American Family Life Insurance Company, et al., 38413-38416 [2013-15242]
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Federal Register / Vol. 78, No. 123 / Wednesday, June 26, 2013 / Notices
38413
ESTIMATE OF ANNUAL RESPONDENT BURDEN—Continued
[The estimated annual respondent burden is as follows]
Annual
responses
Form No.
Total ....................................................................................................................
Additional Information or Comments:
To request more information or to
obtain a copy of the information
collection justification, forms, and/or
supporting material, contact Dana
Hickman at (312) 751–4981 or
Dana.Hickman@RRB.GOV. Comments
regarding the information collection
should be addressed to Charles
Mierzwa, Railroad Retirement Board,
844 North Rush Street, Chicago, Illinois
60611–2092 or emailed to
Charles.Mierzwa@RRB.GOV. Written
comments should be received within 60
days of this notice.
Charles Mierzwa,
Chief of Information Resources Management.
[FR Doc. 2013–15245 Filed 6–25–13; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30564; File No. 812–14109]
American Family Life Insurance
Company, et al.
June 20, 2013.
Securities and Exchange
Commission (‘‘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’’).
AGENCY:
American Family Life
Insurance Company (the ‘‘Company’’),
American Family Variable Account I
(the ‘‘Life Account’’), and American
Family Variable Account II (the
‘‘Annuity Account’’) (together, the
‘‘Applicants’’).
SUMMARY OF APPLICATION: The
Applicants seek an order pursuant to
Section 26(c) of the 1940 Act, approving
the substitution of shares of the
Vanguard Money Market Portfolio
(‘‘Replacement Portfolio’’) of the
Vanguard Variable Insurance Fund
(‘‘Vanguard Fund’’) for Initial Class
Shares of the Fidelity Variable
Insurance Products Money Market
Portfolio (‘‘Replaced Portfolio’’) of the
Fidelity Variable Insurance Products
Fund (‘‘Fidelity Fund’’), currently held
mstockstill on DSK4VPTVN1PROD with NOTICES
APPLICANTS:
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20:26 Jun 25, 2013
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1,603
by the Life Account and the Annuity
Account (each an ‘‘Account,’’ together,
the ‘‘Accounts’’) to support variable life
insurance and annuity contracts issued
by the Company (collectively, the
‘‘Contracts’’).
Filing Date: The application was
filed on January 8, 2013, and the
amended and restated application was
filed on May 16, 2013.
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 July 15,
2013, 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, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–1090.
APPLICANTS: David C. Holman, Esq.,
American Family Life Insurance
Company, 6000 American Parkway,
Madison, Wisconsin 53783–0001;
Thomas E. Bisset, Esq., Sutherland
Asbill & Brennan LLP, 700 Sixth Street
NW., Suite 700, Washington, DC 20001–
3980.
FOR FURTHER INFORMATION CONTACT:
Patrick Scott, Senior Counsel, or
Michael Kosoff, Branch Chief, Insured
Investments Office, Division of
Investment Management, at (202) 551–
6795.
DATES:
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:
SUPPLEMENTARY INFORMATION:
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1. American Family Life Insurance
Company conducts a conventional life
insurance business and is authorized to
transact the business of life insurance,
including annuities, in twenty-seven
states. For purposes of the 1940 Act, the
Company is the depositor and sponsor
of each of the Accounts as those terms
have been interpreted by the
Commission with respect to variable life
insurance and variable annuity separate
accounts.
2. The Annuity Account and the Life
Account issue Contracts and the
Company owns the assets of each
Account attributable to a Contract. Such
assets are held separately from the other
assets of the Company for the benefit of
the owners of, and the persons entitled
to payment under, those Contracts. Each
Account is a ‘‘separate account’’ as
defined by Rule 0–1(e) under the 1940
Act and is registered with the
Commission as a unit investment trust.1
Each Account is comprised of a number
of subaccounts and each subaccount
invests exclusively in one of the
insurance dedicated mutual fund
portfolios made available as investment
vehicles underlying the Contracts.
Currently, the Replaced Portfolio is
available as an investment option under
the Company’s variable life insurance
and variable annuity Contracts.
3. The Fidelity Fund is registered 2 as
an open-end management investment
company under the 1940 Act and
currently offers five (5) investment
portfolios, each with multiple share
classes. The Fidelity Fund issues a
series of shares of beneficial interest in
connection with each portfolio and has
registered such shares under the
Securities Act of 1933 (‘‘1933 Act’’) on
Form N–1A.3
4. Each portfolio of the Fidelity Fund
has entered into an advisory agreement
with Fidelity Management & Research
Company (‘‘FMR’’) under which FMR
acts as investment adviser for the
portfolio.
