The Northwestern Mutual Life Insurance Company, et al.;, 53175-53179 [2013-20955]
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Federal Register / Vol. 78, No. 167 / Wednesday, August 28, 2013 / Notices
Normal Unemployment Benefits Are
About to Be Exhausted; Form ID–20–2,
Advising that Normal Sickness Benefits
Are About to Be Exhausted; and Form
ID–20–4, Advising that Normal Sickness
Benefits Are About to Be Exhausted/
Non-Entitlement. Completion of these
forms is required to obtain or retain a
benefit. One response is required of
each respondent.
Previous Requests for Comments: The
RRB has already published the initial
60-day notice (78 FR 38412 on June 26,
2013) required by 44 U.S.C. 3506(c)(2).
That request elicited no comments.
Information Collection Request (ICR)
Title: RUIA Investigations and
Continuing Entitlement.
OMB Control Number: 3220–0025.
Forms submitted: UI–9, UI–23, UI–44,
UI–48, ID–4F, ID–4U, ID–4X, ID–4Y, ID–
5I, ID–5R (SUP), ID–49R, ID–20–1, ID–
20–2, and ID–20–4.
Type of request: Revision of a
currently approved collection.
Affected public: Private Sector;
Businesses or other for profits.
Abstract: The information collection
has two purposes. When RRB records
indicate that railroad service and/or
compensation is insufficient to qualify a
claimant for unemployment or sickness
benefits, the RRB obtains information
needed to reconcile the compensation
and/or service on record with that
claimed by the employee. Other forms
in the collection allow the RRB to
Form No.
53175
determine whether unemployment or
sickness benefits were improperly
obtained.
Changes proposed: The RRB proposes
to add to Items 4a and 5a of Form UI–
48, Statement Regarding Benefits
Claimed for Days Worked, two ‘‘go to’’
references to improve navigating the
form. The RRB also proposes to remove
the following seven forms from the
information collection due to under 10
responses a year: ID–4F, ID–4Y, ID–20–
1, ID–20–2, ID–20–4, ID–49R, and UI–
23.
The burden estimate for the ICR is as
follows:
Time
(minutes)
Annual responses
Burden
(hours)
ID–5i .....................................................................................................................
ID–5R (SUP) ........................................................................................................
UI–48 ...................................................................................................................
UI–9 .....................................................................................................................
UI–44 ...................................................................................................................
ID–4U ...................................................................................................................
ID–4X ...................................................................................................................
1,050
400
14
69
10
35
25
15
10
12
10
5
5
5
262
67
3
11
1
3
2
Total ..............................................................................................................
1,603
................................
349
Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from 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
Charles.Mierzwa@RRB.GOV and to the
OMB Desk Officer for the RRB, Fax:
202–395–6974, Email address:
OIRA_Submission@omb.eop.gov.
Charles Mierzwa,
Chief of Information Resources Management.
[FR Doc. 2013–20979 Filed 8–27–13; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
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[Investment Company Act Release No.
30671; File No. 812–14128]
The Northwestern Mutual Life
Insurance Company, et al.; Notice of
Application Agency: Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’)
August 22, 2013.
Notice of application for an
order approving the substitution of
certain securities pursuant to Section
ACTION:
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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.
The Northwestern Mutual
Life Insurance Company (the
‘‘Company’’), NML Variable Annuity
Account A (‘‘VA Account A’’), NML
Variable Annuity Account B (‘‘VA
Account B’’) and NML Variable Annuity
Account C (‘‘VA Account C,’’ and
together with VA Account A and VA
Account B, the ‘‘Annuity Accounts’’)
and Northwestern Mutual Variable Life
Account (‘‘VL Account’’) and
Northwestern Mutual Variable Life
Account II (‘‘VL Account II,’’ together
with VL Account, the ‘‘Life Accounts,’’
and together with the Annuity
Accounts, the ‘‘Separate Accounts’’).
The Company and the Separate
Accounts are collectively referred to
herein as the ‘‘Substitution Applicants.’’
The Substitution Applicants and Credit
Suisse Trust are also collectively
referred to as the ‘‘Section 17
Applicants.’’
SUMMARY OF THE APPLICATION: The
Substitution Applicants seek an order
pursuant to Section 26(c) of the 1940
Act, approving the substitution of shares
of the Commodity Return Strategy
Portfolio (the ‘‘Replacement Fund’’), a
series of Credit Suisse Trust, for shares
APPLICANTS:
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of the Commodities Return Strategy
Portfolio (the ‘‘Replaced Fund’’), a series
of the Northwestern Mutual Series
Fund, Inc. (the ‘‘Series Fund’’), under
each of the variable annuity contracts
and variable life insurance policies
issued by the Separate Accounts
(collectively, the ‘‘Contracts’’). The
Section 17 Applicants seek an order
pursuant to Section 17(b) of the 1940
Act exempting them from 17(a) of the
Act to the extent necessary to permit
them to engage in certain in-kind
transactions in connection with the
substitution (‘‘In-Kind Transactions’’).
Filing Date: The application was
filed on March 6, 2013, and the
amended and restated application was
filed on July 12, 2013.
DATES:
HEARING OR NOTIFICATION OF A HEARING:
An order granting the application will
be issued unless the Commission orders
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 September 17, 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
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Federal Register / Vol. 78, No. 167 / Wednesday, August 28, 2013 / Notices
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: Chad E. Fickett, Assistant
General Counsel, The Northwestern
Mutual Life Insurance Company, 720
East Wisconsin Avenue, Milwaukee,
Wisconsin 53202; Thomas E. Bisset,
Esq., Sutherland Asbill & Brennan LLP,
700 Sixth Street NW., Suite 700,
Washington, DC 20001–3980; Joanne
Doldo, Credit Suisee Asset Management,
LLC, One Madison Avenue, New York,
New York 10010.
