American Fidelity Assurance Company, et al.; Notice of Application, 50713-50716 [2014-20090]
Download as PDF
<![CDATA[
Federal Register / Vol. 79, No. 164 / Monday, August 25, 2014 / Notices
occurred. In both cases, the records
should be kept in an easily accessible
place for the first two years. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid OMB control
number.
The public may view the background
documentation for this information
collection at the following Web site,
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to:
Shagufta_Ahmed@omb.eop.gov; and (ii)
Thomas Bayer, Chief Information
Officer, Securities and Exchange
Commission, c/o Remi Pavlik-Simon,
100 F Street NE., Washington, DC 20549
or send an email to:
PRA_Mailbox@sec.gov. Comments must
be submitted to OMB within 30 days of
this notice.
Dated: August 19, 2014.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–20088 Filed 8–22–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–31217; File No. 812–14288]
American Fidelity Assurance
Company, et al.; Notice of Application
August 19, 2014.
Securities and Exchange
Commission (the ‘‘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 Fidelity
Assurance Company (the ‘‘Insurance
Company’’), American Fidelity Separate
Account A, American Fidelity Separate
Account B, and American Fidelity
Separate Account C (the ‘‘Separate
Accounts’’).
SUMMARY: Summary of Application:
The Applicants seek an order pursuant
to Section 26(c) of the 1940 Act
permitting the substitution of securities
issued by a registered investment
company currently held by the Separate
Accounts (the ‘‘Substitution’’), which
securities support the Separate
Accounts’ variable annuity contracts
emcdonald on DSK67QTVN1PROD with NOTICES
APPLICANTS:
VerDate Mar<15>2010
17:31 Aug 22, 2014
Jkt 232001
that are issued by the Insurance
Company (the ‘‘Contracts’’).
DATES: Filing Date: The application was
filed on March 12, 2014, and amended
and restated applications were filed on
June 27, 2014 and August 19, 2014.
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 September 15, 2014,
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: American Fidelity
Assurance Company, Attn: Christopher
T. Kenney, 2000 N. Classen, Oklahoma
City, Oklahoma 73106.
FOR FURTHER INFORMATION CONTACT:
Mark N. Zaruba, Senior Counsel at (202)
551–6878, or Mary Kay Frech, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Applicants’ Representations
1. The Insurance Company is a stock
life insurance company incorporated
under the laws of Oklahoma. The
Insurance Company is the depositor of
the Separate Accounts and the
investment adviser of the Existing Fund
(defined below).
2. Each of the Separate Accounts is a
segregated asset account of the
Insurance Company, and each Separate
Account is registered with the
Commission as a unit investment trust.
The separate accounts are used by the
Insurance Company to issue Contracts.
Interests under the Contracts are
registered under the Securities Act of
1933. The application sets forth the
registration statement file numbers for
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
50713
the Contracts and the Separate
Accounts.
3. The American Fidelity Dual
Strategy Fund, Inc. (the ‘‘Existing
Fund’’) is a registered investment
company that is an affiliate of the
Applicants because it is advised by the
Insurance Company. The Existing Fund
is available exclusively through the
purchase of one of the Contracts from
one of the Separate Accounts. The
Existing Fund is not an investment
option in any other annuity contracts. In
addition, the Existing Fund retains four
sub-advisors, each with different
principal investment strategies.
4. The Vanguard Variable Insurance
Fund Total Stock Market Index Portfolio
(the ‘‘Replacement Fund’’) is a member
of The Vanguard Group. The
Replacement Fund allocates its assets by
investing in two separate Vanguard
funds—the Vanguard Extended Market
Index Fund and the Vanguard Variable
Insurance Fund Equity Index Portfolio.
5. The Insurance Company organized
Separate Account A to hold the assets
that underlie the AFPrime Growth®
Variable Annuity contracts. Separate
Account A’s Contract is issued as a
group contract, and Separate Account
A’s assets are invested 100% in the
Existing Fund, with no other investment
options available to the Separate
Account A participants. The prospectus
for the Contract offered by Separate
Account A contains provisions
reserving the Insurance Company’s right
to replace the Existing Fund with a
comparable fund if the Existing Fund is
not available as an investment option.
Because Separate Account A offers only
one investment option, the Separate
Account A Contract does not permit a
contract owner or participant in a group
account (each, a ‘‘Contract Owner’’) to
transfer the Contract value from one
sub-account to another sub-account.
6. The Insurance Company
established Separate Account B to hold
the assets that underlie the
AFAdvantage® Variable Annuity
contracts and established Separate
Account C to hold the assets that
underlie the AFMaxx® 457(b) Group
Variable Annuity contracts. Separate
Account B offers individual contracts,
and Separate Account C offers group
contracts. Separate Accounts B and C
are divided into 16 sub-accounts, and
each sub-account invests in the
securities of a single underlying mutual
fund, including the Existing Fund. The
Replacement Fund currently is not an
investment option in Separate Account
B or C. The prospectuses for the
Separate Account B and C Contracts
contain provisions reserving the
Insurance Company’s right to substitute
E:\FR\FM\25AUN1.SGM
25AUN1
50714
Federal Register / Vol. 79, No. 164 / Monday, August 25, 2014 / Notices
another eligible investment option for
any one of the portfolios available under
the Contract. Each Separate Account B
and C Contract permits the Contract
Owner to transfer Contract value from
one subaccount to another subaccount
available under the Contract at any time,
subject to certain restrictions and
charges described in the prospectuses
for the Contracts, none of which will
apply in connection with the
Substitution.