5. Neither the Fidelity Fund, any of its
portfolios, nor subadvisers are affiliated
with the Applicants. The Fidelity Fund
1 File No. 811–10097 (the Life Account); File No.
811–10121 (the Annuity Account).
2 File No. 811–05361.
3 File No. 33–17704.
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Federal Register / Vol. 78, No. 123 / Wednesday, June 26, 2013 / Notices
does not have manager-of-managers
relief for the Replaced Portfolio.
6. The Vanguard Fund is registered as
an open-end management investment
company under the 1940 Act 4 and
currently offers seventeen (17)
portfolios, including the Replacement
Portfolio. The Vanguard Fund issues a
series of shares of beneficial interest in
connection with each portfolio and has
registered such shares under the 1933
Act on Form N–1A.5
7. Pursuant to an investment advisory
agreement between the Replacement
Portfolio and The Vanguard Group, Inc.
(‘‘Vanguard’’), Vanguard provides
investment advisory services to the
Replacement Portfolio. Vanguard
manages the Replacement Portfolio
subject to the supervision and oversight
of the Replacement Portfolio’s board of
directors.
8. Neither the Vanguard Fund, any of
its portfolios, nor Vanguard are
affiliated with the Applicants. The
Vanguard Fund and Vanguard have
received an order from the Commission
that allows the Vanguard Fund and
Vanguard to utilize a multi-manager
structure to manage the assets of the
Replacement Portfolio. Pursuant to the
order, Vanguard is permitted to select
sub-advisers that are not affiliates of
Vanguard (other than by virtue of
serving as investment advisers to one or
more Vanguard funds) and revise
selected advisory agreements without
obtaining shareholder approval, subject
to the approval of the Vanguard Fund
12. The application states that, the
proposed substitution is part of an effort
by the Company to provide a portfolio
selection within the Contracts that: (1)
Provides competitive long-term returns
relative to other funds in the asset class
peer group with lower investment risk;
(2) provides a more competitive fee
structure relative to other funds in the
asset class peer group; and (3) maintains
the goal of offering a mix of investment
options covering basic categories in the
risk/return spectrum.
13. The application states that,
replacing the Replaced Portfolio with
the Replacement Portfolio is appropriate
and in the best interests of Contract
owners because the stated investment
objective, principal investment
strategies, and principal investment
risks of the Replacement Portfolio are
substantially similar to those of the
Replaced Portfolio, so that Contract
owners will have continuity in
investment expectations with somewhat
lower risk. A comparison of the
investing objectives, strategies, and risks
of the Replaced Portfolio and the
Replacement Portfolio is included in the
application.
14. The following charts compare
advisory fees, other expenses, and total
operating expenses for the year ended
December 31, 2012, expressed as an
annual percentage of average daily net
assets, of the Replaced Portfolio and the
Replacement Portfolio. Neither the
Replaced Portfolio nor the Replacement
Portfolio impose a redemption fee.
board of trustees and certain other
conditions.
9. The Contracts are flexible premium
variable annuity and variable life
insurance contracts. The variable
annuity contracts (file no. 333–45592)
provide for the accumulation of values
on a variable basis, fixed basis, or both,
during the accumulation period, and
provide settlement or annuity payment
options on a fixed basis. The variable
life insurance contracts (file nos. 333–
44956 and 333–147408) provide for the
accumulation of values on a variable
basis, fixed basis, or both, throughout
the insured’s life, and for a substantial
death benefit upon the death of the
insured. Under each of the Contracts,
the Company reserves the right to
substitute shares of one fund for shares
of another, or of another investment
portfolio, including a portfolio of a
different management company.
Applicant state that the prospectus for
the Contracts and the Accounts contain
appropriate disclosure of this right.
10. For as long as a variable life
insurance Contract remains in force or
a variable annuity Contract has not yet
been annuitized, a Contract owner may
transfer all or any part of the Contract
value from one subaccount to another
subaccount or to a fixed account.
11. The Company proposes to
substitute shares of the Replacement
Portfolio for Initial Class shares of the
Replaced Portfolio currently held in the
Accounts (the ‘‘proposed substitution’’).
Replaced portfolio—
Fidelity VIP money
market portfolio
(initial class)
as of 12/31/12
(percent)
mstockstill on DSK4VPTVN1PROD with NOTICES
Advisory Fees ..........................................................................................................................
12b–1 Fee ................................................................................................................................
Other Expenses .......................................................................................................................
Total Expenses ........................................................................................................................
Less Contractual Fee ..............................................................................................................
Waivers and Expense
Reimbursements
Net Expenses ..........................................................................................................................
