Horace Mann Life Insurance Company, et al; Notice of Application, 42571-42575 [2015-17575]
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Federal Register / Vol. 80, No. 137 / Friday, July 17, 2015 / Notices
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Brent J. Fields,
Secretary.
[FR Doc. 2015–17492 Filed 7–16–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–31714; File No. 812–14336]
Horace Mann Life Insurance Company,
et al; Notice of Application
July 13, 2015.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order approving the substitution of
certain securities pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘1940 Act’’).
AGENCY:
Horace Mann Life
Insurance Company (‘‘Horace Mann’’),
and Horace Mann Life Insurance
Company Separate Account and Horace
Mann Life Insurance Company
Qualified Group Annuity Separate
Account (collectively, the ‘‘Separate
Accounts,’’ and together with Horace
Mann, the ‘‘Applicants’’).
SUMMARY OF APPLICATION: The
Applicants seek an order pursuant to
Section 26(c) of the 1940 Act approving
the substitution of shares issued by
certain investment portfolios (the
‘‘Existing Portfolios’’) of registered
investment companies with shares of
certain investment portfolios (the
‘‘Replacement Portfolios’’) of registered
investment companies, under certain
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APPLICANTS:
15 17
CFR 200.30–3(a)(12).
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variable annuity contracts (the
‘‘Contracts’’), each funded through the
Separate Accounts.
DATES: Filing Date: The application was
filed on July 25, 2014, and amended on
January 14, 2015, and May 27, 2015.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief 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 August 6, 2015, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to Rule 0–5 under the
1940 Act, hearing requests should state
the nature of the writer’s interest, any
facts bearing upon the desirability of a
hearing on the matter, 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: Elizabeth E. Arthur, Esq.,
Maureen Bolinger, Horace Mann Life
Insurance Company, One Horace Mann
Plaza, Springfield, Illinois 62715.
FOR FURTHER INFORMATION CONTACT:
Michael S. Didiuk, Senior Counsel, at
(202) 551–6839, or Holly L. Hunter-Ceci,
Branch Chief, at (202) 551–6825
(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.
Applicants’ Representations
1. Horace Mann is a stock life
insurance company organized under the
laws of Illinois. Horace Mann is engaged
in the sale of individual and group life
insurance and annuity contracts on a
non-participating basis. Horace Mann is
an indirect wholly owned subsidiary of
Horace Mann Educators Corporation, a
publicly-held insurance holding
company traded on the New York Stock
Exchange. Horace Mann established the
Horace Mann Life Insurance Company
Separate Account on October 9, 1965,
under Illinois law, and established the
Horace Mann Life Insurance Company
Qualified Group Annuity Separate
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42571
Account on October 16, 2006, under
Illinois law.
2. Each of the Separate Accounts
meets the definition of ‘‘separate
account’’ as defined in Section 2(a)(37)
of the 1940 Act. The Separate Accounts
are registered with the Commission
under the 1940 Act as unit investment
trusts. The assets of the Separate
Accounts support the Contracts, and
interests in the Separate Accounts
offered through such Contracts have
been registered under the Securities Act
of 1933 (‘‘1933 Act’’) on Form N–4. The
application sets forth the registration
statement file numbers for the Contracts
and the Separate Accounts. Horace
Mann is the legal owner of the assets in
the Separate Accounts. The assets of the
Separate Accounts may not be
chargeable with liabilities arising out of
any other business of Horace Mann.
3. The Contracts are issued either as
individual or group contracts, with
group contract participants acquiring
certain ownership rights as described in
the group contract or plan documents.
Contract owners and participants in
group contracts (each a ‘‘Contract
owner’’) may allocate some or all of
their Contract value to one or more
subaccounts available as investment
options under their respective Contract.
Each subaccount corresponds to a
portfolio of an underlying registered
open-end management investment
company in which the Separate
Account invests. A Contract owner may
also invest some or all of his/her
Contract value to a fixed account
investment option, which is supported
by assets of Horace Mann’s general
account.
4. The Applicants state that under the
Contracts, Horace Mann reserves the
right to substitute shares of one portfolio
for shares of another portfolio if: (i)
Shares of a registered open-end
management investment company are
no longer available for investment by
the Separate Account; or (ii) Horace
Mann determines that further
investments in a registered open-end
management investment company are
inappropriate in view of the purposes
and objectives of a Contract.
5. The Applicants propose the
substitution of shares of the Existing
Portfolios with shares of the
Replacement Portfolios under the
Contracts, each funded through the
Separate Accounts. The Separate
Accounts are segmented into
subaccounts, and certain of these
subaccounts invest in the Existing
Portfolios. Each subaccount’s income,
gains, and losses, whether or not
realized, are credited to or charged
against the amounts allocated to that
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Federal Register / Vol. 80, No. 137 / Friday, July 17, 2015 / Notices
subaccount in accordance with the
terms of the Contracts without regard to
other income, gains, or losses of the
remaining subaccounts or of Horace
Mann. The Applicants state that the
proposed substitutions involve
redeeming shares of the Existing
Portfolios for cash. The proceeds of such
redemptions will then be used to
purchase shares of the corresponding
Replacement Portfolio, as each
subaccount of the Separate Accounts
will invest the proceeds of its
redemption from the Existing Portfolios
in the applicable Replacement
Portfolios.
6. Applicants propose, as set forth
below, to substitute shares of the
Replacement Portfolios for shares of the
Existing Portfolios (‘‘Substitutions’’):
Sub.
No.
Existing portfolio
Replacement portfolio
1 ........
Wilshire Mutual Funds Inc.—Wilshire 5000 IndexSM Fund—Institutional Class .................
Variable Insurance Products Fund II—Index
500 Portfolio—Service Class 2.
2
3
4
5
6
7
8
Wilshire Mutual Funds Inc.—Wilshire 5000 IndexSM Fund—Investment Class ..................
Variable Insurance Products Fund IIII—Growth & Income Portfolio—Service Class 2 ......
Davis Variable Account Fund, Inc.—Davis Value Portfolio .................................................
T. Rowe Price Equity Series, Inc.—T. Rowe Price Equity Income Portfolio—II .................
Wilshire Large Company Value Portfolio—Investment Class ..............................................
Fidelity Variable Insurance Products Fund—Growth Portfolio—Service Class 2 ...............
Wilshire Mutual Funds Inc.—Wilshire Large Company Growth Portfolio—Institutional
Class.
Wilshire Large Company Growth Portfolio—Investment Class ...........................................
Delaware VIP Trust—Delaware VIP U.S. Growth Series—Service Class ..........................
AllianceBernstein Variable Products Series Fund, Inc.—AllianceBernstein Large Cap
Growth Portfolio—Class B.
Dreyfus Investment Portfolios—Dreyfus MidCap Stock Portfolio—Service Shares ............
