the Substitution
Applicants believe that substituting the Replacement Funds for the
Replaced Funds is appropriate and in the best interest of Contract
owners.
10. As shown in more detail in the application, the total operating
expense ratios for the Replacement International Fund and Replacement
Bond Fund are lower than the net expense ratio for Class A shares of,
respectively, the Replaced International Fund and the Replaced Bond
Fund. Substitution Applicants also state that the Replacement
International Fund outperformed the Replaced International Fund
significantly and consistently for the one-, five-, and ten-year
periods ended June 30, 2012. Similarly, Substitution Applicants state
that the Replacement Bond Fund outperformed the Replaced Bond Fund
significantly and consistently for the one-, five-, and ten-year
periods ended June 30, 2012. Applicants assert that the Replacement
Funds are appropriate replacements for the Replaced Funds for each
Contract, and that each Replacement Fund represents an investment
option that is appropriate and suitable given the investment
objectives, principal investment strategies, and principal investment
risks of the corresponding Replaced Fund and that offers the
opportunity for lower fees and expenses and higher long-term investment
returns in the future. Moreover, Applicants further assert that the
replacement of the Replacement Funds with the Replaced Funds is
consistent with the protection of Contract owners and the purposes
fairly intended by the policy and provisions of the Act and, thus,
meets the standards necessary to support an order pursuant to Section
26(c) of the Act.
11. By supplements to the Contract prospectuses, the Companies have
notified existing Contract owners (and will notify new Contract owners
who purchase a Contract subsequent to the date of the supplement but
prior to the date of substitution) of their intention to take the
necessary actions, including seeking the order requested by this
Application, to carry out the proposed substitution as described
herein. The supplements advised Contract owners that the Companies
intended to file an application to seek approval of the substitution,
and that if the substitution is approved, any Contract value allocated
to a subaccount investing in a Replaced Fund on the date of
substitution would be automatically transferred to the subaccount
investing in the corresponding Replacement Fund. In addition, the
supplements disclosed that any Contract owner not wanting his or her
entire Contract value in the Replaced Fund(s) to be automatically
transferred to the respective Replacement Fund on the date of
substitution should consider transferring the Contract value in the
Replaced Fund(s) to other investment options available under the
Contract or, subject to the provisions of the Employer's Plan or the
applicable Contract, to another provider prior to the date of
substitution. The supplements also disclosed to Contract owners that
the Companies do not impose charges in connection with the transfer
among or withdrawal from any of the investment options available under
the Contract, nor do they impose restrictions on transfers (other than
frequent transfer restrictions). Finally, the supplements disclosed
that the Companies would bear all expenses related to the substitution,
and that there would be no tax consequences for Contract owners as a
result of the substitution. Within five days following the date of
substitution, Contract owners affected by the substitution will be
notified in writing that the substitution was carried out. This notice
will restate the information set forth in the prospectus supplements
described above. The current prospectus for each Replacement Fund will
have been provided to all Contract owners prior to the date of
substitution and all Contract
[[Page 73703]]
owners will have been given sufficient advance notice of the date on
which the substitution will take effect.
12. The proposed substitution will take place at relative net asset
value with no change in the amount of any Contract owner's Contract
value or death benefit or in the dollar value of his or her investment
in any of the separate accounts.
13. It is anticipated that the proposed substitution will occur on
or about March 22, 2013. The Companies' separate accounts may carry out
the proposed substitution by redeeming some or all shares of the
Replaced Funds in-kind on a pro-rata basis, such that each Replacement
Fund will receive an approximate proportionate share of every security
position in the corresponding Replaced Fund's portfolio in accordance
with the conditions set forth in the Commission's no-action letter
issued to Signature Financial Group, Inc. (available December 28, 1999)
(``Signature Letter''). The adviser(s) to each Replacement Fund will
review the proportionate share of securities holdings of the
corresponding Replaced Fund to determine whether its portfolio holdings
would be suitable investments for the Replacement Fund in the overall
context of that Fund's investment objectives and policies and
consistent with the management of that Fund. If a Replacement Fund
declines to accept particular securities of the corresponding Replaced
Fund for the purchase of in-kind of shares of the Replacement Fund,
then the Replaced Fund will liquidate those portfolio securities and
shares of the Replacement Funds will be purchased with cash equal in
value to the liquidated portfolio securities. In either event, the
proceeds of such redemptions will be used to purchase shares of the
Replacement Funds. Redemption requests and purchase orders will be
placed simultaneously so that Contract values will remain fully
invested at all times. All redemptions of shares of the Replaced Funds
and purchases of shares of the Replacement Funds will be effected in
accordance with Section 22(c) of the Act and Rule 22c-1 thereunder.