15. Applicants state that they believe
that the Replacement Portfolio is an
appropriate replacement for the
Replaced Portfolio for each Contract,
and that the Replacement Portfolio
represents an investment option that is
more compatible with the Replaced
4 File
No. 811–05962.
No. 33–32216.
6 FMR has voluntarily agreed to reimburse the
Initial Class of the Replaced Portfolio to the extent
total operating expenses (excluding interest, taxes,
5 File
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Replacement portfolio—
Vanguard money market
portfolio as of 12/31/12
(percent)
0.17
N/A
0.09
6 0.26
N/A
0.12
N/A
0.04
0.16
N/A
0.26
7 0.16
Portfolio than are any other investment
options under the Contracts.
16. The Replacement Portfolio for the
fiscal years ended 2012, 2011, 2010 and
2009 has a significantly lower expense
ratio than the Replaced Portfolio. In
light of the substantial level of assets of
the Replacement Portfolio, the
continued decline of the level of assets
of the Replaced Portfolio, and the lower
expense ratio of the Replacement
brokerage commissions, and extraordinary
expenses) as a percentage of average net assets
exceed 0.40%.
7 Vanguard and the Replacement Portfolio’s board
of directors have agreed to temporarily limit certain
net operating expenses in excess of the
Replacement Portfolio’s daily yield to maintain a
zero or positive yield for the Portfolio. Vanguard
and the Replacement Portfolio’s board of directors
may terminate the expense limitation at any time.
The ratio of total expenses to average net assets after
the voluntary expense limitation was 0.06%.
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Federal Register / Vol. 78, No. 123 / Wednesday, June 26, 2013 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
Portfolio, Applicants believe that the
Replacement Portfolio is a viable money
market investment option for the
Contracts whose expenses should not
trend upward over time.
17. Applicants maintain that Contract
owners will be better served by the
proposed substitution and that the
proposed substitution is appropriate
given the Replacement Portfolio, the
Replaced Portfolio, and other
investment options available under the
Contracts. For each one-year, five-year
and ten-year period ended December 31,
2012, the Replacement Portfolio has had
investment performance comparable to
that of the Replaced Portfolio, but with
lower investment risk.
Legal Analysis and Conditions
1. The Applicants request that the
Commission issue an order pursuant to
Section 26(c) of the 1940 Act approving
the proposed substitution. Section 26(c)
of the 1940 Act requires the depositor of
a registered unit investment trust
holding securities of a single issuer to
obtain Commission approval before
substituting the securities held by the
trust.
2. 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 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 application asserts, the
Contracts will offer Contract owners the
opportunity to transfer amounts out of
the affected subaccount into any of the
remaining subaccounts without cost or
disadvantage. The proposed
substitution, therefore, will not result in
the type of costly forced redemption
that Section 26(c) was designed to
prevent.
3. Applicants believe that Contract
owners will be better off with the
Replacement Portfolio than with the
Replaced Portfolio. The proposed
substitution retains for Contract owners
the investment flexibility that is a
central feature of the Contracts. If the
proposed substitution is carried out, all
Contract owners will be permitted to
allocate purchase payments and transfer
Contract values between and among the
remaining subaccounts as they could
before the proposed substitution.
4. Applicants believe that the
Replacement Portfolio and the Replaced
Portfolio are substantially the same in
their stated investment objectives and
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20:26 Jun 25, 2013
Jkt 229001
principal investment strategies as to
afford investors continuity of
investment and risk. In addition,
Applicants generally submit that the
proposed substitution meets the
standards that the Commission and its
staff have applied to similar
substitutions that have been approved
in the past.
5. Supplements to the prospectus for
the Contracts dated January 29, 2013,
disclosed the Company’s intent to seek
the order approving the substitution;
moreover the supplements disclosed
that from the date of the supplement
until the date of the proposed
substitution, the Company will not
exercise any rights reserved by it under
any Contract to impose additional
charges for transfers until at least 30
days after the proposed substitution.
Similarly, the supplements disclosed
that from the date of the supplement
until the date of the proposed
substitution, the Company will permit
Contract owners to transfer Contract
value out of the subaccount currently
holding shares of the Replaced Portfolio
to other subaccounts and the fixed
account without those transfers being
treated as transfers for purposes of
determining the remaining number of
transfers that may be permitted in the
Contract year without a transfer charge.
In addition, prospectuses for the
Contracts dated May 1, 2013 disclosed
substantially similar information as set
forth in the supplements.
6. Within five days after the proposed
substitution, Contract owners who are
affected by the substitution will be sent
a written notice informing them that the
substitution was carried out. The notice
will also reiterate the facts that the
Company: (1) Will not exercise any
rights reserved by it under any of the
Contracts to impose additional charges
for transfers until at least 30 days after
the proposed substitution, and (2) will,
for at least 30 days following the
proposed substitution, permit such
Contract owners to transfer Contract
values out of the subaccount holding
shares of the Replacement Portfolio to
other subaccounts and the fixed account
without those transfers being treated as
transfers for purposes of determining
the remaining number of transfers
permitted in the Contract year without
a transfer charge.