........
........
........
........
........
........
........
9 ........
10 ......
11 ......
12 ......
13 ......
14 ......
33 ......
Variable Insurance Products Fund III—Mid Cap Portfolio—Service Class 2 ......................
Rainier Investment Management Mutual Funds—Rainier Small/Mid Cap Equity Fund—
Original Shares.
Aerial Investment Trust—Ariel Appreciation Fund—Investor Class ....................................
Goldman Sachs Variable Insurance Trust—Goldman Sachs Mid Cap Value Fund—Service Shares.
American Century Variable Portfolios, Inc.—VP Mid Cap Value Fund—Class 1 ...............
Wells Fargo Variable Trust—Wells Fargo Advantage VT Opportunity Fund—Class 2 ......
AllianceBernstein Variable Products Series Fund, Inc.—AllianceBernstein Small/Mid Cap
Value Portfolio—Class B.
Aerial Investment Trust—Ariel Fund—Investor Class .........................................................
Lord Abbet Series Fund, Inc.—Growth Opportunities Portfolio—Class VC ........................
Putnam Variable Trust—Putnam VT Multi-Cap Growth Fund—Class IB ............................
Delaware VIP Trust—Delaware VIP Smid Cap Growth Series—Service Class (formerly
Delaware VIP Growth Opportunities Series, Service Class).
Goldman Sachs Variable Insurance Trust—Goldman Sachs Small Cap Equity Insights
Fund—Institutional Shares.
Lazard Retirement Series, Inc.—Lazard Retirement US Small-Mid Cap Equity Portfolio—
Service Shares.
Neuberger Berman Equity Funds—Neuberger Berman Genesis Fund—Advisor Class ....
T. Rowe Price Small-Cap Stock Fund, Inc.—T. Rowe Price Small-Cap Stock Fund—Advisor Class.
T. Rowe Price Small-Cap Value Fund, Inc.—T. Rowe Price Small-Cap Value Fund—Advisor Class.
Wilshire Small Company Value Portfolio—Investment Class ..............................................
Royce Capital Fund—Royce Small-Cap Portfolio—Investment Class ................................
AllianceBernstein Variable Products Series Fund, Inc.—AllianceBernstein Small Cap
Growth Portfolio—Class B.
Wilshire Mutual Funds Inc.—Wilshire Small Company Growth Portfolio—Investment
Class.
Delaware VIP Trust—Delaware VIP REIT Series—Service Class ......................................
34 ......
Fidelity Variable Insurance Products Fund—High Income Portfolio—Service Class 2 .......
35 ......
ALPS Variable Investment Trust—Ibbotson Conservative ETF Asset Allocation Portfolio—Class II.
ALPS Variable Investment Trust—Ibbotson Income and Growth ETF Asset Allocation
Portfolio—Class II.
ALPS Variable Investment Trust—Ibbotson Balanced ETF Asset Allocation Portfolio—
Class II.
ALPS Variable Investment Trust—Ibbotson Growth ETF Asset Allocation Portfolio—
Class II.
ALPS Variable Investment Trust—Ibbotson Aggressive Growth ETF Asset Allocation
Portfolio—Class II.
Fidelity Variable Insurance Products Fund II—Emerging Markets Portfolio—Service
Class 2.
15 ......
16 ......
17 ......
18 ......
19 ......
20
21
22
23
......
......
......
......
24 ......
25 ......
26 ......
27 ......
28 ......
29 ......
30 ......
31 ......
32 ......
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36 ......
37 ......
38 ......
39 ......
40 ......
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Calvert VP S&P MidCap 400 Index Portfolio—Class F.
Dreyfus Small Cap Stock Index Portfolio—
Service Shares.
Variable Insurance Products Fund IV—Real
Estate Portfolio—Service Class 2.
Franklin Templeton Variable Insurance
Products Trust—High Income VIP Fund—
Class 2.
Fidelity VIP V—FundsManager 20% Portfolio—Service Class 2.
Fidelity VIP V—FundsManager 50% Portfolio—Service Class 2.
Fidelity VIP V—FundsManager 60% Portfolio—Service Class 2.
Fidelity VIP V—FundsManager 70% Portfolio—Service Class 2.
Fidelity VIP V—FundsManager 85% Portfolio—Service Class 2.
American Funds Insurance Series—New
World Fund—Class 4.
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7. The Applicants state that the
proposed Substitutions involve
substituting a Replacement Portfolio for
an Existing Portfolio with very similar—
and at times, substantially identical—
investment objectives, investment
strategies, and principal risks and
therefore the expectations of Contract
owners will continue to be met after the
proposed Substitutions. The Applicants
state that the performance for the
Replacement Portfolios is at least
comparable to that of the Existing
Portfolios. Additional information for
each Existing Portfolio and the
corresponding Replacement Portfolio,
including investment objectives,
principal investment strategies,
principal risks, and performance can be
found in the application.
8. Applicants represent that Contract
owners with Contract value allocated to
the subaccounts of the Existing
Portfolios will have the same or lower
Sub.
No.
Existing portfolio
37 .......
ALPS Variable Insurance Trust—Ibbotson Balanced ETF Asset
Allocation Portfolio.
ALPS Variable Insurance Trust—Ibbotson Growth ETF Asset Allocation Portfolio.
ALPS Variable Insurance Trust—Ibbotson Aggressive Growth ETF
Asset Allocation Portfolio.
38 .......
39 .......
Horace Mann represents that it will
solicit approval for proposed
Substitutions #37, #38 and #39 from the
total net annual operating expenses (i.e.
total annual portfolio operating
expenses after taking into account any
fee waiver or expense reimbursement)
after the proposed Substitutions as
before the proposed Substitutions
(based on the periods covered by the
most recent prospectuses for the
Existing and Replacement Portfolios),
except for the following Substitutions: 1
Replacement portfolio
Fidelity VIP V—FundsManager 60% Portfolio.
Fidelity VIP V—FundsManager 70% Portfolio.
Fidelity VIP V—FundsManager 85% Portfolio.
respective Contract owners owning
interests in the applicable subaccount.
Further, Applicants represent that
each Replacement Portfolio has a
Sub.
No.
Existing portfolio
1 .........
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Wilshire Mutual Funds Inc.—Wilshire 5000 IndexSM Fund .............
combined management and 12b–1 fee
that is less than or equal to that of the
Existing Portfolio, except for the
following Substitution:
Replacement portfolio
Variable Insurance Products Fund II—Index 500 Portfolio.
Horace Mann represents that it will
solicit approval with respect to the
Substitution involving the Wilshire
5000 IndexSM Fund from Contract
owners owning interests in the
subaccount.