7. The Applicants request an order
from the Commission pursuant to
Section 26(c) of the 1940 Act approving
the proposed Substitutions of shares of
the Existing Fund held by the Separate
Accounts with shares of the
Replacement Fund. Comparisons of the
investment objectives, investment
strategies, principal risks and prior
performance of the Existing Fund and
the Replacement Fund are included in
the application.
8. The following table compares the
fees and expenses of the Existing Fund
and the Replacement Fund, as of
December 31, 2013.
Existing
fund
emcdonald on DSK67QTVN1PROD with NOTICES
Management
Fees.
12b-1 Fees ........
Administrative
Fees.
Other Expenses
Total Annual Expenses.
Expense Waivers.
Net Annual Expenses.
Replacement fund
0.50% ........
0.18%.
None ..........
None ..........
None.
None.
None ..........
0.50% ........
None.
0.18%.
None ..........
None.
0.50% ........
0.18%.
9. The Applicants propose the
Substitution as part of a continued and
overall business plan by the Insurance
Company to make its Contracts more
attractive to both existing and
prospective Contract Owners.
Applicants expect that the Substitution
will provide significant benefits to
Contract Owners, because the
Applicants represent that the
Replacement Fund generally has a better
performance record and lower total
expenses than the Existing Fund.
10. The Applicants represent that the
Substitution is in response to the
continuing decline of sales in Separate
Account A and the minimal allocations
to the Existing Fund in Separate
Accounts B and C. The Applicants
submit that, without the Substitution,
the Insurance Company would be
compelled to increase its investment
advisory fee in order to cover the
escalating costs of managing the
Existing Fund’s portfolio investments,
VerDate Mar<15>2010
17:31 Aug 22, 2014
Jkt 232001
which would adversely affect the
Contract Owners that are invested in the
Existing Fund.
11. The Separate Account B and C
Contract Owners will continue to be
able to select among a large number of
investment options, with a full range of
investment objectives, investment
strategies and managers. Although
Separate Account A offers only one
investment option, the Applicants have
determined that the objectives and
strategies of the Replacement Fund are
sufficiently similar to the objectives and
strategies of the Existing Fund so that
the essential objectives and risk
expectations of the Separate Account A
Contract Owners that are invested in the
Existing Fund will continue to be met
after the Substitution. As a result of the
Substitution, the number of investment
options offered under each of the
Contracts will not change.
12. Contract Owners with Contract
value allocated to the Existing Fund will
experience lower fund net annual
operating expenses after the
Substitutions as prior to the
Substitutions. The Replacement Fund
has a management fee that is less than
that of the Existing Fund. The overall
expenses of the Replacement Fund are
less than those of the Existing Fund.
Applicants believe that, because the
Replacement Fund will be offered over
a substantially larger asset base than the
Existing Fund, there is a potential that
affected Contract Owners will, over
time, continue to realize the benefits of
additional economies of scale with
respect to the advisory fees. Neither the
Replacement Fund nor the Existing
Fund has a 12b–1 fee.
13. The Substitution is designed to
provide Contract Owners with the
ability to continue their investment in a
similar investment option without
interruption and at no additional cost to
them. In this regard, the Insurance
Company has agreed to bear all
expenses incurred in connection with
the Substitutions and related filings and
notices, including legal, accounting,
brokerage, and other fees and expenses.
The Contract values of the Contract
Owners impacted by the Substitution
will not change on the date of the
Substitution as a result of the
Replacement Fund replacing the
Existing Fund.
14. The proposed Substitution will be
described in supplements to the
Contracts’ prospectuses (the
‘‘Supplements’’), which will be filed
with the Commission and delivered to
all affected Contract Owners at least 45
days before the date on which the
Substitution is to occur (the
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
‘‘Substitution Date’’).1 All of the affected
Contract Owners will receive the
relevant Supplement and the prospectus
for the Replacement Fund before the
Substitution Date. New purchasers of
the Contracts will be provided the
relevant Supplement, the relevant
Separate Account prospectus and the
prospectus for the Replacement Fund in
accordance with all applicable legal
requirements. Prospective purchasers of
the Contracts will be provided the
relevant Supplement and the relevant
Separate Account prospectus.
15. The Separate Account A
Supplement will (a) notify the Separate
Account A Contract Owners that the
Insurance Company has requested and
received an order from the Commission
authorizing it to engage in the
Substitution, (b) indicate the Insurance
Company’s intent to implement the
Substitution, (c) state the anticipated
Substitution Date, (d) advise the
Contract Owners that all Contract values
in the Existing Fund will be transferred
to the Replacement Fund on the
Substitution Date, and (e) advise
Contract Owners that the Substitution
will take place at relative net asset
value.