7. Applicants represent that the
Company will carry out the proposed
substitution by redeeming shares of the
Replaced Portfolio held by the Accounts
for cash and applying the proceeds to
the purchase of shares of the
Replacement Portfolio. The proposed
substitution will take place at relative
net asset value with no change in the
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38415
amount of any Contract owner’s
Contract value or death benefit or in the
dollar value of his or her investment in
either of the Accounts. Contract owners
will not incur any fees or charges as a
result of the proposed substitution, nor
will their rights or the Company’s
obligations under the Contracts be
altered in any way. All applicable
expenses incurred in connection with
the proposed substitution, including
brokerage commissions and legal,
accounting, and other fees and
expenses, will be paid by the Company.
In addition, the proposed substitution
will not impose any tax liability on
Contract owners. The proposed
substitution will not cause the Contract
fees and charges currently being paid by
existing Contract owners to be greater
after the proposed substitution than
before the proposed substitution.
8. Applicants represent that the
proposed substitution will not be
treated as a transfer of Contract value for
the purpose of assessing transfer charges
or for determining the number of
remaining ‘‘free’’ transfers in a Contract
year. The Company will not exercise
any right it may have under the
Contracts to impose additional charges
for Contract value transfers under the
Contracts for a period of at least 30 days
following the proposed substitution.
Similarly, from the date of the
supplements until the date of the
proposed substitution, the Company
will permit Contract owners to make
transfers of Contract value out of the
Replaced Portfolio subaccount to other
subaccounts or the fixed account
without those transfers being treated as
transfers for purposes of determining
the remaining number of transfers
permitted in the Contract year without
a transfer charge. Likewise, for at least
30 days following the proposed
substitution, the Company will permit
Contract owners affected by the
substitution to transfer Contract value
out of the Replacement Portfolio
subaccount to other subaccounts or the
fixed account without those transfers
being treated as transfers for purposes of
determining the remaining number of
transfers permitted in the Contract year
without a transfer charge.
9. The Applicants acknowledge that
reliance on the exemptive relief
requested herein, if granted, depends
upon compliance with all of the
representations and conditions set forth
in this Application.
10. 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 Portfolio, its advisors or
underwriters (or their affiliates), in
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Federal Register / Vol. 78, No. 123 / Wednesday, June 26, 2013 / Notices
connection with assets attributable to
Contracts affected by the substitution, at
a higher rate than Applicants have
received from the corresponding
Replaced Portfolio, its advisors or
underwriters (or their affiliates),
including, without limitation, Rule 12b–
1 fees, revenue sharing, or other service
fees or arrangements in connection with
such assets. Applicants represent that
the substitution is not motivated by any
financial consideration paid or to be
paid to the Company or its affiliates by
the Replacement Portfolio, its advisors,
underwriters, or their respective
affiliates.
11. Applicants represent that the
Company is also seeking approval of the
proposed substitution from any state
insurance regulators whose approval
may be necessary or appropriate.
12. The Applicants submit that the
proposed substitution meets the
standards set forth in Section 26(c) and
assert that the replacement of the
Existing Fund with the Replacement
Fund is consistent with the protection
of investors and the purposes fairly
intended by the policy and provisions of
the 1940 Act.
Conclusion:
For the reasons and upon the facts set
forth above and in the application, the
Applicants assert that the requested
order meets the standards set forth in
Section 26(c) of the 1940 Act 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. 2013–15242 Filed 6–25–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69809; File No. SR–MIAX–
2013–30]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to $0.50 and $1 Strike
Price Intervals for Classes in the Short
Term Option Series Program
mstockstill on DSK4VPTVN1PROD with NOTICES
June 20, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on June 13,
2013, Miami International Securities
Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’)
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Mar<15>2010
20:26 Jun 25, 2013
Jkt 229001
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II, below, which Items have
been prepared by the Exchange. 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 is filing a proposal to
amend Exchange Rule 404, Series of
Option Contracts Open for Trading, by
adopting Interpretations and Policies .09
to the rule to describe the manner of
expiration and the strike price intervals
of options series included in the
Exchange’s $1 Strike Price Interval
Program, and by modifying
Interpretations and Policies .02(e) to the
rule to describe strike price intervals for
options series that are included in the
Exchange’s Short Term Option Series
Program.3
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, 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
Exchange 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 these
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt
Interpretations and Policies .09 to
Exchange Rule 404 to state that,
notwithstanding any other provision
regarding strike prices in the rule,
3 The Exchange may open for trading on any
Thursday or Friday that is a business day ‘‘Short
Term Option Opening Date’’) series of options on
that class that expire at the close of business on
each of the next consecutive Fridays that are
business days (‘‘Short Term Option Series’’ or
‘‘STOS’’).