9. The Applicants state that the
Substitutions proposed are part of an
overall business goal of Horace Mann to
improve the administrative efficiency
and cost effectiveness, as well as the
attractiveness to investors, of its
Contracts. Horace Mann asserts that it
has determined that a more streamlined
array of investment options,
concentrated in fewer fund families,
would permit Horace Mann to lower its
costs of administering the Contracts,
increase its operational and
administrative efficiencies, and create a
more manageable investment process for
Contract owners.
10. The Applicants represent that
Contract owners will also be notified of
this Application by means of a
prospectus supplement or other
communication (‘‘Pre-Substitution
Notice’’) for each of the Contracts. The
Pre-Substitution Notice will notify
Contract owners of Horace Mann’s
intent to implement the Substitutions;
will notify Contract owners that Horace
Mann has filed this Application to
obtain the necessary approval from the
Commission to effect the Substitutions;
and will set forth the anticipated
Substitution Date. In addition, the PreSubstitution Notice will: (a) Advise
Contract owners that Contract values
attributable to investments in the
Existing Portfolios will be transferred to
the Replacement Portfolios, without any
charge that would otherwise apply
(including sales charges or surrender
charges) and without being subject to
any limitations on transfers, on the
Substitution Date; (b) state that, from
May 1, 2015, through the date 30 days
after the Substitutions, Contract owners
may make one transfer of Contract value
from the subaccounts investing in the
Existing Portfolios (before the
Substitution Date) or the Replacement
Portfolios (after the Substitution Date) to
any other available investment option
under the Contract without any charge
that would otherwise apply (including
sales charges or surrender charges) and
without imposing any transfer
limitations; and (c) inform Contract
owners that, except as described in the
market timing/short-term trading
provisions of the relevant prospectus,
Horace Mann will not exercise any right
it may have under the Contracts to
impose additional restrictions on
transfers between the subaccounts
under the Contracts, including any
limitation on the number of transfers
permitted, for a period beginning on
May 1, 2015, through the date 30 days
following the Substitution Date.
Applicant further states that at least 30
days before the Substitution Date all
affected Contract owners will have
received the most recent prospectus for
each applicable Replacement Portfolio.
Finally, within five (5) business days
following the Substitution Date,
Contract owners affected by the
Substitution will receive a written
confirmation that the Substitutions were
carried out as previously notified. This
confirmation will restate the
information set forth in the PreSubstitution Notice and will include the
before and after account values.
11. Each proposed Substitution will
take place at relative net asset value
determined on the Substitution Date
pursuant to Section 22 of the 1940 Act
and Rule 22c–1 thereunder, with no
change in the amount of any Contract
1 For Substitution #36 the total annual operating
expenses of the Replacement Portfolio for the
period covered by the most recent prospectus dated
April 30, 2015, were lower than those of the
Existing Portfolio for the same period only after
taking into account any contractual fee waivers/
expense reimbursement applied under the
Replacement Portfolio.
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owner’s Contract value or death benefit
or in the dollar value of his or her
investments in any of the subaccounts.
The procedures to be implemented are
sufficient to assure that each Contract
owner’s cash values immediately after
the Substitution will be equal to the
cash value immediately before the
Substitution. Contract owners will not
incur any fees or charges as a result of
the Substitutions, nor will their rights or
Horace Mann’s obligations under the
Contracts be altered in any way, and the
Substitutions will not change Contract
owners’ insurance benefits under the
Contracts.
12. The proposed Substitution will be
effected on the Substitution Date by
having the Separate Accounts redeem
shares of the Existing Portfolios for
cash.2 The proceeds of such
redemptions will then be used to
purchase shares of the corresponding
Replacement Portfolio, as each
subaccount of the Separate Accounts
will invest the proceeds of its
redemption from the Existing Portfolios
in the applicable Replacement
Portfolios. Redemption requests and
purchase orders will be placed
simultaneously so that Contract values
will remain fully invested at all times.
13. Horace Mann will pay all
expenses incurred in connection with
the Substitutions, including legal,
accounting, transactional, and other fees
and expenses, including brokerage
commissions. Contract owners will not
incur any fees or charges as a result of
the Substitutions, nor will their rights or
Horace Mann’s obligations under the
Contracts be altered in any way, and the
Substitutions will not change Contract
owners’ insurance benefits under the
Contracts. The Substitutions will not
cause the contract fees and charges
currently being paid by Contract owners
to be greater after the Substitution than
before the Substitution.
14. The Applicants represent that
Horace Mann will take further steps to
ensure that those Contract owners for
whom the total annual operating
expense ratio of the Replacement
Portfolio was appreciably higher than
that of the Existing Portfolio do not
2 To the extent that there are any in-kind
redemptions, such redemptions will be effected in
accordance with the conditions set forth in the noaction letter issued by the Commission staff to
Signature Financial Group (pub. avail. Dec. 28,
1999).
In the event that a Replacement Portfolio or its
investment adviser declines to accept, on behalf of
the Replacement Portfolio, securities redeemed inkind by an Existing Portfolio, such Existing
Portfolio will instead provide cash equal to the
value of the declined securities so that the Contract
owner’s contract values will not be adversely
affected or diluted.
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incur higher expenses for a period of
two years after the Substitution. More
specifically, for two years following the
Substitution Date, Horace Mann will
reimburse those who were Contract
owners on the Substitution Date and
who, as a result of a Substitution, had
Contract value allocated to a subaccount
investing in a Replacement Portfolio
such that the Replacement Portfolio’s
net annual operating expenses (taking
into account any fee waivers and
expense reimbursements) for such
period will not exceed, on an
annualized basis, the net annual
operating expenses (taking into account
any fee waivers and expense
reimbursements) of the corresponding
Existing Portfolio as of the Existing
Portfolio’s most recent fiscal year
preceding the Substitution Date. Any
adjustments will be made at least on a
quarterly basis.
Legal Analysis
1. Applicants request that the
Commission issue an order pursuant to
Section 26(c) of the 1940 Act approving
the proposed Substitutions. Section
26(c) of the 1940 Act prohibits any
depositor or trustee of a unit investment
trust that invests exclusively in the
securities of a single issuer from
substituting the securities of another
issuer without the approval of the
Commission. Section 26(c) provides that
such approval shall be granted by order
of the Commission if the evidence
establishes that the substitution is
consistent with the protection of
investors and the purposes of the 1940
Act.
2. The Applicants submit that the
Substitutions meet the standards set
forth in Section 26(c) and that, if
implemented, the Substitutions would
not raise any of the concerns that
Congress intended to address when the
1940 Act was amended to include this
provision. As described in the
application, each Replacement Portfolio
and its corresponding Existing Portfolio
have similar, and in some cases
substantially similar or identical,
investment objectives and strategies.