16. The Separate Account B and C
Supplements will advise Separate
Account B and C Contract Owners that,
from the date of the Supplements until
the Substitution Date, Contract Owners
are permitted to transfer their Contract
values out of the Existing Fund subaccount to any other sub-account(s)
offered under the Contract or to a
certain fixed investment option that is
part of the Insurance Company’s general
account without the transfer being
treated as a transfer for purposes of
transfer limitations and fees that would
otherwise be applicable under the terms
of the Contract. The Separate Account B
and C Supplements also will (a) instruct
Contract Owners how to submit transfer
requests in light of the proposed
Substitution, (b) advise Contract Owners
that any Contract value remaining in the
Existing Fund subaccount on the
Substitution Date will be transferred to
the Replacement Fund sub-account, (c)
advise Contract Owners that the
Substitution will take place at relative
net asset value, (d) inform Contract
Owners that for at least 30 days
following the Substitution Date, the
Insurance Company will permit
Contract Owners to make transfers of
Contract value out of the Replacement
Fund sub-account to any other subaccount(s) offered under the Contract
without the transfer being treated as a
1 The Applicants are targeting November 28, 2014
as the Substitution Date.
E:\FR\FM\25AUN1.SGM
25AUN1
emcdonald on DSK67QTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 164 / Monday, August 25, 2014 / Notices
transfer for purposes of transfer
limitations and fees that would
otherwise be applicable under the terms
of the Contract, and (e) inform Contract
Owners that, except in connection with
market timing/short-term trading, the
Insurance Company will not exercise
any rights reserved by it under the
Contracts to impose additional
restrictions on transfers out of the
Replacement Fund for at least 30 days
after the Substitution Date.
17. In addition to the Supplements
distributed to Contract Owners, within
five business days after the Substitution
Date, Contract Owners whose assets are
allocated to the Replacement Fund as
part of the Substitution will be sent a
written notice (the ‘‘Confirmation’’)
informing them that the Substitution
was completed. With regard to the
Separate Account B and C Contract
Owners whose assets are allocated to
the Replacement Fund as part of the
Substitution, a notice accompanying the
Confirmation also will reiterate the
information set forth in the Supplement
to the effect that (a) for at least 30 days
after the Substitution Date, Contract
Owners may make free transfers out of
the Replacement Fund to one or more
other investment options, and (b) inform
Contract Owners that, except in
connection with market timing/shortterm trading, the Insurance Company
will not exercise any rights reserved by
it under the Contracts to impose
additional restrictions on transfers out
of the Replacement Fund for at least 30
days after the Substitution Date.
18. Applicants will effect the
Substitution after the issuance of the
requested order. As of the Substitution
Date, shares of the Existing Fund will be
redeemed for cash. The Insurance
Company, on behalf of the Separate
Accounts, will simultaneously place a
redemption request with the Existing
Fund and a purchase order with the
Replacement Fund so that the purchase
of the Replacement Fund shares will be
for the exact amount of the redemption
proceeds. Thus, the Contract values will
remain fully invested at all times. The
proceeds of the redemption will be used
to purchase the appropriate number of
shares of the Replacement Fund.
19. The Substitution will take place at
relative net asset value, with no change
in the amount of any affected Contract
Owner’s account value or death benefit,
or in the dollar value of his or her
investment in the applicable Separate
Account. No brokerage commissions,
fees or other remuneration will be paid
by either the Existing Fund or the
Replacement Fund or by affected
Contract Owners in connection with the
Substitution. The Substitution will not
VerDate Mar<15>2010
17:31 Aug 22, 2014
Jkt 232001
result in an increase in contract fees and
expenses, including mortality and
expense risk fees and administration
and distribution fees charged by the
Separate Accounts. Additionally, the
Substitution will result in decreased net
expense ratios. All expenses incurred in
connection with the proposed
Substitutions, including any brokerage,
legal, accounting, and other fees and
expenses, will be paid by the Insurance
Company. In addition, the Substitutions
will not result in adverse tax
consequences to Contract Owners and
will not alter any tax benefits associated
with the Contracts.
Legal Analysis
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 makes it unlawful for
the depositor of a registered unit
investment trust that invests in the
securities of a single issuer to substitute
another security for such security
without Commission approval. Section
26(c) further states that the Commission
shall issue an order approving such a
substitution ‘‘if the evidence establishes
that it is consistent with the protection
of investors and the purposes fairly
intended by the policy and provisions of
this title.’’
2. As discussed above, the Applicants
have reserved the right under the each
of the Separate Account’s Contracts to
substitute shares of another underlying
mutual fund for one of the current
underlying mutual funds offered as an
investment option under the Contracts.
The Contract prospectuses disclose this
right.
3. The Replacement Fund and the
Existing Fund have sufficiently similar
investment objectives and policies to
make the Replacement Fund an
appropriate candidate as a substitute.
The Insurance Company considered the
performance history of the Existing
Fund and the Replacement Fund and
determined that no contract holder
would be materially adversely affected
as a result of the Substitution.