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Related non-STOS 4 shall be opened on
the Thursday or Friday prior to the
expiration week that such Related nonSTOS (such as, for example, series with
standard monthly or quarterly
expirations) expire in the same manner
as permitted in Rule 404, Interpretations
and Policies .02, and in the same strike
price intervals for the STOS permitted
in Rule 404, Interpretations and Policies
.02(e).
The Exchange further proposes to
amend Interpretations and Policies
.02(e) to Exchange Rule 404 to provide
that the strike price interval for STOS
may be $0.50 or greater for option
classes that trade in $1 strike price
intervals and are in the STOS Program.
If the class does not trade in $1 strike
price intervals, the strike price interval
for STOS may be $0.50 or greater where
the strike price is less than $75 and
$1.00 or greater where the strike price
is between $75 and $150, and the same
as strike prices for series in that same
option class that expire in accordance
with the normal monthly expiration
cycle for strike prices greater than $150.
Notwithstanding any other provision
regarding strike prices in the rule,
Related non-Short Term Option series
shall be opened on the Thursday or
Friday prior to the expiration week that
such Related non-Short Term Option
series expire in the same manner as
permitted in Rule 404, Commentary .02,
and in the same strike price intervals for
the STOS permitted in this [sic] Rule
404, Commentary .02 (e).
This is a competitive filing that is
based on recent filings by the
International Securities Exchange, LLC
(‘‘ISE’’), NASDAQ OMX PHLX, LLC
(‘‘PHLX’’) and NYSE MKT LLC (‘‘NYSE
MKT’’).5 The ISE, PHLX and NYSE
MKT filings made changes to the strike
price interval setting parameter rules for
their respective STOS Programs. STOS
options are not listed to expire during
the same week as non-Short Term
Option series. As a result, ISE, PHLX
and NYSE MKT amended their rules to
permit non-Short Term Option series to
have the same strike price interval
setting parameters for STOS during the
4 Proposed Rule 404, Interpretations and Policies
.02(e) defines a ‘‘Related non-Short Term Option’’
as a non-Short Term Option series that is included
in a class that has been selected to participate in
the Short Term Option Series Program.
5 See Securities Exchange Act Release Nos. 67754
(August 29, 2012), 77 FR 54629 (September 5, 2012)
(Order approving SR–ISE–2012–33) (‘‘ISE filing’’);
69633 (May 23, 2012), 78 FR 32498 (May 30, 2013)
(SR–Phlx–2013–55) (‘‘PHLX filing’’); 68074
(October 19, 2012), 77 FR 65241 (October 25, 2012)
(SR–CBOE–2012–92); and 68193 (November 8,
2012), 77 FR 68177 (November 15, 2012) (Notice of
Filing and Immediate Effectiveness of SR–
NYSEMKT–2012–53).
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]]>Agencies
[Federal Register Volume 78, Number 123 (Wednesday, June 26, 2013)]
[Notices]
[Pages 38413-38416]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15242]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30564; File No. 812-14109]
American Family Life Insurance Company, et al.
June 20, 2013.
AGENCY: Securities and Exchange Commission (``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'').
-----------------------------------------------------------------------
Applicants: American Family Life Insurance Company (the ``Company''),
American Family Variable Account I (the ``Life Account''), and American
Family Variable Account II (the ``Annuity Account'') (together, the
``Applicants'').
Summary of Application: The Applicants seek an order pursuant to
Section 26(c) of the 1940 Act, approving the substitution of shares of
the Vanguard Money Market Portfolio (``Replacement Portfolio'') of the
Vanguard Variable Insurance Fund (``Vanguard Fund'') for Initial Class
Shares of the Fidelity Variable Insurance Products Money Market
Portfolio (``Replaced Portfolio'') of the Fidelity Variable Insurance
Products Fund (``Fidelity Fund''), currently held by the Life Account
and the Annuity Account (each an ``Account,'' together, the
``Accounts'') to support variable life insurance and annuity contracts
issued by the Company (collectively, the ``Contracts'').
DATES: Filing Date: The application was filed on January 8, 2013, and
the amended and restated application was filed on May 16, 2013.
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 July 15, 2013, 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, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090.
Applicants: David C. Holman, Esq., American Family Life Insurance
Company, 6000 American Parkway, Madison, Wisconsin 53783-0001; Thomas
E. Bisset, Esq., Sutherland Asbill & Brennan LLP, 700 Sixth Street NW.,
Suite 700, Washington, DC 20001-3980.