FOR FURTHER INFORMATION CONTACT:
Mark Cowan, Senior Counsel, or
Michael L. 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. The Company, on its own behalf
and on behalf of their respective
separate accounts, proposes to
substitute shares of the Replacement
Fund for shares of the Replaced Fund
held by the Separate Accounts to fund
the Contracts.
2. The Company is the depositor and
sponsor of the Separate Accounts.
3. Each of VA Account A, VA
Account B, VA Account C, VL Account
and VL Account II 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 variable annuity Contracts are
either flexible premium variable annuity
contracts or unallocated group
combination variable annuity contracts.
The variable life insurance Contracts are
either variable whole life forms of
insurance contracts or 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 Company has 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.
5. The Replaced Fund is registered as
an open-end management investment
company and is a series of the Series
Fund (File Number 811–03990). It offers
its shares only to the Company and the
Accounts for purposes of funding the
Contracts.
6. The Replaced Fund has entered
into an investment advisory agreement
with Mason Street Advisors, LLC
(‘‘MSA’’), a wholly-owned subsidiary of
the Company.
7. The Series Fund has received an
exemptive order from the Commission
(‘‘Multi-Manager Order’’) that permits
the Manager, or any entity controlling,
controlled by, or under common control
(within the meaning of Section 2(a)(9) of
the 1940 Act) with the Manager, subject
to certain conditions, to hire and replace
unaffiliated subadvisors and to enter
into and amend sub-advisory
agreements without shareholder
approval.
8. MSA has entered into a subadvisory agreement with Credit Suisse
Asset Management, LLC (‘‘CSAM’’).
CSAM is part of the asset management
business of Credit Suisse Group AG, a
worldwide bank and financial services
provider.
9. The Replacement Fund is registered
as an open-end management investment
company and is a series of the Series
Fund (File Number 811–07261). It offers
its shares only to variable annuity and
variable life insurance contracts offered
by the separate accounts of certain
insurance companies, to certain taxqualified pension and retirement plans
and other investment companies.
10. The Replacement Fund has
entered into an investment advisory
agreement with CSAM under which
CSAM acts as investment adviser for the
Replaced Fund’s portfolio of
investments. CSAM does not have the
authority to retain sub-advisers to
manage all or a portion of the
Replacement Fund’s assets without
obtaining shareholder approval. CSAM
voluntarily waives fees and reimburse
expenses so that the Replacement
Fund’s annual operating expenses will
not exceed 1.05% of average daily net
assets.
11. The Replacement Fund is neither
an affiliate nor a second-tier affiliate of
the Company or the Accounts. However,
for purposes of Section 2(a)(3) of the
1940 Act, after the substitution the
Replacement Fund may be deemed an
affiliate of the Company and the
Accounts, if the Accounts own 5% or
more of the shares of the Replacement
Fund. CSAM is currently a second-tier
affiliate of the Accounts by virtue of its
role as investment sub-adviser to the
Replaced Fund.
12. The Substitution Applicants state
that the Funds’ investment objectives,
principal investment strategies and risks
are substantially the same. A
comparison of the investing objectives,
strategies and risks of the Replaced
Fund and the Replacement Fund is
included in the application.
13. The following table compares the
fees and expenses of the Replaced Fund
and the Replacement Fund as of the
year ended December 31, 2012:
The replacement fund
(percent)
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The replaced fund
(percent)
Management Fee .......................................................................
Distribution and Service (12b–1) Fee ........................................
Other Expenses ..........................................................................
Acquired Fund Fees and Expenses ...........................................
Total Annual Operating Expenses .............................................
Expense Reimbursement and Fee Waiver ................................
Total Annual Operating Expenses After Expense Reimbursement and Waiver.
1 Restated
to reflect current fees.
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0.80 .............................................................................................
None ...........................................................................................
0.16 .............................................................................................
0.07 .............................................................................................
1 2 1.03 ........................................................................................
(0.08) ..........................................................................................
1 4 0.95 ........................................................................................
2 Includes fees and expenses incurred indirectly
by the Replaced Fund as a result of its investments
in investment companies and other pooled
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0.50
0.25
0.59
N/A
1 3 1.34
N/A
1 1.34
investment vehicles as well as the expenses of
investing in the NMSF Subsidiary (referred to as
‘‘Acquired Fund Fees and Expenses’’).
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14. The Substitution Applicants state
that the reason for the proposed
substitution is in response to a recent
rule amendment adopted by the CFTC
that eliminated the Replaced Fund’s
ability to rely on the exclusion provided
by CFTC Rule 4.5 to avoid regulation as
a commodity pool unless it were to
substantially curtail its use of futures,
options, swaps and other financial
instruments now regulated by the CFTC,
which would prevent it from pursuing
its principal investment strategies. MSA
has informed the Replaced Fund’s
Board of Directors that in light of the
consequences of these new regulatory
requirements, it has determined to
discontinue its services as investment
adviser to the Replaced Fund and that
the Replaced Fund be terminated. Given
these circumstances, the Replaced
Fund’s Board of Directors, at a meeting
of the Board held on February 21, 2013,
decided to terminate the Replaced Fund
and liquidate its assets as soon as is
reasonably practicable.
15. The Substitution Applicants
represent that replacing the Replaced
Fund with the Replacement Fund will
provide the best possible consistency in
terms of investment objectives and
strategies, risks, and management, and
provides comparable performance. The
Replacement Fund has an identical
investment objective and nearly
identical investment strategies to those
of the Replaced Fund. The Replacement
Fund also provides the greatest possible
continuity of investment management
services because the investment adviser
to the Replacement Fund is the current
sub-adviser to the Replaced Fund, and
the same portfolio managers make the
day-to-day investment decisions for
both Funds. In addition, the
Replacement Fund offers an immediate
opportunity for increased economies of
scale resulting from the infusion of
assets currently held by the Replaced
Fund, as well as future opportunity for
asset growth due to its availability to
other, unaffiliated separate accounts and
3 ‘‘Other Expenses’’ include expenses of both the
Replacement Fund and the Credit Suisse
Subsidiary.