The application also states that, except
for three Substitutions noted in the
application, the Existing Portfolios will
have the same or lower total net annual
operating expenses after the proposed
Substitutions as before the proposed
Substitutions. The application states
further that the Existing Portfolios and
the Replacement Portfolios have similar,
and in many cases substantially similar,
investment policies and risks.
Applicants believe that, to the extent
that differences in risks and strategies
do exist, these differences do not
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introduce Contract owners to materially
greater risks than before the
Substitution.
3. Applicants also maintain that the
ultimate effect of the Substitutions
would be to continue to provide
Contract owners with a wide array of
investment options and managers, while
at the same time increasing
administrative efficiencies of the
Contracts and streamlining and
simplifying the investment line-up
available to Contract owners under the
affected Contracts.
4. Applicants state that the Contracts
and the Contract prospectuses disclose
that Horace Mann has reserved the right
under the Contracts to substitute shares
of another underlying registered openend management investment company
for one of the current underlying
registered open-end management
investment companies offered as an
investment option under the Contracts.
5. Applicants also assert that the
proposed Substitutions are not of the
type that Section 26(c) was designed to
prevent because they will not result in
costly forced redemption, nor will they
affect other aspects of the Contracts. In
the current situation, Contract owners
are contractually provided investment
discretion during the accumulation
phase of the Contracts to allocate and
reallocate their Contract value among
the investment options available under
the Contracts.
6. The proposed Substitutions will
offer Contract owners the opportunity to
transfer amounts out of the affected
subaccounts without any cost or other
penalty (other than those necessary to
implement policies and procedures
designed to detect and deter disruptive
transfer and other ‘‘market timing’’
activity) that may otherwise have been
imposed for a period beginning on May
1, 2015, and ending no earlier than 30
days after the Substitution. Applicants
posit that this reduces the likelihood of
being invested in an undesired
underlying registered open-end
management investment company, with
the discretion remaining with the
Contract owners.
7. Applicants state that the proposed
Substitutions are also unlike the type of
substitution that Section 26(c) was
designed to prevent in that the
Substitutions have no impact on other
aspects of the Contracts. Specifically,
the proposed Substitutions will not
affect the type of benefits offered by
Horace Mann under the Contracts, or
numerous other rights and privileges
associated with the Contracts.
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Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Substitutions will not be
effected unless the Applicants
determine that: (a) The Contracts allow
the substitution of shares of registered
open-end investment companies in the
manner contemplated by the
application; (b) the Substitutions can be
consummated as described in the
application under applicable insurance
laws; and (c) any regulatory
requirements in each jurisdiction where
the Contracts are qualified for sale have
been complied with to the extent
necessary to complete the Substitutions.
2. The Applicants or their affiliates
will pay all expenses and transaction
costs of the Substitutions, including
legal and accounting expenses, any
applicable brokerage expenses and other
fees and expenses. No fees or charges
will be assessed to the affected Contract
owners to effect the Substitutions.
3. The Substitutions will be effected
at the relative net asset values of the
respective shares in conformity with
Section 22(c) of the 1940 Act and Rule
22c–1 thereunder without the
imposition of any transfer or similar
charges by Applicants. The
Substitutions will be effected without
change in the amount or value of any
Contracts held by affected Contract
owners.
4. The Substitutions will in no way
alter the tax treatment of affected
Contract owners in connection with
their Contracts, and no tax liability will
arise for Contract owners as a result of
the Substitutions.
5. The rights or obligations of the
Applicants under the Contracts of
affected Contract owners will not be
altered in any way. The Substitutions
will not adversely affect any riders
under the Contracts.
6. Affected Contract owners will be
permitted to make at least one transfer
of Contract value from the subaccount
investing in the Existing Portfolio
(before the Substitution Date) or the
Replacement Portfolio (after the
Substitution Date) to any other available
investment option under the Contract
without charge for a period beginning at
least 30 days before the Substitution
Date through at least 30 days following
the Substitution Date. Except as
described in any market timing/shortterm trading provisions of the relevant
prospectus, Horace Mann will not
exercise any right it may have under the
Contracts to impose restrictions on
transfers between the subaccounts
under the Contracts, including
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Jkt 235001
limitations on the future number of
transfers, for a period beginning at least
30 days before the Substitution Date
through at least 30 days following the
Substitution Date.
7. All affected Contract owners will be
notified, at least 30 days before the
Substitution Date about: (a) The
intended substitution of Existing
Portfolios with the Replacement
Portfolios; (b) the intended Substitution
Date; and (c) information with respect to
transfers as set forth in Condition 6
above. In addition, the Applicants will
also deliver to all affected Contract
owners, at least 30 days before the
Substitution Date, a prospectus for each
applicable Replacement Portfolio.
8. Applicants will deliver to each
affected Contract owner within five (5)
business days of the Substitution Date a
written confirmation which will
include: (a) A confirmation that the
Substitutions were carried out as
previously notified; (b) a restatement of
the information set forth in the PreSubstitution Notice; and (c) before and
after account values.
9. For two years following the
Substitution Date, Horace Mann will
reimburse those who were Contract
owners on the Substitution Date and
who, as a result of a Substitution, had
Contract value allocated to a subaccount
investing in a Replacement Portfolio
such that the Replacement Portfolio’s
net annual operating expenses (taking
into account any fee waivers and
expense reimbursements) for such
period will not exceed, on an
annualized basis, the net annual
operating expenses (taking into account
any fee waivers and expense
reimbursements) of the corresponding
Existing Portfolio as of the Existing
Portfolio’s most recent fiscal year
preceding the Substitution Date. Any
adjustments will be made at least on a
quarterly basis. In addition, for a period
of at least two years following the
Substitution Date, the Applicants will
not increase the Contract fees and
charges—including asset based charges
such as mortality and expense risk
charges deducted from the
subaccounts—that would otherwise be
assessed under the terms of Contracts
that are in force on the Substitution
Date.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–17575 Filed 7–16–15; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75444; File No. SR–NYSE–
2015–15]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Amend NYSE
Rule 13 and Related Rules Governing
Order Types and Modifiers
July 13, 2015.
I. Introduction
On March 24, 2015, New York Stock
Exchange LLC (‘‘Exchange’’ or ‘‘NYSE’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend Exchange Rule 13, and
related Exchange rules, governing order
types and modifiers. The proposed rule
change was published for comment in
the Federal Register on April 14, 2015.3
On May 14, 2015, the Exchange filed
Partial Amendment No. 1 to the
proposed rule change 4 On May 27,
2015, pursuant to Section 19(b)(2) of the
Act,5 the Commission designated a
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.6
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 74678
(April 8, 2015), 80 FR 20053 (‘‘Notice’’). Prior to
filing this proposal, the Exchange filed a similar
proposal to amend Rule 13, and related Exchange
rules, governing order types and modifiers. See
Securities Exchange Act Release No. 73703
(November 28, 2014), 79 FR 72039 (December 4,
2014) (SR–NYSE–2014–59). For that proposal, the
Commission extended the time period for action,
see Securities Exchange Act Release No. 74051
(January 14, 2015), 80 FR 2983 (January 21, 2015)
(SR–NYSE–2014–59), and for an almost identical
filing of NYSE MKT LLC (‘‘NYSE MKT’’), the
Commission instituted proceedings to determine
whether to approve or disapprove NYSE MKT’s
proposal, see Securities Exchange Act Release No.