FOR FURTHER INFORMATION CONTACT: Patrick Scott, Senior Counsel, or
Michael Kosoff, Branch Chief, Insured Investments Office, 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. American Family Life Insurance Company conducts a conventional
life insurance business and is authorized to transact the business of
life insurance, including annuities, in twenty-seven states. For
purposes of the 1940 Act, the Company is the depositor and sponsor of
each of the Accounts as those terms have been interpreted by the
Commission with respect to variable life insurance and variable annuity
separate accounts.
2. The Annuity Account and the Life Account issue Contracts and the
Company owns the assets of each Account attributable to a Contract.
Such assets are held separately from the other assets of the Company
for the benefit of the owners of, and the persons entitled to payment
under, those Contracts. Each Account is a ``separate account'' as
defined by Rule 0-1(e) under the 1940 Act and is registered with the
Commission as a unit investment trust.\1\ Each Account is comprised of
a number of subaccounts and each subaccount invests exclusively in one
of the insurance dedicated mutual fund portfolios made available as
investment vehicles underlying the Contracts. Currently, the Replaced
Portfolio is available as an investment option under the Company's
variable life insurance and variable annuity Contracts.
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\1\ File No. 811-10097 (the Life Account); File No. 811-10121
(the Annuity Account).
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3. The Fidelity Fund is registered \2\ as an open-end management
investment company under the 1940 Act and currently offers five (5)
investment portfolios, each with multiple share classes. The Fidelity
Fund issues a series of shares of beneficial interest in connection
with each portfolio and has registered such shares under the Securities
Act of 1933 (``1933 Act'') on Form N-1A.\3\
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\2\ File No. 811-05361.
\3\ File No. 33-17704.
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4. Each portfolio of the Fidelity Fund has entered into an advisory
agreement with Fidelity Management & Research Company (``FMR'') under
which FMR acts as investment adviser for the portfolio.
5. Neither the Fidelity Fund, any of its portfolios, nor
subadvisers are affiliated with the Applicants. The Fidelity Fund
[[Page 38414]]
does not have manager-of-managers relief for the Replaced Portfolio.
6. The Vanguard Fund is registered as an open-end management
investment company under the 1940 Act \4\ and currently offers
seventeen (17) portfolios, including the Replacement Portfolio. The
Vanguard Fund issues a series of shares of beneficial interest in
connection with each portfolio and has registered such shares under the
1933 Act on Form N-1A.\5\
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\4\ File No. 811-05962.
\5\ File No. 33-32216.
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7. Pursuant to an investment advisory agreement between the
Replacement Portfolio and The Vanguard Group, Inc. (``Vanguard''),
Vanguard provides investment advisory services to the Replacement
Portfolio. Vanguard manages the Replacement Portfolio subject to the
supervision and oversight of the Replacement Portfolio's board of
directors.
8. Neither the Vanguard Fund, any of its portfolios, nor Vanguard
are affiliated with the Applicants. The Vanguard Fund and Vanguard have
received an order from the Commission that allows the Vanguard Fund and
Vanguard to utilize a multi-manager structure to manage the assets of
the Replacement Portfolio. Pursuant to the order, Vanguard is permitted
to select sub-advisers that are not affiliates of Vanguard (other than
by virtue of serving as investment advisers to one or more Vanguard
funds) and revise selected advisory agreements without obtaining
shareholder approval, subject to the approval of the Vanguard Fund
board of trustees and certain other conditions.
9. The Contracts are flexible premium variable annuity and variable
life insurance contracts. The variable annuity contracts (file no. 333-
45592) provide for the accumulation of values on a variable basis,
fixed basis, or both, during the accumulation period, and provide
settlement or annuity payment options on a fixed basis. The variable
life insurance contracts (file nos. 333-44956 and 333-147408) provide
for the accumulation of values on a variable basis, fixed basis, or
both, throughout the insured's life, and for a substantial death
benefit upon the death of the insured. Under each of the Contracts, the
Company reserves the right to substitute shares of one fund for shares
of another, or of another investment portfolio, including a portfolio
of a different management company. Applicant state that the prospectus
for the Contracts and the Accounts contain appropriate disclosure of
this right.
10. For as long as a variable life insurance Contract remains in
force or a variable annuity Contract has not yet been annuitized, a
Contract owner may transfer all or any part of the Contract value from
one subaccount to another subaccount or to a fixed account.
11. The Company proposes to substitute shares of the Replacement
Portfolio for Initial Class shares of the Replaced Portfolio currently
held in the Accounts (the ``proposed substitution'').