4 MSA has entered into a written expense
limitation agreement under which it has agreed to
limit the total expenses of the Replaced Fund
(excluding taxes, brokerage, other investmentrelated costs, interest and dividend expenses and
charges and extraordinary expenses) to an annual
rate 0.95 of the Replaced Fund’s average net assets.
This expense limitation agreement may be
terminated by MSA at any time after April 30, 2014.
MSA has entered into an agreement to waive its
management fee in an amount equal to the
management fee paid to it by the NMSF Subsidiary.
This waiver will remain in effect for the life of the
Replaced Fund, as long as the Replaced Fund
remains invested in the NMSF Subsidiary.
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pension plans, as well as other
investment companies.
16. The Replaced Fund’s total net
assets as of May 1, 2013 were
$135,658,744, compared to total net
assets of the Replacement Fund of
$84,596,457. However, unlike the
Replaced Fund, the availability of the
Replacement Fund is not restricted to
the Accounts, but instead is available to
the variable separate accounts of
multiple insurance companies, pension
plans and other investment companies,
offering greater potential for even
further asset growth and economies of
scale.
17. The Company also believes that an
important consideration for substituting
the Replacement Fund for the Replaced
Fund is Contract owner expectations
regarding performance. For the one year
period ended December 31, 2012
investment performance of the
Replacement Fund was 0.26% higher
than the Replaced Fund’s return for the
comparable period (though long-term
performance is less subject to
comparison given the relatively recent
inception date of the Replaced Fund).
Both Funds, however, share the same
Morningstar rankings and categories.
18. The Substitution Applicants note
that the overall expenses of the
Replacement Fund are higher than the
overall expenses of the Replaced Fund.
In light of this, and consistent with prior
substitution applications, for twentyfour months following the date of the
substitution and for those Contracts
with Contract value invested in the
Replaced Fund on the date of the
proposed substitution, on or around the
last day of each fiscal period (not to
exceed a fiscal quarter), the Company
will reimburse Contract owners to the
extent the sum of the operating
expenses of the Replacement Fund
(taking into account any fee waivers and
expense reimbursements) and
subaccount expenses for such period
exceeds, on an annualized basis, the
sum of the operating expenses of the
Replaced Fund (taking into account any
fee waivers and expense
reimbursements) and subaccount
expenses for the fiscal year preceding
the date of the proposed substitution.5
In addition, for twenty-four months
following the date of the proposed
substitution, the Company will not
increase total separate account charges
for Contracts outstanding on the date of
the proposed substitution.
5 For purposes of this limitation, Net Total
Annual Operating Expenses of the Replaced Fund
are 0.95%. See the fee table comparison in the
‘‘Fees and Expenses’’ section above.
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53177
Legal Analysis and Conditions
19. By supplements to the Contract
prospectuses or by disclosures in the
prospectuses for the Contracts for new
Contract owners after May 1, 2013, the
Company notified existing Contract
owners of its intention to take the
necessary actions, including seeking the
order requested by the Application, to
carry out the proposed substitution as
described herein. These disclosures
advise Contract owners that the
Company has filed or would file an
application to seek approval of the
substitution, and that if the substitution
is approved, any Contract value
allocated to the subaccount investing in
the Replaced Fund on the date of
substitution will be automatically
transferred to the subaccount investing
in the Replacement Fund.
20. In addition, these disclosures
inform Contract owners that any
Contract owner not wanting his or her
entire Contract value in the Replaced
Fund to be automatically transferred to
the Replacement Fund on the date of
substitution should consider
transferring the Contract value in the
Replaced Fund to other investment
options available under the Contract.
The disclosures also inform Contract
owners that the Company does not
impose charges in connection with the
transfer to any of the investment options
available under the Contract, nor does
the Company impose restrictions on
transfers (other than short-term trading
restrictions on frequent transfers to
prevent market timing transactions and
other restrictions noted in the
applicable Contract prospectus). Finally,
the disclosures explain that the
Company bears all expenses related to
the substitution, and that there would
be no tax consequences for Contract
owners as a result of the substitution.
Additionally, 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 largely
restate the information set forth in the
prospectus and prospectus supplements
described above. The forms of the
proposed supplements were attached as
exhibits A–1 and A–2, respectively, to
the initial Application.6
21. The current summary or statutory
prospectus for the Replacement Fund
will have been provided to all Contract
owners prior to the date of substitution.
The Company currently intends the
effective date of the substitution to be
no later than the fourth quarter of 2013,
depending on SEC approval as well as
6 See File No. 812–14128, filed March 6, 2013
(SEC accession number 0001193125–13–093752).
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operational or other factors that may
affect the implementation of the
substitution transaction. The effective
date of the substitution may be earlier.
All Contract owners will have been
given sufficient advance notice of the
date on which the substitution will take
effect.
22. 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. The proposed
substitution will also not be treated as
a transfer of Contract value for purposes
of determining the number of transfers
permitted under the Contracts’ shortterm trading restrictions.
23. The Company will not exercise
any reserved right it may have under the
Contracts to impose additional charges
for transfers of accumulated Contract
value for a period of at least 30 calendar
days following the effective date of the
substitution. Similarly, after giving
proper notice in advance of the
substitution, the Company will permit
Contract owners to make their first
transfer of accumulated Contract value
out of the Replaced Fund to another
investment option (or the fixed option
in the case of certain Variable Annuity
contracts), without such transfer being
treated as a transfer for purposes of the
Contracts’ short-term trading
restrictions. As previously noted, the
Contracts do not currently impose
(although they reserve the right to
impose) any charges or fees for
executing transfers.