74298 (February 18, 2015), 80 FR 9770 (February
24, 2015) (SR–NYSEMKT–2014–95). Prior to the
conclusion of those proceedings for NYSE MKT’s
proposal, both NYSE and NYSE MKT withdrew
their respective proposals. See Securities Exchange
Act Release Nos. 74642 (April 3, 2015), 80 FR 19096
(April 9, 2015) (SR–NYSE–2014–59) and 74643
(April 3, 2015), 80 FR 19102 (April 9, 2015) (SR–
NYSEMKT–2014–95).
4 The Exchange subsequently withdrew Partial
Amendment No. 1 on May 20, 2015.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 75048,
80 FR 31419 (June 2, 2015). The Commission
designated July 13, 2015, as the date by which it
should approve, disapprove, or institute
2 17
Continued
BILLING CODE 8011–01–P
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]]>Agencies
[Federal Register Volume 80, Number 137 (Friday, July 17, 2015)]
[Notices]
[Pages 42571-42575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17575]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-31714; File No. 812-14336]
Horace Mann Life Insurance Company, et al; Notice of Application
July 13, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order approving the substitution
of certain securities pursuant to Section 26(c) of the Investment
Company Act of 1940, as amended (the ``1940 Act'').
-----------------------------------------------------------------------
Applicants: Horace Mann Life Insurance Company (``Horace Mann''), and
Horace Mann Life Insurance Company Separate Account and Horace Mann
Life Insurance Company Qualified Group Annuity Separate Account
(collectively, the ``Separate Accounts,'' and together with Horace
Mann, the ``Applicants'').
SUMMARY OF APPLICATION: The Applicants seek an order pursuant to
Section 26(c) of the 1940 Act approving the substitution of shares
issued by certain investment portfolios (the ``Existing Portfolios'')
of registered investment companies with shares of certain investment
portfolios (the ``Replacement Portfolios'') of registered investment
companies, under certain variable annuity contracts (the
``Contracts''), each funded through the Separate Accounts.
DATES: Filing Date: The application was filed on July 25, 2014, and
amended on January 14, 2015, and May 27, 2015.
Hearing or Notification of Hearing: An order granting the requested
relief 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 August 6, 2015, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to Rule 0-5 under the 1940 Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, 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: Elizabeth E. Arthur,
Esq., Maureen Bolinger, Horace Mann Life Insurance Company, One Horace
Mann Plaza, Springfield, Illinois 62715.
FOR FURTHER INFORMATION CONTACT: Michael S. Didiuk, Senior Counsel, at
(202) 551-6839, or Holly L. Hunter-Ceci, Branch Chief, at (202) 551-
6825 (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.
Applicants' Representations
1. Horace Mann is a stock life insurance company organized under
the laws of Illinois. Horace Mann is engaged in the sale of individual
and group life insurance and annuity contracts on a non-participating
basis. Horace Mann is an indirect wholly owned subsidiary of Horace
Mann Educators Corporation, a publicly-held insurance holding company
traded on the New York Stock Exchange. Horace Mann established the
Horace Mann Life Insurance Company Separate Account on October 9, 1965,
under Illinois law, and established the Horace Mann Life Insurance
Company Qualified Group Annuity Separate Account on October 16, 2006,
under Illinois law.
2. Each of the Separate Accounts meets the definition of ``separate
account'' as defined in Section 2(a)(37) of the 1940 Act. The Separate
Accounts are registered with the Commission under the 1940 Act as unit
investment trusts. The assets of the Separate Accounts support the
Contracts, and interests in the Separate Accounts offered through such
Contracts have been registered under the Securities Act of 1933 (``1933
Act'') on Form N-4. The application sets forth the registration
statement file numbers for the Contracts and the Separate Accounts.
Horace Mann is the legal owner of the assets in the Separate Accounts.
The assets of the Separate Accounts may not be chargeable with
liabilities arising out of any other business of Horace Mann.
3. The Contracts are issued either as individual or group
contracts, with group contract participants acquiring certain ownership
rights as described in the group contract or plan documents. Contract
owners and participants in group contracts (each a ``Contract owner'')
may allocate some or all of their Contract value to one or more
subaccounts available as investment options under their respective
Contract. Each subaccount corresponds to a portfolio of an underlying
registered open-end management investment company in which the Separate
Account invests. A Contract owner may also invest some or all of his/
her Contract value to a fixed account investment option, which is
supported by assets of Horace Mann's general account.
4. The Applicants state that under the Contracts, Horace Mann
reserves the right to substitute shares of one portfolio for shares of
another portfolio if: (i) Shares of a registered open-end management
investment company are no longer available for investment by the
Separate Account; or (ii) Horace Mann determines that further
investments in a registered open-end management investment company are
inappropriate in view of the purposes and objectives of a Contract.
5. The Applicants propose the substitution of shares of the
Existing Portfolios with shares of the Replacement Portfolios under the
Contracts, each funded through the Separate Accounts. The Separate
Accounts are segmented into subaccounts, and certain of these
subaccounts invest in the Existing Portfolios. Each subaccount's
income, gains, and losses, whether or not realized, are credited to or
charged against the amounts allocated to that
[[Page 42572]]
subaccount in accordance with the terms of the Contracts without regard
to other income, gains, or losses of the remaining subaccounts or of
Horace Mann. The Applicants state that the proposed substitutions
involve redeeming shares of the Existing Portfolios for cash. The
proceeds of such redemptions will then be used to purchase shares of
the corresponding Replacement Portfolio, as each subaccount of the
Separate Accounts will invest the proceeds of its redemption from the
Existing Portfolios in the applicable Replacement Portfolios.
6. Applicants propose, as set forth below, to substitute shares of
the Replacement Portfolios for shares of the Existing Portfolios
(``Substitutions''):
------------------------------------------------------------------------
Sub. No. Existing portfolio Replacement portfolio
------------------------------------------------------------------------
1................ Wilshire Mutual Funds Inc.-- Variable Insurance
Wilshire 5000 Index\SM\ Products Fund II--
Fund--Institutional Class. Index 500 Portfolio--
Service Class 2.
2................ Wilshire Mutual Funds Inc.-- .......................
Wilshire 5000 Index\SM\
Fund--Investment Class.
3................ Variable Insurance Products .......................