4. The Substitution will not result in
an increase in contract fees and
expenses, including mortality and
expense risk fees and administration
and distribution fees charged by the
Separate Accounts. Additionally, the
Substitution will result in decreased net
expense ratios. After the Substitution,
neither the Insurance Company nor any
of its affiliates will receive
compensation from the charges to the
Separate Accounts related to the
Contracts or from Rule 12b–1 fees or
revenue sharing from the Replacement
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
50715
Fund. Thus, the Substitution protects
the Contract Owners who are invested
in the Existing Fund by providing a
replacement fund that (a) is similar to
the Existing Fund, and (b) reduces net
operating expense.
5. Because Separate Account A offers
only one investment option, the
Separate Account A Contract Owners do
not have the discretion to re-allocate
their Contract values to another
investment option if they do not wish to
invest in the Replacement Fund.
Instead, if the Separate Account A
Contract Owners were dissatisfied with
the Substitution, the only relief
available would be to redeem their
interests in Separate Account A and
reinvest the proceeds in another unit
investment trust or in an open-end
company, in which case the Contract
Owners could be subject to a new sales
load. Accordingly, with regard to
Separate Account A, the proposed
Substitution is the type of substitution
that Congress envisioned when it
amended Section 26(c) to require SEC
approval of the substitution of one
security for another security by the
depositor of a registered unit investment
trust holding securities of a single
issuer. However, although Separate
Account A offers only one investment
option, the Applicants have determined
that the objectives and strategies of the
Replacement Fund are sufficiently
similar to the objectives and strategies of
the Existing Fund that the essential
objectives and risk expectations of the
Separate Account A Contract Owners
will continue to be met after the
Substitution.
6. With regard to Separate Accounts B
and C, the proposed Substitution is not
of the type that Section 26 was designed
to prevent. The Separate Account B and
C Contracts provide Contract Owners
with investment discretion to allocate
and reallocate their Contract values
among the available sub-accounts that
invest in the underlying mutual fund
investment options. This flexibility
provides Separate Account B and C
Contract Owners with the ability to
reallocate their assets at any time—
either before the Substitution Date or
after the Substitution Date—if they do
not wish to invest in the Replacement
Fund. The likelihood of being invested
in an undesired underlying mutual fund
is minimized, with the discretion
remaining with the Contract Owners,
and the Separate Account B and C
Contract Owners will continue to be
able to select among a large number of
investment options, with a full range of
investment objectives, investment
strategies and managers. As a result of
the Substitution, the number of
E:\FR\FM\25AUN1.SGM
25AUN1
50716
Federal Register / Vol. 79, No. 164 / Monday, August 25, 2014 / Notices
investment options offered under the
Separate Account B and C Contracts
will not change. The Substitution,
therefore, will not result in the type of
costly forced redemption that Section
26(c) was designed to prevent.
7. With regard to all three of the
Separate Accounts, the proposed
Substitution is unlike the type of
substitution that Section 26(c) was
designed to prevent in that by
purchasing the Contracts, Contract
Owners select much more than a
particular investment company in
which to invest their Contract values.
They also select the specific type of
coverage offered by the Insurance
Company under the Contracts, as well
as numerous other rights and privileges
set forth in the Contracts. The
Substitution has no impact on these
aspects of the Contracts.
Conclusion
For the reasons set forth in the
application, the Applicants submit that
the proposed Substitutions and related
transactions meet the standards of
Section 26(c) of the 1940 Act and that
the requested orders should be granted.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–20090 Filed 8–22–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31218; 812–14251]
Persimmon Capital Management LP
and Northern Lights Fund Trust III;
Notice of Application
Notice of an application under
section 6(c) of the Investment Company
Act of 1940 (the ‘‘Act’’) for an
exemption from section 15(a) of the Act
and rule 18f–2 under the Act.
ACTION:
Applicants
request an order that would permit them
to enter into and materially amend
subadvisory agreements without
shareholder approval.
APPLICANTS: Persimmon Capital
Management LP (the ‘‘Adviser’’) and
Northern Lights Fund Trust III (the
‘‘Trust’’).
FILING DATES: The application was filed
on December 16, 2013 and amended on
April 17, 2014. Applicants have agreed
to file an amendment during the notice
emcdonald on DSK67QTVN1PROD with NOTICES
SUMMARY OF APPLICATION:
17:31 Aug 22, 2014
An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on September 15, 2014,
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 writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: The Trust: Northern Lights
Fund Trust III, 17605 Wright Street,
Omaha, NE 68130; The Adviser:
Persimmon Capital Management LP,
1777 Sentry Parkway West, Gwynedd
Hall, Suite 102, Blue Bell, PA 19422.
FOR FURTHER INFORMATION CONTACT:
Kieran G. Brown, Senior Counsel, at
(202) 551–6773, or James M. Curtis,
Branch Chief, at (202) 551–6712
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
HEARING OR NOTIFICATION OF HEARING:
Applicants’ Representations
August 19, 2014.
VerDate Mar<15>2010
period, the substance of which is
reflected in this notice.