12. The application states that, the proposed substitution is part
of an effort by the Company to provide a portfolio selection within the
Contracts that: (1) Provides competitive long-term returns relative to
other funds in the asset class peer group with lower investment risk;
(2) provides a more competitive fee structure relative to other funds
in the asset class peer group; and (3) maintains the goal of offering a
mix of investment options covering basic categories in the risk/return
spectrum.
13. The application states that, replacing the Replaced Portfolio
with the Replacement Portfolio is appropriate and in the best interests
of Contract owners because the stated investment objective, principal
investment strategies, and principal investment risks of the
Replacement Portfolio are substantially similar to those of the
Replaced Portfolio, so that Contract owners will have continuity in
investment expectations with somewhat lower risk. A comparison of the
investing objectives, strategies, and risks of the Replaced Portfolio
and the Replacement Portfolio is included in the application.
14. The following charts compare advisory fees, other expenses, and
total operating expenses for the year ended December 31, 2012,
expressed as an annual percentage of average daily net assets, of the
Replaced Portfolio and the Replacement Portfolio. Neither the Replaced
Portfolio nor the Replacement Portfolio impose a redemption fee.
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\6\ FMR has voluntarily agreed to reimburse the Initial Class of
the Replaced Portfolio to the extent total operating expenses
(excluding interest, taxes, brokerage commissions, and extraordinary
expenses) as a percentage of average net assets exceed 0.40%.
\7\ Vanguard and the Replacement Portfolio's board of directors
have agreed to temporarily limit certain net operating expenses in
excess of the Replacement Portfolio's daily yield to maintain a zero
or positive yield for the Portfolio. Vanguard and the Replacement
Portfolio's board of directors may terminate the expense limitation
at any time. The ratio of total expenses to average net assets after
the voluntary expense limitation was 0.06%.
----------------------------------------------------------------------------------------------------------------
Replaced portfolio--
Fidelity VIP money Replacement portfolio--
market portfolio Vanguard money market
(initial class) as of portfolio as of 12/31/
12/31/12 (percent) 12 (percent)
----------------------------------------------------------------------------------------------------------------
Advisory Fees................................................. 0.17 0.12
12b-1 Fee..................................................... N/A N/A
Other Expenses................................................ 0.09 0.04
Total Expenses................................................ \6\ 0.26 0.16
Less Contractual Fee.......................................... N/A N/A
Waivers and Expense
Reimbursements
Net Expenses.................................................. 0.26 \7\ 0.16
----------------------------------------------------------------------------------------------------------------
15. Applicants state that they believe that the Replacement
Portfolio is an appropriate replacement for the Replaced Portfolio for
each Contract, and that the Replacement Portfolio represents an
investment option that is more compatible with the Replaced Portfolio
than are any other investment options under the Contracts.
16. The Replacement Portfolio for the fiscal years ended 2012,
2011, 2010 and 2009 has a significantly lower expense ratio than the
Replaced Portfolio. In light of the substantial level of assets of the
Replacement Portfolio, the continued decline of the level of assets of
the Replaced Portfolio, and the lower expense ratio of the Replacement
[[Page 38415]]
Portfolio, Applicants believe that the Replacement Portfolio is a
viable money market investment option for the Contracts whose expenses
should not trend upward over time.
17. Applicants maintain that Contract owners will be better served
by the proposed substitution and that the proposed substitution is
appropriate given the Replacement Portfolio, the Replaced Portfolio,
and other investment options available under the Contracts. For each
one-year, five-year and ten-year period ended December 31, 2012, the
Replacement Portfolio has had investment performance comparable to that
of the Replaced Portfolio, but with lower investment risk.
Legal Analysis and Conditions
1. The Applicants request that the Commission issue an order
pursuant to Section 26(c) of the 1940 Act approving the proposed
substitution. Section 26(c) of the 1940 Act requires the depositor of a
registered unit investment trust holding securities of a single issuer
to obtain Commission approval before substituting the securities held
by the trust.
2. 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 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 application
asserts, the Contracts will offer Contract owners the opportunity to
transfer amounts out of the affected subaccount into any of the
remaining subaccounts without cost or disadvantage. The proposed
substitution, therefore, will not result in the type of costly forced
redemption that Section 26(c) was designed to prevent.
3. Applicants believe that Contract owners will be better off with
the Replacement Portfolio than with the Replaced Portfolio. The
proposed substitution retains for Contract owners the investment
flexibility that is a central feature of the Contracts. If the proposed
substitution is carried out, all Contract owners will be permitted to
allocate purchase payments and transfer Contract values between and
among the remaining subaccounts as they could before the proposed
substitution.