Fund IIII--Growth & Income
Portfolio--Service Class 2.
4................ Davis Variable Account Fund, .......................
Inc.--Davis Value Portfolio.
5................ T. Rowe Price Equity Series, .......................
Inc.--T. Rowe Price Equity
Income Portfolio--II.
6................ Wilshire Large Company Value .......................
Portfolio--Investment Class.
7................ Fidelity Variable Insurance .......................
Products Fund--Growth
Portfolio--Service Class 2.
8................ Wilshire Mutual Funds Inc.-- .......................
Wilshire Large Company
Growth Portfolio--
Institutional Class.
9................ Wilshire Large Company .......................
Growth Portfolio--
Investment Class.
10............... Delaware VIP Trust--Delaware .......................
VIP U.S. Growth Series--
Service Class.
11............... AllianceBernstein Variable .......................
Products Series Fund, Inc.--
AllianceBernstein Large Cap
Growth Portfolio--Class B.
12............... Dreyfus Investment Calvert VP S&P MidCap
Portfolios--Dreyfus MidCap 400 Index Portfolio--
Stock Portfolio--Service Class F.
Shares.
13............... Variable Insurance Products .......................
Fund III--Mid Cap
Portfolio--Service Class 2.
14............... Rainier Investment .......................
Management Mutual Funds--
Rainier Small/Mid Cap
Equity Fund--Original
Shares.
15............... Aerial Investment Trust-- .......................
Ariel Appreciation Fund--
Investor Class.
16............... Goldman Sachs Variable .......................
Insurance Trust--Goldman
Sachs Mid Cap Value Fund--
Service Shares.
17............... American Century Variable .......................
Portfolios, Inc.--VP Mid
Cap Value Fund--Class 1.
18............... Wells Fargo Variable Trust-- .......................
Wells Fargo Advantage VT
Opportunity Fund--Class 2.
19............... AllianceBernstein Variable .......................
Products Series Fund, Inc.--
AllianceBernstein Small/Mid
Cap Value Portfolio--Class
B.
20............... Aerial Investment Trust-- .......................
Ariel Fund--Investor Class.
21............... Lord Abbet Series Fund, .......................
Inc.--Growth Opportunities
Portfolio--Class VC.
22............... Putnam Variable Trust-- .......................
Putnam VT Multi-Cap Growth
Fund--Class IB.
23............... Delaware VIP Trust--Delaware .......................
VIP Smid Cap Growth Series--
Service Class (formerly
Delaware VIP Growth
Opportunities Series,
Service Class).
24............... Goldman Sachs Variable Dreyfus Small Cap Stock
Insurance Trust--Goldman Index Portfolio--
Sachs Small Cap Equity Service Shares.
Insights Fund--
Institutional Shares.
25............... Lazard Retirement Series, .......................
Inc.--Lazard Retirement US
Small-Mid Cap Equity
Portfolio--Service Shares.
26............... Neuberger Berman Equity .......................
Funds--Neuberger Berman
Genesis Fund--Advisor Class.
27............... T. Rowe Price Small-Cap .......................
Stock Fund, Inc.--T. Rowe
Price Small-Cap Stock Fund--
Advisor Class.
28............... T. Rowe Price Small-Cap .......................
Value Fund, Inc.--T. Rowe
Price Small-Cap Value Fund--
Advisor Class.
29............... Wilshire Small Company Value .......................
Portfolio--Investment Class.
30............... Royce Capital Fund--Royce .......................
Small-Cap Portfolio--
Investment Class.
31............... AllianceBernstein Variable .......................
Products Series Fund, Inc.--
AllianceBernstein Small Cap
Growth Portfolio--Class B.
32............... Wilshire Mutual Funds Inc.-- .......................
Wilshire Small Company
Growth Portfolio--
Investment Class.
33............... Delaware VIP Trust--Delaware Variable Insurance
VIP REIT Series--Service Products Fund IV--Real
Class. Estate Portfolio--
Service Class 2.
34............... Fidelity Variable Insurance Franklin Templeton
Products Fund--High Income Variable Insurance
Portfolio--Service Class 2. Products Trust--High
Income VIP Fund--Class
2.
35............... ALPS Variable Investment Fidelity VIP V--
Trust--Ibbotson FundsManager 20%
Conservative ETF Asset Portfolio--Service
Allocation Portfolio--Class Class 2.
II.
36............... ALPS Variable Investment Fidelity VIP V--
Trust--Ibbotson Income and FundsManager 50%
Growth ETF Asset Allocation Portfolio--Service
Portfolio--Class II. Class 2.
37............... ALPS Variable Investment Fidelity VIP V--
Trust--Ibbotson Balanced FundsManager 60%
ETF Asset Allocation Portfolio--Service
Portfolio--Class II. Class 2.
38............... ALPS Variable Investment Fidelity VIP V--
Trust--Ibbotson Growth ETF FundsManager 70%
Asset Allocation Portfolio-- Portfolio--Service
Class II. Class 2.
39............... ALPS Variable Investment Fidelity VIP V--
Trust--Ibbotson Aggressive FundsManager 85%
Growth ETF Asset Allocation Portfolio--Service
Portfolio--Class II. Class 2.
40............... Fidelity Variable Insurance American Funds
Products Fund II--Emerging Insurance Series--New
Markets Portfolio--Service World Fund--Class 4.
Class 2.
------------------------------------------------------------------------
[[Page 42573]]
7. The Applicants state that the proposed Substitutions involve
substituting a Replacement Portfolio for an Existing Portfolio with
very similar--and at times, substantially identical--investment
objectives, investment strategies, and principal risks and therefore
the expectations of Contract owners will continue to be met after the
proposed Substitutions. The Applicants state that the performance for
the Replacement Portfolios is at least comparable to that of the
Existing Portfolios. Additional information for each Existing Portfolio
and the corresponding Replacement Portfolio, including investment
objectives, principal investment strategies, principal risks, and
performance can be found in the application.
8. Applicants represent that Contract owners with Contract value
allocated to the subaccounts of the Existing Portfolios will have the
same or lower total net annual operating expenses (i.e. total annual
portfolio operating expenses after taking into account any fee waiver
or expense reimbursement) after the proposed Substitutions as before
the proposed Substitutions (based on the periods covered by the most
recent prospectuses for the Existing and Replacement Portfolios),
except for the following Substitutions: \1\
---------------------------------------------------------------------------
\1\ For Substitution #36 the total annual operating expenses of
the Replacement Portfolio for the period covered by the most recent
prospectus dated April 30, 2015, were lower than those of the
Existing Portfolio for the same period only after taking into
account any contractual fee waivers/expense reimbursement applied
under the Replacement Portfolio.