Jkt 232001
1. The Trust is organized as a
Delaware statutory trust and is
registered as an open-end management
investment company with multiple
series. Each series of the Trust has its
own investment objective, policies and
restrictions, and each is managed by
various advisers and subadvisers.1
1 The Persimmon Long/Short Fund (the
‘‘Persimmon Fund’’) is a series of the Trust and is
the only existing Fund (defined below) that
currently intends to rely on the requested order.
Applicants also request relief with respect to any
existing or future registered open-end management
investment company or series thereof that (a) is
advised by the Adviser, including the Adviser’s
successors and any entity controlling, controlled by
or under common control with the Adviser
(included in the term ‘‘Adviser’’); (b) uses the
manager-of-managers structure (‘‘Manager of
Managers Structure’’) described in the application;
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
2. The Adviser is a Delaware limited
partnership registered as an investment
adviser under the Investment Advisers
Act of 1940 (‘‘Advisers Act’’). The
Adviser serves as the investment adviser
of the Persimmon Fund. The Adviser
provides investment management
services to the Persimmon Fund
pursuant to an investment advisory
agreement with the Trust (the ‘‘Advisory
Agreement’’).2 The terms of the
Advisory Agreement comply with
section 15(a) of the Act. The Advisory
Agreement was approved by the board
of trustees of the Trust (the ‘‘Board’’; the
term ‘‘Board’’ also includes the board of
trustees or directors of a future Fund),
including by a majority of the trustees
who are not ‘‘interested persons’’ (as
defined in section 2(a)(19) of the Act) of
the Trust or Adviser (the ‘‘Independent
Trustees’’), and was approved by the
initial shareholder of the Persimmon
Fund in the manner required by
sections 15(a) and (c) of the Act and rule
18f–2 thereunder.3
3. Under the terms of the Advisory
Agreement, the Adviser is responsible
for the overall management of the
Persimmon Fund’s business affairs and
selecting investments in accordance
with the Persimmon Fund’s investment
objectives, policies and restrictions. For
the investment management services
that it provides to the Funds, the
Adviser receives the fee specified in the
Advisory Agreements. In addition,
pursuant to the Advisory Agreement,
the Adviser may retain one or more
subadvisers (each, a ‘‘Subadviser’’) for
the purpose of managing all or a portion
of the assets of the Persimmon Fund.
Pursuant to its authority under the
Advisory Agreements, the Adviser
intends to enter into subadvisory
agreements (the ‘‘Subadvisory
Agreements’’) with certain unaffiliated
and (c) complies with the terms and conditions of
the application (together with the Persimmon Fund,
the ‘‘Funds’’ and each, individually, a ‘‘Fund’’). The
only existing investment company that currently
intends to rely on the requested order, the Trust,
is named as an applicant. For purposes of the
requested order, ‘‘successor’’ is limited to an entity
that results from a reorganization into another
jurisdiction or a change in the type of organization.
2 The Adviser will enter into substantially similar
investment advisory agreements to provide
investment management services to future Funds
(‘‘Future Advisory Agreements’’). The terms of
Future Advisory Agreements will comply with
Section 15(a) of the Act, and Future Advisory
Agreements will be approved by shareholders and
by the Board, including a majority of the
Independent Trustees, in the manner required by
Sections 15(a) and 15(c) of the Act and rule 18f–
2 thereunder. Applicants are not seeking any
exemptions with respect to Future Advisory
Agreements. References to any Advisory Agreement
or Advisory Agreements include Future Advisory
Agreements as they pertain to future Funds.
3 Applicants are not seeking any exemptions with
respect to the Advisory Agreements.
E:\FR\FM\25AUN1.SGM
25AUN1
]]>Agencies
[Federal Register Volume 79, Number 164 (Monday, August 25, 2014)]
[Notices]
[Pages 50713-50716]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20090]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-31217; File No. 812-14288]
American Fidelity Assurance Company, et al.; Notice of
Application
August 19, 2014.
AGENCY: Securities and Exchange Commission (the ``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 Fidelity Assurance Company (the ``Insurance
Company''), American Fidelity Separate Account A, American Fidelity
Separate Account B, and American Fidelity Separate Account C (the
``Separate Accounts'').
SUMMARY: Summary of Application: The Applicants seek an order pursuant
to Section 26(c) of the 1940 Act permitting the substitution of
securities issued by a registered investment company currently held by
the Separate Accounts (the ``Substitution''), which securities support
the Separate Accounts' variable annuity contracts that are issued by
the Insurance Company (the ``Contracts'').
DATES: Filing Date: The application was filed on March 12, 2014, and
amended and restated applications were filed on June 27, 2014 and
August 19, 2014.
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 September 15, 2014, 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: American Fidelity Assurance
Company, Attn: Christopher T. Kenney, 2000 N. Classen, Oklahoma City,
Oklahoma 73106.
FOR FURTHER INFORMATION CONTACT: Mark N. Zaruba, Senior Counsel at
(202) 551-6878, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. The Insurance Company is a stock life insurance company
incorporated under the laws of Oklahoma. The Insurance Company is the
depositor of the Separate Accounts and the investment adviser of the
Existing Fund (defined below).