4. Applicants believe that the Replacement Portfolio and the
Replaced Portfolio are substantially the same in their stated
investment objectives and principal investment strategies as to afford
investors continuity of investment and risk. In addition, Applicants
generally submit that the proposed substitution meets the standards
that the Commission and its staff have applied to similar substitutions
that have been approved in the past.
5. Supplements to the prospectus for the Contracts dated January
29, 2013, disclosed the Company's intent to seek the order approving
the substitution; moreover the supplements disclosed that from the date
of the supplement until the date of the proposed substitution, the
Company will not exercise any rights reserved by it under any Contract
to impose additional charges for transfers until at least 30 days after
the proposed substitution. Similarly, the supplements disclosed that
from the date of the supplement until the date of the proposed
substitution, the Company will permit Contract owners to transfer
Contract value out of the subaccount currently holding shares of the
Replaced Portfolio to other subaccounts and the fixed account without
those transfers being treated as transfers for purposes of determining
the remaining number of transfers that may be permitted in the Contract
year without a transfer charge. In addition, prospectuses for the
Contracts dated May 1, 2013 disclosed substantially similar information
as set forth in the supplements.
6. Within five days after the proposed substitution, Contract
owners who are affected by the substitution will be sent a written
notice informing them that the substitution was carried out. The notice
will also reiterate the facts that the Company: (1) Will not exercise
any rights reserved by it under any of the Contracts to impose
additional charges for transfers until at least 30 days after the
proposed substitution, and (2) will, for at least 30 days following the
proposed substitution, permit such Contract owners to transfer Contract
values out of the subaccount holding shares of the Replacement
Portfolio to other subaccounts and the fixed account without those
transfers being treated as transfers for purposes of determining the
remaining number of transfers permitted in the Contract year without a
transfer charge.
7. Applicants represent that the Company will carry out the
proposed substitution by redeeming shares of the Replaced Portfolio
held by the Accounts for cash and applying the proceeds to the purchase
of shares of the Replacement Portfolio. 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 either of the Accounts. Contract
owners will not incur any fees or charges as a result of the proposed
substitution, nor will their rights or the Company's obligations under
the Contracts be altered in any way. All applicable expenses incurred
in connection with the proposed substitution, including brokerage
commissions and legal, accounting, and other fees and expenses, will be
paid by the Company. In addition, the proposed substitution will not
impose any tax liability on Contract owners. The proposed substitution
will not cause the Contract fees and charges currently being paid by
existing Contract owners to be greater after the proposed substitution
than before the proposed substitution.
8. Applicants represent that the proposed substitution will not be
treated as a transfer of Contract value for the purpose of assessing
transfer charges or for determining the number of remaining ``free''
transfers in a Contract year. The Company will not exercise any right
it may have under the Contracts to impose additional charges for
Contract value transfers under the Contracts for a period of at least
30 days following the proposed substitution. Similarly, from the date
of the supplements until the date of the proposed substitution, the
Company will permit Contract owners to make transfers of Contract value
out of the Replaced Portfolio subaccount to other subaccounts or the
fixed account without those transfers being treated as transfers for
purposes of determining the remaining number of transfers permitted in
the Contract year without a transfer charge. Likewise, for at least 30
days following the proposed substitution, the Company will permit
Contract owners affected by the substitution to transfer Contract value
out of the Replacement Portfolio subaccount to other subaccounts or the
fixed account without those transfers being treated as transfers for
purposes of determining the remaining number of transfers permitted in
the Contract year without a transfer charge.
9. The Applicants acknowledge that reliance on the exemptive relief
requested herein, if granted, depends upon compliance with all of the
representations and conditions set forth in this Application.
10. 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 Portfolio, its advisors or
underwriters (or their affiliates), in
[[Page 38416]]
connection with assets attributable to Contracts affected by the
substitution, at a higher rate than Applicants have received from the
corresponding Replaced Portfolio, its advisors or underwriters (or
their affiliates), including, without limitation, Rule 12b-1 fees,
revenue sharing, or other service fees or arrangements in connection
with such assets. Applicants represent that the substitution is not
motivated by any financial consideration paid or to be paid to the
Company or its affiliates by the Replacement Portfolio, its advisors,
underwriters, or their respective affiliates.
11. Applicants represent that the Company is also seeking approval
of the proposed substitution from any state insurance regulators whose
approval may be necessary or appropriate.
12. The Applicants submit that the proposed substitution meets the
standards set forth in Section 26(c) and assert that the replacement of
the Existing Fund with the Replacement Fund is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
Conclusion:
For the reasons and upon the facts set forth above and in the
application, the Applicants assert that the requested order meets the
standards set forth in Section 26(c) of the 1940 Act 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. 2013-15242 Filed 6-25-13; 8:45 am]
BILLING CODE 8011-01-P