------------------------------------------------------------------------
Sub. No. Existing portfolio Replacement portfolio
------------------------------------------------------------------------
37............. ALPS Variable Insurance Fidelity VIP V--
Trust--Ibbotson Balanced FundsManager 60%
ETF Asset Allocation Portfolio.
Portfolio.
38............. ALPS Variable Insurance Fidelity VIP V--
Trust--Ibbotson Growth ETF FundsManager 70%
Asset Allocation Portfolio. Portfolio.
39............. ALPS Variable Insurance Fidelity VIP V--
Trust--Ibbotson Aggressive FundsManager 85%
Growth ETF Asset Portfolio.
Allocation Portfolio.
------------------------------------------------------------------------
Horace Mann represents that it will solicit approval for proposed
Substitutions #37, #38 and #39 from the respective Contract owners
owning interests in the applicable subaccount.
Further, Applicants represent that each Replacement Portfolio has a
combined management and 12b-1 fee that is less than or equal to that of
the Existing Portfolio, except for the following Substitution:
------------------------------------------------------------------------
Sub. No. Existing portfolio Replacement portfolio
------------------------------------------------------------------------
1.............. Wilshire Mutual Funds Inc.-- Variable Insurance
Wilshire 5000 Index\SM\ Products Fund II--Index
Fund. 500 Portfolio.
------------------------------------------------------------------------
Horace Mann represents that it will solicit approval with respect
to the Substitution involving the Wilshire 5000 Index\SM\ Fund from
Contract owners owning interests in the subaccount.
9. The Applicants state that the Substitutions proposed are part of
an overall business goal of Horace Mann to improve the administrative
efficiency and cost effectiveness, as well as the attractiveness to
investors, of its Contracts. Horace Mann asserts that it has determined
that a more streamlined array of investment options, concentrated in
fewer fund families, would permit Horace Mann to lower its costs of
administering the Contracts, increase its operational and
administrative efficiencies, and create a more manageable investment
process for Contract owners.
10. The Applicants represent that Contract owners will also be
notified of this Application by means of a prospectus supplement or
other communication (``Pre-Substitution Notice'') for each of the
Contracts. The Pre-Substitution Notice will notify Contract owners of
Horace Mann's intent to implement the Substitutions; will notify
Contract owners that Horace Mann has filed this Application to obtain
the necessary approval from the Commission to effect the Substitutions;
and will set forth the anticipated Substitution Date. In addition, the
Pre-Substitution Notice will: (a) Advise Contract owners that Contract
values attributable to investments in the Existing Portfolios will be
transferred to the Replacement Portfolios, without any charge that
would otherwise apply (including sales charges or surrender charges)
and without being subject to any limitations on transfers, on the
Substitution Date; (b) state that, from May 1, 2015, through the date
30 days after the Substitutions, Contract owners may make one transfer
of Contract value from the subaccounts investing in the Existing
Portfolios (before the Substitution Date) or the Replacement Portfolios
(after the Substitution Date) to any other available investment option
under the Contract without any charge that would otherwise apply
(including sales charges or surrender charges) and without imposing any
transfer limitations; and (c) inform Contract owners that, except as
described in the market timing/short-term trading provisions of the
relevant prospectus, Horace Mann will not exercise any right it may
have under the Contracts to impose additional restrictions on transfers
between the subaccounts under the Contracts, including any limitation
on the number of transfers permitted, for a period beginning on May 1,
2015, through the date 30 days following the Substitution Date.
Applicant further states that at least 30 days before the Substitution
Date all affected Contract owners will have received the most recent
prospectus for each applicable Replacement Portfolio. Finally, within
five (5) business days following the Substitution Date, Contract owners
affected by the Substitution will receive a written confirmation that
the Substitutions were carried out as previously notified. This
confirmation will restate the information set forth in the Pre-
Substitution Notice and will include the before and after account
values.
11. Each proposed Substitution will take place at relative net
asset value determined on the Substitution Date pursuant to Section 22
of the 1940 Act and Rule 22c-1 thereunder, with no change in the amount
of any Contract
[[Page 42574]]
owner's Contract value or death benefit or in the dollar value of his
or her investments in any of the subaccounts. The procedures to be
implemented are sufficient to assure that each Contract owner's cash
values immediately after the Substitution will be equal to the cash
value immediately before the Substitution. Contract owners will not
incur any fees or charges as a result of the Substitutions, nor will
their rights or Horace Mann's obligations under the Contracts be
altered in any way, and the Substitutions will not change Contract
owners' insurance benefits under the Contracts.
12. The proposed Substitution will be effected on the Substitution
Date by having the Separate Accounts redeem shares of the Existing
Portfolios for cash.\2\ The proceeds of such redemptions will then be
used to purchase shares of the corresponding Replacement Portfolio, as
each subaccount of the Separate Accounts will invest the proceeds of
its redemption from the Existing Portfolios in the applicable
Replacement Portfolios. Redemption requests and purchase orders will be
placed simultaneously so that Contract values will remain fully
invested at all times.
---------------------------------------------------------------------------
\2\ To the extent that there are any in-kind redemptions, such
redemptions will be effected in accordance with the conditions set
forth in the no-action letter issued by the Commission staff to
Signature Financial Group (pub. avail. Dec. 28, 1999).
In the event that a Replacement Portfolio or its investment
adviser declines to accept, on behalf of the Replacement Portfolio,
securities redeemed in-kind by an Existing Portfolio, such Existing
Portfolio will instead provide cash equal to the value of the
declined securities so that the Contract owner's contract values
will not be adversely affected or diluted.
---------------------------------------------------------------------------
13. Horace Mann will pay all expenses incurred in connection with
the Substitutions, including legal, accounting, transactional, and
other fees and expenses, including brokerage commissions. Contract
owners will not incur any fees or charges as a result of the
Substitutions, nor will their rights or Horace Mann's obligations under
the Contracts be altered in any way, and the Substitutions will not
change Contract owners' insurance benefits under the Contracts. The
Substitutions will not cause the contract fees and charges currently
being paid by Contract owners to be greater after the Substitution than
before the Substitution.
14. The Applicants represent that Horace Mann will take further
steps to ensure that those Contract owners for whom the total annual
operating expense ratio of the Replacement Portfolio was appreciably
higher than that of the Existing Portfolio do not incur higher expenses
for a period of two years after the Substitution. More specifically,
for two years following the Substitution Date, Horace Mann will
reimburse those who were Contract owners on the Substitution Date and
who, as a result of a Substitution, had Contract value allocated to a
subaccount investing in a Replacement Portfolio such that the
Replacement Portfolio's net annual operating expenses (taking into
account any fee waivers and expense reimbursements) for such period
will not exceed, on an annualized basis, the net annual operating
expenses (taking into account any fee waivers and expense
reimbursements) of the corresponding Existing Portfolio as of the
Existing Portfolio's most recent fiscal year preceding the Substitution
Date. Any adjustments will be made at least on a quarterly basis.