Section 26(c) Relief
24. The Substitution Applicants
request that the Commission issue an
order pursuant to Section 26(c) of the
1940 Act approving the substitution by
the Company of shares of the
Replacement Fund for shares of the
Replaced Fund. Section 26(c) of the
1940 Act requires the depositor of a
registered unit investment trust holding
securities of a single issuer to receive
Commission approval before
substituting the securities held by the
trust.
25. The Substitution 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 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 a fixed option as
applicable. Moreover, as is or will be
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described in appropriate supplements
and elsewhere, the Contracts will offer
Contract owners the opportunity to
make a one-time transfer out of the
affected subaccount into any of the
remaining subaccounts without any cost
or limitation other than those disclosed
in the applicable prospectuses
previously provided to Contract owners.
Contract owners always have the right
to change their allocations at any time
without restrictions or charges of any
sort beyond those already noted. The
proposed substitution, therefore, will
not result in the type of costly forced
redemption that Section 26(c) was
designed to prevent.
26. 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
aforementioned concerns that Congress
intended to address when the 1940 Act
was amended to include this provision.
In addition, the Substitution 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
27. The Section 17 Applicants also
request an order of the Commission
under Section 17(b) exempting them
from the provisions of Section 17(a) to
the extent necessary to permit the
Company to carry out the In-Kind
Transactions.
28. Section 17(a)(1) of the 1940 Act,
in relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such person (‘‘first tier affiliates’’ and
‘‘second tier affiliates’’, respectively),
acting as principal, from knowingly
selling any security or other property to
that investment company. Section
17(a)(2) of the 1940 Act generally
prohibits such persons acting as
principals from knowingly purchasing
any security or other property from the
registered investment company.
29. Pursuant to Section 17(a) of the
1940 Act, the Section 17 Applicants
may be considered affiliates of one or
more of the Funds involved in the
proposed substitution, based upon the
definition of ‘‘affiliated person’’ under
Section 2(a)(3) of the 1940 Act. Section
2(a)(3) defines an ‘‘affiliated person’’ of
another person, in relevant part, as ‘‘(A)
any person directly or indirectly
owning, controlling, or holding with
power to vote, 5 per centum or more of
the outstanding voting securities of such
other person; (B) any person 5 per
centum or more of whose outstanding
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voting securities are directly or
indirectly owned, controlled, or held
with power to vote, by such other
person; . . . (E) if such other person is
an investment company, any investment
adviser thereof . . . .’’
30. Shares held by an insurance
company separate account are legally
owned by the insurance company. The
Company does not currently own any
part of the Replacement Fund.
Therefore, the Replacement Fund is not
currently an affiliate (or an affiliate of an
affiliate) of the Company’s Accounts or
the Company despite the fact that the
Replaced Fund and the Replacement
Fund share an investment adviser,
CSAM. It is anticipated, however, that
after the substitution transaction one or
more of the Company’s Accounts would
own more than 5% of the Replacement
Fund. Under these circumstances,
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.
31. Accordingly, as the Company and
the Replacement Fund 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).
Therefore, the Section 17 Applicants
have determined that, out of an
abundance of caution, it is prudent to
seek relief from Section 17(a) in the
context of this Amended Application for
the in-kind purchases and sales of the
Replacement Fund’s shares.
32. The Section 17 Applicants submit
that the terms of the proposed in-kind
purchases of shares of the Replacement
Fund, including the consideration to be
paid and received, as described in this
Amended Application, are reasonable
and fair and do not involve
overreaching on the part of any persons
concerned. The Section 17 Applicants
also submit that the proposed in-kind
purchases will be consistent with the
investment policies of the Replaced
Fund and the Replacement Fund, as
recited in the current registration
statements and reports filed by them
under the 1940 Act. Finally, the Section
17 Applicants submit that the proposed
substitution is consistent with the
general purposes of the 1940 Act.
33. The Section 17 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
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are reasonable and fair to all Contract
owners. The Section 17 Applicants
maintain that the terms of the proposed
in-kind purchase transactions, including
the consideration to be paid and
received by each Fund, 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
1940 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
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.
34. Even though the Section 17
Applicants may not rely on Rule 17a–
7, the Section 17 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
with an investment company by its
affiliated persons. The board of the
Replacement Fund has adopted
procedures, as required by paragraph
(e)(1) of Rule 17a–7, pursuant to which
a series may purchase and sell securities
to and from their affiliates. The Section
17 Applicants will carry out the
proposed in-kind purchases in
conformity with all of the conditions of
Rule 17a–7 and the Replacement Fund’s
procedures adopted thereunder, except
that the consideration paid for the
securities being purchased or sold may
not be entirely cash. The investment
adviser for the Replacement Fund will
examine any securities received from an
in-kind redemption, and accept any
securities that they would otherwise
have purchased for cash for the
Replacement Fund to hold. The
circumstances surrounding the
proposed substitution will be such as to
offer the Replacement Fund the same
degree of protection from overreaching
that Rule 17a–7 provides the
Replacement Fund generally in
connection with the purchase and sale
of securities under that Rule in the
ordinary course of its business. In
particular, the proposed transactions
will not be effected at a price that is
disadvantageous to the Replacement
Fund.
35. Although the transactions may not
be entirely for cash, each will be
VerDate Mar<15>2010
15:21 Aug 27, 2013
Jkt 229001
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
1940 Act. Moreover, consistent with
Rule 17a–7(d), no brokerage
commissions, fees, or other costs 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
brokerage costs will be borne by the
Company or its affiliates and not by
Contract owners.