14. Contract owners will not incur any fees or charges as a result
of the substitution, nor will their rights or the Companies'
obligations under the Contracts be altered in any way, and the
substitution will not change Contract owners' insurance benefits under
the Contracts. All applicable expenses incurred in connection with the
substitution, including brokerage commissions and legal, accounting,
and other fees and expenses, will be paid by the Companies. In
addition, the substitution will not impose any tax liability on
Contract owners. The substitution will not cause the Contract fees and
charges currently being paid by existing Contract owners to be greater
after the substitution than before the substitution. Because the
Contracts do not limit the number of transfers permitted among
investment options (other than certain limitations to deter frequent
trading activity), and do not impose (or reserve the right to impose)
any charges or fees for transfers or withdrawals, Contract owners will
be able to transfer Contract value from the subaccounts investing in
the Replaced Funds (before the date of substitution) or the Replacement
Funds (after the date of substitution) to other investment options
without restriction. Certain Contract owners may also transfer their
Contract value, subject to the provisions of their Employer's Plan or
the applicable Contract, to a new provider without charge.
15. With respect to the substitution involving the Replaced Bond
Fund and the Replacement Bond Fund, for those who are Contract owners
on the date of the proposed substitution, each Company will reimburse,
on the last business day of each fiscal period (not to exceed a fiscal
quarter) during the twenty-four months following the date of the
proposed substitution, Contract owners investing in the Replacement
Bond Fund to the extent that the sum of the Replacement Bond Fund's
total annual fund operating expenses as expressed as a percentage of
the average assets of the fund (after any applicable fee waiver and/or
expense reimbursement) and subaccount expenses for such period exceed,
on an annualized basis, the sum of the corresponding Replaced Bond
Fund's total annual fund operating expenses (after any applicable fee
waiver and/or expense reimbursement) and subaccount expenses for the
fiscal year preceding the date of the proposed substitution. In
addition, for twenty-four months following the proposed substitution,
each Company will not increase Contract charges or asset-based fees of
the subaccount investing in the Replacement Bond Fund for Contracts
outstanding on the date of the proposed substitution.
16. With respect to the substitution involving the Replaced
International Fund and the Replacement International Fund, the
Applicants represent that they will not receive, for three years from
the date of the substitution, any direct or indirect benefits paid by
the Replacement International Fund, its advisors or underwriters (or
their affiliates), in connection with assets attributable to Contracts
affected by the substitution, at a higher rate than Applicants have
received from the corresponding Replaced International Fund, its
advisors or underwriters (or their affiliates), including without
limitation Rule 12b-1 fees, shareholder service, administration, or
other service fees, revenue sharing, or other arrangements in
connection with such assets. Applicants represent that the substitution
involving the Replaced International Portfolio and the Replacement
International Portfolio and the selection of the Replacement
International Fund were not motivated by any financial consideration
paid or to be paid by the Replacement International Fund, its advisors,
underwriters, or their respective affiliates.
17. Additionally, with respect to the Replacement Bond Fund, the
Applicants represent that, if an order of the Commission is granted
pursuant to Section 26(c) of the Act approving the substitution
described herein, then on or before the date of substitution, Capital
Management, the adviser to the Replacement Bond Fund, will amend its
investment advisory contract to reduce its advisory fee by 0.01% to
equal 0.39% of average daily net assets. In other words, on or before
the date of substitution, the advisory fee for the Replacement Bond
Fund will be equal to the advisory fee of the Replaced Bond Fund.
Applicants further represent that, following this reduction, the
advisory fee for the Replacement Bond Fund will not be increased
without first obtaining shareholder approval.
18. The Companies are also seeking approval of the proposed
substitution from any state insurance regulators whose approval may be
necessary or appropriate.
Legal Analysis and Conditions
Section 26(c) Relief
1. The Substitution Applicants request that the Commission issue an
order pursuant to Section 26(c) of the Act approving the proposed
substitution. Section 26(c) of the Act requires the depositor of a
registered unit investment trust holding the securities of a single
issuer to obtain Commission approval before substituting the securities
held by the trust.