2. Each of the Separate Accounts is a segregated asset account of
the Insurance Company, and each Separate Account is registered with the
Commission as a unit investment trust. The separate accounts are used
by the Insurance Company to issue Contracts. Interests under the
Contracts are registered under the Securities Act of 1933. The
application sets forth the registration statement file numbers for the
Contracts and the Separate Accounts.
3. The American Fidelity Dual Strategy Fund, Inc. (the ``Existing
Fund'') is a registered investment company that is an affiliate of the
Applicants because it is advised by the Insurance Company. The Existing
Fund is available exclusively through the purchase of one of the
Contracts from one of the Separate Accounts. The Existing Fund is not
an investment option in any other annuity contracts. In addition, the
Existing Fund retains four sub-advisors, each with different principal
investment strategies.
4. The Vanguard Variable Insurance Fund Total Stock Market Index
Portfolio (the ``Replacement Fund'') is a member of The Vanguard Group.
The Replacement Fund allocates its assets by investing in two separate
Vanguard funds--the Vanguard Extended Market Index Fund and the
Vanguard Variable Insurance Fund Equity Index Portfolio.
5. The Insurance Company organized Separate Account A to hold the
assets that underlie the AFPrime Growth[supreg] Variable Annuity
contracts. Separate Account A's Contract is issued as a group contract,
and Separate Account A's assets are invested 100% in the Existing Fund,
with no other investment options available to the Separate Account A
participants. The prospectus for the Contract offered by Separate
Account A contains provisions reserving the Insurance Company's right
to replace the Existing Fund with a comparable fund if the Existing
Fund is not available as an investment option. Because Separate Account
A offers only one investment option, the Separate Account A Contract
does not permit a contract owner or participant in a group account
(each, a ``Contract Owner'') to transfer the Contract value from one
sub-account to another sub-account.
6. The Insurance Company established Separate Account B to hold the
assets that underlie the AFAdvantage[supreg] Variable Annuity contracts
and established Separate Account C to hold the assets that underlie the
AFMaxx[supreg] 457(b) Group Variable Annuity contracts. Separate
Account B offers individual contracts, and Separate Account C offers
group contracts. Separate Accounts B and C are divided into 16 sub-
accounts, and each sub-account invests in the securities of a single
underlying mutual fund, including the Existing Fund. The Replacement
Fund currently is not an investment option in Separate Account B or C.
The prospectuses for the Separate Account B and C Contracts contain
provisions reserving the Insurance Company's right to substitute
[[Page 50714]]
another eligible investment option for any one of the portfolios
available under the Contract. Each Separate Account B and C Contract
permits the Contract Owner to transfer Contract value from one
subaccount to another subaccount available under the Contract at any
time, subject to certain restrictions and charges described in the
prospectuses for the Contracts, none of which will apply in connection
with the Substitution.
7. The Applicants request an order from the Commission pursuant to
Section 26(c) of the 1940 Act approving the proposed Substitutions of
shares of the Existing Fund held by the Separate Accounts with shares
of the Replacement Fund. Comparisons of the investment objectives,
investment strategies, principal risks and prior performance of the
Existing Fund and the Replacement Fund are included in the application.
8. The following table compares the fees and expenses of the
Existing Fund and the Replacement Fund, as of December 31, 2013.
------------------------------------------------------------------------
Existing fund Replacement fund
------------------------------------------------------------------------
Management Fees................. 0.50%............. 0.18%.
12b-1 Fees...................... None.............. None.
Administrative Fees............. None.............. None.
Other Expenses.................. None.............. None.
Total Annual Expenses........... 0.50%............. 0.18%.
Expense Waivers................. None.............. None.
Net Annual Expenses............. 0.50%............. 0.18%.
------------------------------------------------------------------------
9. The Applicants propose the Substitution as part of a continued
and overall business plan by the Insurance Company to make its
Contracts more attractive to both existing and prospective Contract
Owners. Applicants expect that the Substitution will provide
significant benefits to Contract Owners, because the Applicants
represent that the Replacement Fund generally has a better performance
record and lower total expenses than the Existing Fund.
10. The Applicants represent that the Substitution is in response
to the continuing decline of sales in Separate Account A and the
minimal allocations to the Existing Fund in Separate Accounts B and C.
The Applicants submit that, without the Substitution, the Insurance
Company would be compelled to increase its investment advisory fee in
order to cover the escalating costs of managing the Existing Fund's
portfolio investments, which would adversely affect the Contract Owners
that are invested in the Existing Fund.
11. The Separate Account B and C Contract Owners will continue to
be able to select among a large number of investment options, with a
full range of investment objectives, investment strategies and
managers. Although Separate Account A offers only one investment
option, the Applicants have determined that the objectives and
strategies of the Replacement Fund are sufficiently similar to the
objectives and strategies of the Existing Fund so that the essential
objectives and risk expectations of the Separate Account A Contract
Owners that are invested in the Existing Fund will continue to be met
after the Substitution. As a result of the Substitution, the number of
investment options offered under each of the Contracts will not change.