36. 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 Funds, as recited in their
registration statements. Any in-kind
redemption will be effected on a prorata basis, where the Replacement Fund
will receive an approximate
proportionate share of every security
position in the Replaced Fund’s
portfolio in accordance with the
Signature Letter, as supplemented by
the SEC in subsequent no-action letters.
CSAM, the adviser to the Replacement
Fund, will examine the securities being
transferred to the Replacement Fund to
ensure they are consistent with the
Replacement Fund’s investment
objective and policies and will retain
only those securities that it would have
acquired for the Replacement Fund in a
cash transaction. In addition, the
redeeming and purchasing values of
such securities will be the same.
37. The Section 17 Applicants submit
that the in-kind redemptions and
purchases described above are
consistent with the general purposes of
the 1940 Act as stated in the Findings
and Declaration of Policy in Section 1
of the 1940 Act and that the proposed
transactions do not present any of the
conditions or abuses that the 1940 Act
was designed to prevent. The
Commission has previously granted
relief to others based on similar facts.
The Section 17 Applicants represent
that the proposed in-kind purchases
meet all the requirements of Section
17(b) of the 1940 Act and request that
the Commission issue an order pursuant
to Section 17(b) of the 1940 Act
exempting them from the provisions of
Section 17(a) to the extent necessary to
permit the Company, on behalf of the
Accounts, to carry out in-kind the
PO 00000
Frm 00053
Fmt 4703
Sfmt 4703
53179
proposed substitution by redeeming
shares of the Replaced Fund in-kind and
using securities distributed as
redemption proceeds to purchase shares
of the Replacement Fund.
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. 2013–20955 Filed 8–27–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70245; File No. SR–
NASDAQ–2013–110]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Chapter VII, Section 6 of the Rules of
the NASDAQ Options Market To Permit
the Exchange To Establish Wider Bid/
Ask Differentials for Certain Options
With High Premiums or Other Special
Characteristics
August 22, 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 August
19, 2013 The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II and III 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
NASDAQ is proposing to amend
Chapter VII, Section 6 (Market Maker
Quotations) of the rules of the NASDAQ
Options Market (‘‘NOM’’) to permit the
Exchange to establish wider bid/ask
differentials for certain options with
1 15
2 17
E:\FR\FM\28AUN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
28AUN1
]]>Agencies
[Federal Register Volume 78, Number 167 (Wednesday, August 28, 2013)]
[Notices]
[Pages 53175-53179]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20955]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30671; File No. 812-14128]
The Northwestern Mutual Life Insurance Company, et al.; Notice of
Application Agency: Securities and Exchange Commission (``SEC'' or
``Commission'')
August 22, 2013.
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: The Northwestern Mutual Life Insurance Company (the
``Company''), NML Variable Annuity Account A (``VA Account A''), NML
Variable Annuity Account B (``VA Account B'') and NML Variable Annuity
Account C (``VA Account C,'' and together with VA Account A and VA
Account B, the ``Annuity Accounts'') and Northwestern Mutual Variable
Life Account (``VL Account'') and Northwestern Mutual Variable Life
Account II (``VL Account II,'' together with VL Account, the ``Life
Accounts,'' and together with the Annuity Accounts, the ``Separate
Accounts''). The Company and the Separate Accounts are collectively
referred to herein as the ``Substitution Applicants.'' The Substitution
Applicants and Credit Suisse Trust are also collectively referred to as
the ``Section 17 Applicants.''
Summary of the Application: The Substitution Applicants seek an order
pursuant to Section 26(c) of the 1940 Act, approving the substitution
of shares of the Commodity Return Strategy Portfolio (the ``Replacement
Fund''), a series of Credit Suisse Trust, for shares of the Commodities
Return Strategy Portfolio (the ``Replaced Fund''), a series of the
Northwestern Mutual Series Fund, Inc. (the ``Series Fund''), under each
of the variable annuity contracts and variable life insurance policies
issued by the Separate Accounts (collectively, the ``Contracts''). The
Section 17 Applicants seek an order pursuant to Section 17(b) of the
1940 Act exempting them from 17(a) of the Act to the extent necessary
to permit them to engage in certain in-kind transactions in connection
with the substitution (``In-Kind Transactions'').
DATES: Filing Date: The application was filed on March 6, 2013, and the
amended and restated application was filed on July 12, 2013.
Hearing or Notification of a Hearing: An order granting the application
will be issued unless the Commission orders 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 September 17, 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
[[Page 53176]]
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: Chad E. Fickett, Assistant General Counsel, The
Northwestern Mutual Life Insurance Company, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202; Thomas E. Bisset, Esq., Sutherland Asbill &
Brennan LLP, 700 Sixth Street NW., Suite 700, Washington, DC 20001-
3980; Joanne Doldo, Credit Suisee Asset Management, LLC, One Madison
Avenue, New York, New York 10010.
FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Michael
L. 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. The Company, on its own behalf and on behalf of their respective
separate accounts, proposes to substitute shares of the Replacement
Fund for shares of the Replaced Fund held by the Separate Accounts to
fund the Contracts.
2. The Company is the depositor and sponsor of the Separate
Accounts.
3. Each of VA Account A, VA Account B, VA Account C, VL Account and
VL Account II 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 variable annuity Contracts are either flexible premium
variable annuity contracts or unallocated group combination variable
annuity contracts. The variable life insurance Contracts are either
variable whole life forms of insurance contracts or 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 Company has 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.
5. The Replaced Fund is registered as an open-end management
investment company and is a series of the Series Fund (File Number 811-
03990). It offers its shares only to the Company and the Accounts for
purposes of funding the Contracts.
6. The Replaced Fund has entered into an investment advisory
agreement with Mason Street Advisors, LLC (``MSA''), a wholly-owned
subsidiary of the Company.