2. Applicants assert that the proposed substitution is not the type
of substitution that Section 26(c) was designed to prevent. Unlike
traditional unit investment trusts where a depositor
[[Page 73704]]
could only substitute an investment security in a manner which
permanently affected all the investors in the trust, the Contracts
provide each Contract owner with the right to exercise his or her own
judgment and transfer Contract values into other subaccounts and the
fixed account. Moreover, the Contracts will offer Contract owners the
opportunity to transfer amounts out of the affected subaccounts into
any of the remaining subaccounts without cost or limitation. In
addition, Contract owners always have the right to change their
allocations at any time without restrictions or charges of any sort.
The proposed substitution, therefore, will not result in the type of
costly forced redemption that Section 26(c) was designed to prevent. In
addition, Contract owners have the right to transfer their Contract
value, subject to the provisions of their Employer's Plan or the
applicable Contract, to a new provider and the Companies will not
impose a fee or charge for such transfer.
3. The Substitution Applicants submit that the proposed
substitution meets the standards set forth in Section 26(c) and that,
if implemented, the substitution would not raise any of the concerns
that Congress intended to address when the Act was amended to include
this provision. In addition, the Applicants submit that the proposed
substitution meets the standards that the Commission and its Staff have
applied to substitutions that have been approved in the past.
Section 17(b) Relief
1. The Section 17 Applicants request an order under Section 17(b)
of the Act exempting them from the provisions of Section 17(a) to the
extent necessary to permit the Companies to carry out the proposed
substitution as described herein.
2. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling any
security or other property to that company. Section 17(a)(2) of the Act
generally prohibits the persons acting as principals, from knowingly
purchasing any security or other property from the registered
investment company.
3. Shares held by an insurance company separate account are legally
owned by the insurance company. Thus, because Investment Corporation
sells its shares exclusively to the Companies' separate accounts, the
Companies collectively own all of the shares of Investment Corporation,
and separately Mutual of America owns at least 25% of the shares of the
Replacement Bond Fund. Accordingly, Investment Corporation and its
portfolios, including the Replacement Bond Fund, are arguably under the
control of the Companies, as per Section 2(a)(9) (notwithstanding the
fact that the Contract Owners are the beneficial owners of those shares
held in the separate accounts). If Investment Corporation is under the
control of the Companies, then each Company is an affiliated person of
Investment Corporation and its portfolios, including the Replacement
Bond Fund. If Investment Corporation and its portfolios are under the
control of the Companies, then Investment Corporation and its
respective affiliates are affiliated persons of the Companies.
Moreover, Mutual of America owns of record more than 5% of the shares
of the Replacement Bond Fund, and therefore Mutual of America is an
affiliated person of Investment Corporation and the Replacement Bond
Fund. Likewise, Investment Corporation and the Replacement Bond Fund
are each an affiliated person of Mutual of America. Further, Mutual of
America indirectly controls Capital Management, its wholly-owned
indirect subsidiary, and Capital Management is therefore controlled by
Mutual of America. Furthermore, because Capital Management, as the
investment adviser to Investment Corporation, is an affiliated person
of Investment Corporation, Mutual of America and Investment Corporation
(and its portfolios) is each an affiliated person of an affiliated
person of the other. Finally, Mutual of America owns of record more
than 5% of the shares of the Replacement International Fund. Therefore
Mutual of America is an affiliated person of the Replacement
International Fund and the Replacement International Fund is an
affiliated person of Mutual of America. Because the proposed
substitution may be effected, in whole or in part, by means of in-kind
redemptions and subsequent purchases of shares, the proposed
substitution may be deemed to involve one or more purchases or sales of
securities or property between affiliated persons. The proposed
substitution may involve a transfer of portfolio securities by the
Replaced Funds to the Companies; immediately thereafter, the Companies
would purchase shares of the Replacement Funds with the portfolio
securities received from the Replaced Funds. Accordingly, as the
Companies and the Replacement Funds could be viewed as affiliated
persons of one another, it is conceivable that this aspect of the
proposed substitution could be viewed as being prohibited by Section
17(a). The 17(a) Applicants have determined that it is prudent to seek
relief from Section 17(a) in the context of this Application for the
in-kind purchases and sales of the Replacement Funds' shares.