12. Contract Owners with Contract value allocated to the Existing
Fund will experience lower fund net annual operating expenses after the
Substitutions as prior to the Substitutions. The Replacement Fund has a
management fee that is less than that of the Existing Fund. The overall
expenses of the Replacement Fund are less than those of the Existing
Fund. Applicants believe that, because the Replacement Fund will be
offered over a substantially larger asset base than the Existing Fund,
there is a potential that affected Contract Owners will, over time,
continue to realize the benefits of additional economies of scale with
respect to the advisory fees. Neither the Replacement Fund nor the
Existing Fund has a 12b-1 fee.
13. The Substitution is designed to provide Contract Owners with
the ability to continue their investment in a similar investment option
without interruption and at no additional cost to them. In this regard,
the Insurance Company has agreed to bear all expenses incurred in
connection with the Substitutions and related filings and notices,
including legal, accounting, brokerage, and other fees and expenses.
The Contract values of the Contract Owners impacted by the Substitution
will not change on the date of the Substitution as a result of the
Replacement Fund replacing the Existing Fund.
14. The proposed Substitution will be described in supplements to
the Contracts' prospectuses (the ``Supplements''), which will be filed
with the Commission and delivered to all affected Contract Owners at
least 45 days before the date on which the Substitution is to occur
(the ``Substitution Date'').\1\ All of the affected Contract Owners
will receive the relevant Supplement and the prospectus for the
Replacement Fund before the Substitution Date. New purchasers of the
Contracts will be provided the relevant Supplement, the relevant
Separate Account prospectus and the prospectus for the Replacement Fund
in accordance with all applicable legal requirements. Prospective
purchasers of the Contracts will be provided the relevant Supplement
and the relevant Separate Account prospectus.
---------------------------------------------------------------------------
\1\ The Applicants are targeting November 28, 2014 as the
Substitution Date.
---------------------------------------------------------------------------
15. The Separate Account A Supplement will (a) notify the Separate
Account A Contract Owners that the Insurance Company has requested and
received an order from the Commission authorizing it to engage in the
Substitution, (b) indicate the Insurance Company's intent to implement
the Substitution, (c) state the anticipated Substitution Date, (d)
advise the Contract Owners that all Contract values in the Existing
Fund will be transferred to the Replacement Fund on the Substitution
Date, and (e) advise Contract Owners that the Substitution will take
place at relative net asset value.
16. The Separate Account B and C Supplements will advise Separate
Account B and C Contract Owners that, from the date of the Supplements
until the Substitution Date, Contract Owners are permitted to transfer
their Contract values out of the Existing Fund sub-account to any other
sub-account(s) offered under the Contract or to a certain fixed
investment option that is part of the Insurance Company's general
account without the transfer being treated as a transfer for purposes
of transfer limitations and fees that would otherwise be applicable
under the terms of the Contract. The Separate Account B and C
Supplements also will (a) instruct Contract Owners how to submit
transfer requests in light of the proposed Substitution, (b) advise
Contract Owners that any Contract value remaining in the Existing Fund
subaccount on the Substitution Date will be transferred to the
Replacement Fund sub-account, (c) advise Contract Owners that the
Substitution will take place at relative net asset value, (d) inform
Contract Owners that for at least 30 days following the Substitution
Date, the Insurance Company will permit Contract Owners to make
transfers of Contract value out of the Replacement Fund sub-account to
any other sub-account(s) offered under the Contract without the
transfer being treated as a
[[Page 50715]]
transfer for purposes of transfer limitations and fees that would
otherwise be applicable under the terms of the Contract, and (e) inform
Contract Owners that, except in connection with market timing/short-
term trading, the Insurance Company will not exercise any rights
reserved by it under the Contracts to impose additional restrictions on
transfers out of the Replacement Fund for at least 30 days after the
Substitution Date.
17. In addition to the Supplements distributed to Contract Owners,
within five business days after the Substitution Date, Contract Owners
whose assets are allocated to the Replacement Fund as part of the
Substitution will be sent a written notice (the ``Confirmation'')
informing them that the Substitution was completed. With regard to the
Separate Account B and C Contract Owners whose assets are allocated to
the Replacement Fund as part of the Substitution, a notice accompanying
the Confirmation also will reiterate the information set forth in the
Supplement to the effect that (a) for at least 30 days after the
Substitution Date, Contract Owners may make free transfers out of the
Replacement Fund to one or more other investment options, and (b)
inform Contract Owners that, except in connection with market timing/
short-term trading, the Insurance Company will not exercise any rights
reserved by it under the Contracts to impose additional restrictions on
transfers out of the Replacement Fund for at least 30 days after the
Substitution Date.
18. Applicants will effect the Substitution after the issuance of
the requested order. As of the Substitution Date, shares of the
Existing Fund will be redeemed for cash. The Insurance Company, on
behalf of the Separate Accounts, will simultaneously place a redemption
request with the Existing Fund and a purchase order with the
Replacement Fund so that the purchase of the Replacement Fund shares
will be for the exact amount of the redemption proceeds. Thus, the
Contract values will remain fully invested at all times. The proceeds
of the redemption will be used to purchase the appropriate number of
shares of the Replacement Fund.