7. The Series Fund has received an exemptive order from the
Commission (``Multi-Manager Order'') that permits the Manager, or any
entity controlling, controlled by, or under common control (within the
meaning of Section 2(a)(9) of the 1940 Act) with the Manager, subject
to certain conditions, to hire and replace unaffiliated subadvisors and
to enter into and amend sub-advisory agreements without shareholder
approval.
8. MSA has entered into a sub-advisory agreement with Credit Suisse
Asset Management, LLC (``CSAM''). CSAM is part of the asset management
business of Credit Suisse Group AG, a worldwide bank and financial
services provider.
9. The Replacement Fund is registered as an open-end management
investment company and is a series of the Series Fund (File Number 811-
07261). It offers its shares only to variable annuity and variable life
insurance contracts offered by the separate accounts of certain
insurance companies, to certain tax-qualified pension and retirement
plans and other investment companies.
10. The Replacement Fund has entered into an investment advisory
agreement with CSAM under which CSAM acts as investment adviser for the
Replaced Fund's portfolio of investments. CSAM does not have the
authority to retain sub-advisers to manage all or a portion of the
Replacement Fund's assets without obtaining shareholder approval. CSAM
voluntarily waives fees and reimburse expenses so that the Replacement
Fund's annual operating expenses will not exceed 1.05% of average daily
net assets.
11. The Replacement Fund is neither an affiliate nor a second-tier
affiliate of the Company or the Accounts. However, for purposes of
Section 2(a)(3) of the 1940 Act, after the substitution the Replacement
Fund may be deemed an affiliate of the Company and the Accounts, if the
Accounts own 5% or more of the shares of the Replacement Fund. CSAM is
currently a second-tier affiliate of the Accounts by virtue of its role
as investment sub-adviser to the Replaced Fund.
12. The Substitution Applicants state that the Funds' investment
objectives, principal investment strategies and risks are substantially
the same. A comparison of the investing objectives, strategies and
risks of the Replaced Fund and the Replacement Fund is included in the
application.
13. The following table compares the fees and expenses of the
Replaced Fund and the Replacement Fund as of the year ended December
31, 2012:
---------------------------------------------------------------------------
\1\ Restated to reflect current fees.
\2\ Includes fees and expenses incurred indirectly by the
Replaced Fund as a result of its investments in investment companies
and other pooled investment vehicles as well as the expenses of
investing in the NMSF Subsidiary (referred to as ``Acquired Fund
Fees and Expenses'').
------------------------------------------------------------------------
The
The replaced fund replacement
(percent) fund
(percent)
------------------------------------------------------------------------
Management Fee.................... 0.80................ 0.50
Distribution and Service (12b-1) None................ 0.25
Fee.
Other Expenses.................... 0.16................ 0.59
Acquired Fund Fees and Expenses... 0.07................ N/A
Total Annual Operating Expenses... \1\ \2\ 1.03........ \1\ \3\ 1.34
Expense Reimbursement and Fee (0.08).............. N/A
Waiver.
Total Annual Operating Expenses \1\ \4\ 0.95........ \1\ 1.34
After Expense Reimbursement and
Waiver.
------------------------------------------------------------------------
[[Page 53177]]
14. The Substitution Applicants state that the reason for the
proposed substitution is in response to a recent rule amendment adopted
by the CFTC that eliminated the Replaced Fund's ability to rely on the
exclusion provided by CFTC Rule 4.5 to avoid regulation as a commodity
pool unless it were to substantially curtail its use of futures,
options, swaps and other financial instruments now regulated by the
CFTC, which would prevent it from pursuing its principal investment
strategies. MSA has informed the Replaced Fund's Board of Directors
that in light of the consequences of these new regulatory requirements,
it has determined to discontinue its services as investment adviser to
the Replaced Fund and that the Replaced Fund be terminated. Given these
circumstances, the Replaced Fund's Board of Directors, at a meeting of
the Board held on February 21, 2013, decided to terminate the Replaced
Fund and liquidate its assets as soon as is reasonably practicable.
---------------------------------------------------------------------------
\3\ ``Other Expenses'' include expenses of both the Replacement
Fund and the Credit Suisse Subsidiary.
\4\ MSA has entered into a written expense limitation agreement
under which it has agreed to limit the total expenses of the
Replaced Fund (excluding taxes, brokerage, other investment-related
costs, interest and dividend expenses and charges and extraordinary
expenses) to an annual rate 0.95 of the Replaced Fund's average net
assets. This expense limitation agreement may be terminated by MSA
at any time after April 30, 2014. MSA has entered into an agreement
to waive its management fee in an amount equal to the management fee
paid to it by the NMSF Subsidiary. This waiver will remain in effect
for the life of the Replaced Fund, as long as the Replaced Fund
remains invested in the NMSF Subsidiary.
---------------------------------------------------------------------------
15. The Substitution Applicants represent that replacing the
Replaced Fund with the Replacement Fund will provide the best possible
consistency in terms of investment objectives and strategies, risks,
and management, and provides comparable performance. The Replacement
Fund has an identical investment objective and nearly identical
investment strategies to those of the Replaced Fund. The Replacement
Fund also provides the greatest possible continuity of investment
management services because the investment adviser to the Replacement
Fund is the current sub-adviser to the Replaced Fund, and the same
portfolio managers make the day-to-day investment decisions for both
Funds. In addition, the Replacement Fund offers an immediate
opportunity for increased economies of scale resulting from the
infusion of assets currently held by the Replaced Fund, as well as
future opportunity for asset growth due to its availability to other,
unaffiliated separate accounts and pension plans, as well as other
investment companies.