4. The 17(a) Applicants submit that the terms of the proposed in-
kind purchases of shares of the Replacement Funds, including the
consideration to be paid and received, as described in this
Application, are reasonable and fair and do not involve overreaching on
the part of any persons concerned. The 17(a) Applicants also submit
that the proposed in-kind purchases will be consistent with the
investment policies of the Vanguard Fund, the DWS Fund, and the
Investment Corporation, and the Replaced and Replacement Funds, as
recited in the current registration statements and reports filed by
them under the Act. Finally, the 17(a) Applicants submit that the
proposed substitution is consistent with the general purposes of the
Act. The 17(a) Applicants assert that, to the extent that the in-kind
purchases are deemed to involve principal transactions among affiliated
persons, the procedures described below should be sufficient to assure
that the terms of the proposed transactions are reasonable and fair to
all Contract owners. The 17(a) Applicants maintain that the terms of
the proposed in-kind purchase transactions, including the consideration
to be paid and received by each fund involved, are reasonable, fair and
do not involve overreaching on the part of any person principally
because the transactions will conform with all but one of the
conditions enumerated in Rule 17a-7. The proposed transactions will
take place at relative net asset values as of the date of substitution
in conformity with the requirements of Section 22(c) of the Act and
Rule 22c-1 thereunder with no change in the amount of any Contract
owner's Contract value or death benefit or in the dollar value of his
or her investment in any of the separate accounts. Contract owners will
not suffer any adverse tax consequences as a result of the
substitution. The fees and charges under the Contracts will not
increase because of the substitution. Even though the 17(a) Applicants
may not rely on Rule 17a-7, the 17(a) Applicants believe that the
Rule's conditions outline the type of safeguards that result in
transactions that are fair and reasonable to registered investment
company participants and preclude overreaching in connection
[[Page 73705]]
with an investment company by its affiliated persons.
5. The boards of the Replacement Funds have adopted procedures, as
required by paragraph (e)(1) of Rule 17a-7, pursuant to which their
series may purchase and sell securities to and from their affiliates.
The 17(a) Applicants will carry out the proposed in-kind purchases in
conformity with all of the conditions of Rule 17a-7 and the Replacement
Funds' procedures adopted thereunder, except that the consideration
paid for the securities being purchased or sold may not be entirely
cash. The investment advisers of the Replacement Funds will examine any
securities received from an in-kind redemption, and accept any
securities that they would otherwise have purchased for cash for the
respective portfolio to hold. The circumstances surrounding the
proposed substitution will be such as to offer the Replacement Funds
the same degree of protection from overreaching that Rule 17a-7
provides to them generally in connection with their purchase and sale
of securities under that Rule in the ordinary course of their business.
In particular, the proposed transactions will not be effected at a
price that is disadvantageous to the Replacement Funds. Although the
transactions may not be entirely for cash, each will be effected based
upon (1) the independent market price of the portfolio securities
valued as specified in paragraph (b) of Rule 17a-7, and (2) the net
asset value per share of each Fund involved valued in accordance with
the procedures disclosed in its registration statement and as required
by Rule 22c-1 under the Act. Moreover, consistent with Rule 17a-7(d),
no brokerage commissions, fees, or other cost or remuneration will be
paid in connection with the proposed transactions, except for any
brokerage commissions paid in connection with the liquidation of the
securities that are not distributed as part of the in-kind redemption,
which will be borne by the Companies and not by the Contract owners.
6. Applicants state that, consistent with Section 17(b) and Rule
17a-7(c), any in-kind redemptions and purchases for purposes of the
proposed substitution will be transacted in a manner consistent with
the investment objectives and policies of the Vanguard Fund, the DWS
Fund, and the Investment Corporation, as recited in their registration
statements. Any in-kind redemptions will be effected on a pro-rata
basis, where each Replacement Fund will receive an approximate
proportionate share of every security position in the corresponding
Replaced Fund's portfolio in accordance with the Signature Letter. The
adviser(s) to each Replacement Fund will review the proportionate share
of securities holdings of the corresponding Replaced Fund to determine
whether such holdings would be suitable investments for the Replacement
Fund in the overall context of that Fund's investment objectives and
policies and consistent with the management of that Fund. If the
adviser declines to accept particular portfolio securities of the
Replaced Fund for purchase in-kind of shares of the Replacement Fund,
the Replaced Fund will liquidate those portfolio securities as
necessary and shares of the Replacement Fund will be purchased with
cash equal in value to the liquidated portfolio securities. In
addition, the redeeming and purchasing values of such securities will
be the same.
Conclusion
For the reasons and upon the facts set forth above and in the
application, the Substitution Applicants and the Section 17 Applicants
believe that the requested orders meet the standards set forth in
Section 26(c) of the Act and Section 17(b) of the Act, respectively,
and should therefore, be granted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29858 Filed 12-10-12; 8:45 am]
BILLING CODE 8011-01-P