Legal Analysis
1. Applicants request that the Commission issue an order pursuant
to Section 26(c) of the 1940 Act approving the proposed Substitutions.
Section 26(c) of the 1940 Act prohibits any depositor or trustee of a
unit investment trust that invests exclusively in the securities of a
single issuer from substituting the securities of another issuer
without the approval of the Commission. Section 26(c) provides that
such approval shall be granted by order of the Commission if the
evidence establishes that the substitution is consistent with the
protection of investors and the purposes of the 1940 Act.
2. The Applicants submit that the Substitutions meet the standards
set forth in Section 26(c) and that, if implemented, the Substitutions
would not raise any of the concerns that Congress intended to address
when the 1940 Act was amended to include this provision. As described
in the application, each Replacement Portfolio and its corresponding
Existing Portfolio have similar, and in some cases substantially
similar or identical, investment objectives and strategies. The
application also states that, except for three Substitutions noted in
the application, the Existing Portfolios will have the same or lower
total net annual operating expenses after the proposed Substitutions as
before the proposed Substitutions. The application states further that
the Existing Portfolios and the Replacement Portfolios have similar,
and in many cases substantially similar, investment policies and risks.
Applicants believe that, to the extent that differences in risks and
strategies do exist, these differences do not introduce Contract owners
to materially greater risks than before the Substitution.
3. Applicants also maintain that the ultimate effect of the
Substitutions would be to continue to provide Contract owners with a
wide array of investment options and managers, while at the same time
increasing administrative efficiencies of the Contracts and
streamlining and simplifying the investment line-up available to
Contract owners under the affected Contracts.
4. Applicants state that the Contracts and the Contract
prospectuses disclose that Horace Mann has reserved the right under the
Contracts to substitute shares of another underlying registered open-
end management investment company for one of the current underlying
registered open-end management investment companies offered as an
investment option under the Contracts.
5. Applicants also assert that the proposed Substitutions are not
of the type that Section 26(c) was designed to prevent because they
will not result in costly forced redemption, nor will they affect other
aspects of the Contracts. In the current situation, Contract owners are
contractually provided investment discretion during the accumulation
phase of the Contracts to allocate and reallocate their Contract value
among the investment options available under the Contracts.
6. The proposed Substitutions will offer Contract owners the
opportunity to transfer amounts out of the affected subaccounts without
any cost or other penalty (other than those necessary to implement
policies and procedures designed to detect and deter disruptive
transfer and other ``market timing'' activity) that may otherwise have
been imposed for a period beginning on May 1, 2015, and ending no
earlier than 30 days after the Substitution. Applicants posit that this
reduces the likelihood of being invested in an undesired underlying
registered open-end management investment company, with the discretion
remaining with the Contract owners.
7. Applicants state that the proposed Substitutions are also unlike
the type of substitution that Section 26(c) was designed to prevent in
that the Substitutions have no impact on other aspects of the
Contracts. Specifically, the proposed Substitutions will not affect the
type of benefits offered by Horace Mann under the Contracts, or
numerous other rights and privileges associated with the Contracts.
[[Page 42575]]
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Substitutions will not be effected unless the Applicants
determine that: (a) The Contracts allow the substitution of shares of
registered open-end investment companies in the manner contemplated by
the application; (b) the Substitutions can be consummated as described
in the application under applicable insurance laws; and (c) any
regulatory requirements in each jurisdiction where the Contracts are
qualified for sale have been complied with to the extent necessary to
complete the Substitutions.
2. The Applicants or their affiliates will pay all expenses and
transaction costs of the Substitutions, including legal and accounting
expenses, any applicable brokerage expenses and other fees and
expenses. No fees or charges will be assessed to the affected Contract
owners to effect the Substitutions.
3. The Substitutions will be effected at the relative net asset
values of the respective shares in conformity with Section 22(c) of the
1940 Act and Rule 22c-1 thereunder without the imposition of any
transfer or similar charges by Applicants. The Substitutions will be
effected without change in the amount or value of any Contracts held by
affected Contract owners.
4. The Substitutions will in no way alter the tax treatment of
affected Contract owners in connection with their Contracts, and no tax
liability will arise for Contract owners as a result of the
Substitutions.
5. The rights or obligations of the Applicants under the Contracts
of affected Contract owners will not be altered in any way. The
Substitutions will not adversely affect any riders under the Contracts.
6. Affected Contract owners will be permitted to make at least one
transfer of Contract value from the subaccount investing in the
Existing Portfolio (before the Substitution Date) or the Replacement
Portfolio (after the Substitution Date) to any other available
investment option under the Contract without charge for a period
beginning at least 30 days before the Substitution Date through at
least 30 days following the Substitution Date. Except as described in
any market timing/short-term trading provisions of the relevant
prospectus, Horace Mann will not exercise any right it may have under
the Contracts to impose restrictions on transfers between the
subaccounts under the Contracts, including limitations on the future
number of transfers, for a period beginning at least 30 days before the
Substitution Date through at least 30 days following the Substitution
Date.
7. All affected Contract owners will be notified, at least 30 days
before the Substitution Date about: (a) The intended substitution of
Existing Portfolios with the Replacement Portfolios; (b) the intended
Substitution Date; and (c) information with respect to transfers as set
forth in Condition 6 above. In addition, the Applicants will also
deliver to all affected Contract owners, at least 30 days before the
Substitution Date, a prospectus for each applicable Replacement
Portfolio.
8. Applicants will deliver to each affected Contract owner within
five (5) business days of the Substitution Date a written confirmation
which will include: (a) A confirmation that the Substitutions were
carried out as previously notified; (b) a restatement of the
information set forth in the Pre-Substitution Notice; and (c) before
and after account values.
9. For two years following the Substitution Date, Horace Mann will
reimburse those who were Contract owners on the Substitution Date and
who, as a result of a Substitution, had Contract value allocated to a
subaccount investing in a Replacement Portfolio such that the
Replacement Portfolio's net annual operating expenses (taking into
account any fee waivers and expense reimbursements) for such period
will not exceed, on an annualized basis, the net annual operating
expenses (taking into account any fee waivers and expense
reimbursements) of the corresponding Existing Portfolio as of the
Existing Portfolio's most recent fiscal year preceding the Substitution
Date. Any adjustments will be made at least on a quarterly basis. In
addition, for a period of at least two years following the Substitution
Date, the Applicants will not increase the Contract fees and charges--
including asset based charges such as mortality and expense risk
charges deducted from the subaccounts--that would otherwise be assessed
under the terms of Contracts that are in force on the Substitution
Date.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-17575 Filed 7-16-15; 8:45 am]
BILLING CODE 8011-01-P