19. The Substitution will take place at relative net asset value,
with no change in the amount of any affected Contract Owner's account
value or death benefit, or in the dollar value of his or her investment
in the applicable Separate Account. No brokerage commissions, fees or
other remuneration will be paid by either the Existing Fund or the
Replacement Fund or by affected Contract Owners in connection with the
Substitution. The Substitution will not result in an increase in
contract fees and expenses, including mortality and expense risk fees
and administration and distribution fees charged by the Separate
Accounts. Additionally, the Substitution will result in decreased net
expense ratios. All expenses incurred in connection with the proposed
Substitutions, including any brokerage, legal, accounting, and other
fees and expenses, will be paid by the Insurance Company. In addition,
the Substitutions will not result in adverse tax consequences to
Contract Owners and will not alter any tax benefits associated with the
Contracts.
Legal Analysis
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 makes it unlawful for the
depositor of a registered unit investment trust that invests in the
securities of a single issuer to substitute another security for such
security without Commission approval. Section 26(c) further states that
the Commission shall issue an order approving such a substitution ``if
the evidence establishes that it is consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of this title.''
2. As discussed above, the Applicants have reserved the right under
the each of the Separate Account's Contracts to substitute shares of
another underlying mutual fund for one of the current underlying mutual
funds offered as an investment option under the Contracts. The Contract
prospectuses disclose this right.
3. The Replacement Fund and the Existing Fund have sufficiently
similar investment objectives and policies to make the Replacement Fund
an appropriate candidate as a substitute. The Insurance Company
considered the performance history of the Existing Fund and the
Replacement Fund and determined that no contract holder would be
materially adversely affected as a result of the Substitution.
4. The Substitution will not result in an increase in contract fees
and expenses, including mortality and expense risk fees and
administration and distribution fees charged by the Separate Accounts.
Additionally, the Substitution will result in decreased net expense
ratios. After the Substitution, neither the Insurance Company nor any
of its affiliates will receive compensation from the charges to the
Separate Accounts related to the Contracts or from Rule 12b-1 fees or
revenue sharing from the Replacement Fund. Thus, the Substitution
protects the Contract Owners who are invested in the Existing Fund by
providing a replacement fund that (a) is similar to the Existing Fund,
and (b) reduces net operating expense.
5. Because Separate Account A offers only one investment option,
the Separate Account A Contract Owners do not have the discretion to
re-allocate their Contract values to another investment option if they
do not wish to invest in the Replacement Fund. Instead, if the Separate
Account A Contract Owners were dissatisfied with the Substitution, the
only relief available would be to redeem their interests in Separate
Account A and reinvest the proceeds in another unit investment trust or
in an open-end company, in which case the Contract Owners could be
subject to a new sales load. Accordingly, with regard to Separate
Account A, the proposed Substitution is the type of substitution that
Congress envisioned when it amended Section 26(c) to require SEC
approval of the substitution of one security for another security by
the depositor of a registered unit investment trust holding securities
of a single issuer. However, although Separate Account A offers only
one investment option, the Applicants have determined that the
objectives and strategies of the Replacement Fund are sufficiently
similar to the objectives and strategies of the Existing Fund that the
essential objectives and risk expectations of the Separate Account A
Contract Owners will continue to be met after the Substitution.
6. With regard to Separate Accounts B and C, the proposed
Substitution is not of the type that Section 26 was designed to
prevent. The Separate Account B and C Contracts provide Contract Owners
with investment discretion to allocate and reallocate their Contract
values among the available sub-accounts that invest in the underlying
mutual fund investment options. This flexibility provides Separate
Account B and C Contract Owners with the ability to reallocate their
assets at any time--either before the Substitution Date or after the
Substitution Date--if they do not wish to invest in the Replacement
Fund. The likelihood of being invested in an undesired underlying
mutual fund is minimized, with the discretion remaining with the
Contract Owners, and the Separate Account B and C Contract Owners will
continue to be able to select among a large number of investment
options, with a full range of investment objectives, investment
strategies and managers. As a result of the Substitution, the number of
[[Page 50716]]
investment options offered under the Separate Account B and C Contracts
will not change. The Substitution, therefore, will not result in the
type of costly forced redemption that Section 26(c) was designed to
prevent.
7. With regard to all three of the Separate Accounts, the proposed
Substitution is unlike the type of substitution that Section 26(c) was
designed to prevent in that by purchasing the Contracts, Contract
Owners select much more than a particular investment company in which
to invest their Contract values. They also select the specific type of
coverage offered by the Insurance Company under the Contracts, as well
as numerous other rights and privileges set forth in the Contracts. The
Substitution has no impact on these aspects of the Contracts.
Conclusion
For the reasons set forth in the application, the Applicants submit
that the proposed Substitutions and related transactions meet the
standards of Section 26(c) of the 1940 Act and that the requested
orders should be granted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20090 Filed 8-22-14; 8:45 am]
BILLING CODE 8011-01-P