16. The Replaced Fund's total net assets as of May 1, 2013 were
$135,658,744, compared to total net assets of the Replacement Fund of
$84,596,457. However, unlike the Replaced Fund, the availability of the
Replacement Fund is not restricted to the Accounts, but instead is
available to the variable separate accounts of multiple insurance
companies, pension plans and other investment companies, offering
greater potential for even further asset growth and economies of scale.
17. The Company also believes that an important consideration for
substituting the Replacement Fund for the Replaced Fund is Contract
owner expectations regarding performance. For the one year period ended
December 31, 2012 investment performance of the Replacement Fund was
0.26% higher than the Replaced Fund's return for the comparable period
(though long-term performance is less subject to comparison given the
relatively recent inception date of the Replaced Fund). Both Funds,
however, share the same Morningstar rankings and categories.
18. The Substitution Applicants note that the overall expenses of
the Replacement Fund are higher than the overall expenses of the
Replaced Fund. In light of this, and consistent with prior substitution
applications, for twenty-four months following the date of the
substitution and for those Contracts with Contract value invested in
the Replaced Fund on the date of the proposed substitution, on or
around the last day of each fiscal period (not to exceed a fiscal
quarter), the Company will reimburse Contract owners to the extent the
sum of the operating expenses of the Replacement Fund (taking into
account any fee waivers and expense reimbursements) and subaccount
expenses for such period exceeds, on an annualized basis, the sum of
the operating expenses of the Replaced Fund (taking into account any
fee waivers and expense reimbursements) and subaccount expenses for the
fiscal year preceding the date of the proposed substitution.\5\ In
addition, for twenty-four months following the date of the proposed
substitution, the Company will not increase total separate account
charges for Contracts outstanding on the date of the proposed
substitution.
---------------------------------------------------------------------------
\5\ For purposes of this limitation, Net Total Annual Operating
Expenses of the Replaced Fund are 0.95%. See the fee table
comparison in the ``Fees and Expenses'' section above.
---------------------------------------------------------------------------
Legal Analysis and Conditions
19. By supplements to the Contract prospectuses or by disclosures
in the prospectuses for the Contracts for new Contract owners after May
1, 2013, the Company notified existing Contract owners of its intention
to take the necessary actions, including seeking the order requested by
the Application, to carry out the proposed substitution as described
herein. These disclosures advise Contract owners that the Company has
filed or would file an application to seek approval of the
substitution, and that if the substitution is approved, any Contract
value allocated to the subaccount investing in the Replaced Fund on the
date of substitution will be automatically transferred to the
subaccount investing in the Replacement Fund.
20. In addition, these disclosures inform Contract owners that any
Contract owner not wanting his or her entire Contract value in the
Replaced Fund to be automatically transferred to the Replacement Fund
on the date of substitution should consider transferring the Contract
value in the Replaced Fund to other investment options available under
the Contract. The disclosures also inform Contract owners that the
Company does not impose charges in connection with the transfer to any
of the investment options available under the Contract, nor does the
Company impose restrictions on transfers (other than short-term trading
restrictions on frequent transfers to prevent market timing
transactions and other restrictions noted in the applicable Contract
prospectus). Finally, the disclosures explain that the Company bears
all expenses related to the substitution, and that there would be no
tax consequences for Contract owners as a result of the substitution.
Additionally, 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 largely
restate the information set forth in the prospectus and prospectus
supplements described above. The forms of the proposed supplements were
attached as exhibits A-1 and A-2, respectively, to the initial
Application.\6\
---------------------------------------------------------------------------
\6\ See File No. 812-14128, filed March 6, 2013 (SEC accession
number 0001193125-13-093752).
---------------------------------------------------------------------------
21. The current summary or statutory prospectus for the Replacement
Fund will have been provided to all Contract owners prior to the date
of substitution. The Company currently intends the effective date of
the substitution to be no later than the fourth quarter of 2013,
depending on SEC approval as well as
[[Page 53178]]
operational or other factors that may affect the implementation of the
substitution transaction. The effective date of the substitution may be
earlier. All Contract owners will have been given sufficient advance
notice of the date on which the substitution will take effect.
22. 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. The proposed
substitution will also not be treated as a transfer of Contract value
for purposes of determining the number of transfers permitted under the
Contracts' short-term trading restrictions.
23. The Company will not exercise any reserved right it may have
under the Contracts to impose additional charges for transfers of
accumulated Contract value for a period of at least 30 calendar days
following the effective date of the substitution. Similarly, after
giving proper notice in advance of the substitution, the Company will
permit Contract owners to make their first transfer of accumulated
Contract value out of the Replaced Fund to another investment option
(or the fixed option in the case of certain Variable Annuity
contracts), without such transfer being treated as a transfer for
purposes of the Contracts' short-term trading restrictions. As
previously noted, the Contracts do not currently impose (although they
reserve the right to impose) any charges or fees for executing
transfers.
Section 26(c) Relief
24. The Substitution Applicants request that the Commission issue
an order pursuant to Section 26(c) of the 1940 Act approving the
substitution by the Company of shares of the Replacement Fund for
shares of the Replaced Fund. Section 26(c) of the 1940 Act requires the
depositor of a registered unit investment trust holding securities of a
single issuer to receive Commission approval before substituting the
securities held by the trust.
25. The Substitution 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 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 a fixed option as applicable. Moreover, as is or will be described
in appropriate supplements and elsewhere, the Contracts will offer
Contract owners the opportunity to make a one-time transfer out of the
affected subaccount into any of the remaining subaccounts without any
cost or limitation other than those disclosed in the applicable
prospectuses previously provided to Contract owners. Contract owners
always have the right to change their allocations at any time without
restrictions or charges of any sort beyond those already noted. The
proposed substitution, therefore, will not result in the type of costly
forced redemption that Section 26(c) was designed to prevent.
26. 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
aforementioned concerns that Congress intended to address when the 1940
Act was amended to include this provision. In addition, the
Substitution 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
27. The Section 17 Applicants also request an order of the
Commission under Section 17(b) exempting them from the provisions of
Section 17(a) to the extent necessary to permit the Company to carry
out the In-Kind Transactions.
28. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits
any affiliated person of a registered investment company, or any
affiliated person of such person (``first tier affiliates'' and
``second tier affiliates'', respectively), acting as principal, from
knowingly selling any security or other property to that investment
company. Section 17(a)(2) of the 1940 Act generally prohibits such
persons acting as principals from knowingly purchasing any security or
other property from the registered investment company.
29. Pursuant to Section 17(a) of the 1940 Act, the Section 17
Applicants may be considered affiliates of one or more of the Funds
involved in the proposed substitution, based upon the definition of
``affiliated person'' under Section 2(a)(3) of the 1940 Act. Section
2(a)(3) defines an ``affiliated person'' of another person, in relevant
part, as ``(A) any person directly or indirectly owning, controlling,
or holding with power to vote, 5 per centum or more of the outstanding
voting securities of such other person; (B) any person 5 per centum or
more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person; .
. . (E) if such other person is an investment company, any investment
adviser thereof . . . .''
30. Shares held by an insurance company separate account are
legally owned by the insurance company. The Company does not currently
own any part of the Replacement Fund. Therefore, the Replacement Fund
is not currently an affiliate (or an affiliate of an affiliate) of the
Company's Accounts or the Company despite the fact that the Replaced
Fund and the Replacement Fund share an investment adviser, CSAM. It is
anticipated, however, that after the substitution transaction one or
more of the Company's Accounts would own more than 5% of the
Replacement Fund. Under these circumstances, 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.
31. Accordingly, as the Company and the Replacement Fund 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). Therefore, the Section 17 Applicants have
determined that, out of an abundance of caution, it is prudent to seek
relief from Section 17(a) in the context of this Amended Application
for the in-kind purchases and sales of the Replacement Fund's shares.
32. The Section 17 Applicants submit that the terms of the proposed
in-kind purchases of shares of the Replacement Fund, including the
consideration to be paid and received, as described in this Amended
Application, are reasonable and fair and do not involve overreaching on
the part of any persons concerned. The Section 17 Applicants also
submit that the proposed in-kind purchases will be consistent with the
investment policies of the Replaced Fund and the Replacement Fund, as
recited in the current registration statements and reports filed by
them under the 1940 Act. Finally, the Section 17 Applicants submit that
the proposed substitution is consistent with the general purposes of
the 1940 Act.
33. The Section 17 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
[[Page 53179]]
are reasonable and fair to all Contract owners. The Section 17
Applicants maintain that the terms of the proposed in-kind purchase
transactions, including the consideration to be paid and received by
each Fund, 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 1940 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 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.
34. Even though the Section 17 Applicants may not rely on Rule 17a-
7, the Section 17 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 with an investment company by its affiliated
persons. The board of the Replacement Fund has adopted procedures, as
required by paragraph (e)(1) of Rule 17a-7, pursuant to which a series
may purchase and sell securities to and from their affiliates. The
Section 17 Applicants will carry out the proposed in-kind purchases in
conformity with all of the conditions of Rule 17a-7 and the Replacement
Fund's procedures adopted thereunder, except that the consideration
paid for the securities being purchased or sold may not be entirely
cash. The investment adviser for the Replacement Fund will examine any
securities received from an in-kind redemption, and accept any
securities that they would otherwise have purchased for cash for the
Replacement Fund to hold. The circumstances surrounding the proposed
substitution will be such as to offer the Replacement Fund the same
degree of protection from overreaching that Rule 17a-7 provides the
Replacement Fund generally in connection with the purchase and sale of
securities under that Rule in the ordinary course of its business. In
particular, the proposed transactions will not be effected at a price
that is disadvantageous to the Replacement Fund.
35. 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 1940 Act. Moreover,
consistent with Rule 17a-7(d), no brokerage commissions, fees, or other
costs 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 brokerage costs will be borne by the
Company or its affiliates and not by Contract owners.
36. 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 Funds, as recited in their registration
statements. Any in-kind redemption will be effected on a pro-rata
basis, where the Replacement Fund will receive an approximate
proportionate share of every security position in the Replaced Fund's
portfolio in accordance with the Signature Letter, as supplemented by
the SEC in subsequent no-action letters. CSAM, the adviser to the
Replacement Fund, will examine the securities being transferred to the
Replacement Fund to ensure they are consistent with the Replacement
Fund's investment objective and policies and will retain only those
securities that it would have acquired for the Replacement Fund in a
cash transaction. In addition, the redeeming and purchasing values of
such securities will be the same.
37. The Section 17 Applicants submit that the in-kind redemptions
and purchases described above are consistent with the general purposes
of the 1940 Act as stated in the Findings and Declaration of Policy in
Section 1 of the 1940 Act and that the proposed transactions do not
present any of the conditions or abuses that the 1940 Act was designed
to prevent. The Commission has previously granted relief to others
based on similar facts. The Section 17 Applicants represent that the
proposed in-kind purchases meet all the requirements of Section 17(b)
of the 1940 Act and request that the Commission issue an order pursuant
to Section 17(b) of the 1940 Act exempting them from the provisions of
Section 17(a) to the extent necessary to permit the Company, on behalf
of the Accounts, to carry out in-kind the proposed substitution by
redeeming shares of the Replaced Fund in-kind and using securities
distributed as redemption proceeds to purchase shares of the
Replacement Fund.
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. 2013-20955 Filed 8-27-13; 8:45 am]
BILLING CODE 8011-01-P
