The Ohio National Life Insurance Company, et al., 19299-19303 [2021-07488]
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Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34242; File No. 812–15101]
The Ohio National Life Insurance
Company, et al.
April 7, 2021.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
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AGENCY:
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 ‘‘Act’’) and an order of
exemption pursuant to section 17(b) of
the Act from section 17(a) of the Act.
APPLICANTS: The Ohio National Life
Insurance Company (‘‘Ohio National’’)
and National Security Life and Annuity
Company (‘‘National Security’’ and
collectively with Ohio National, the
‘‘Insurance Company Applicants’’); their
respective separate accounts, Ohio
National Variable Account A, Ohio
National Variable Account B, Ohio
National Variable Account D and
National Security Variable Account N
(collectively, the ‘‘Separate Accounts,’’
and together with the Insurance
Company Applicants, the ‘‘Section 26
Applicants’’); the Section 26 Applicants,
Ohio National Fund, Inc. (‘‘ON Fund’’)
and Ohio National Investments, Inc.
(‘‘ONII’’) (collectively the ‘‘Section 17
Applicants’’ or the ’’Applicants’’).
SUMMARY OF APPLICATION: The Section
26 Applicants seek an order pursuant to
section 26(c) of the Act, approving the
substitution of shares issued by certain
investment portfolios of registered
investment companies (the ‘‘Existing
Portfolios’’) for the shares of certain
investment portfolios of registered
investment companies (the
‘‘Replacement Portfolios’’), held by the
Separate Accounts as investment
options for certain variable annuity
contracts (the ‘‘Contracts’’) issued by
Ohio National and National Security
(the ‘‘Substitutions’’). The Section 17
Applicants seek an order pursuant to
section 17(b) of the Act exempting them
from section 17(a) of the Act to the
extent necessary to permit them to
engage in certain in-kind transactions in
connection with the Substitutions (‘‘InKind Transactions’’).
FILING DATES: The application was filed
on February 27, 2020 and amended on
June 26, 2020, November 20, 2020,
January 29, 2021, April 1, 2021, and
April 2, 2021.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
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be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov 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 May 3, 2021 and should be
accompanied by proof of service on the
Applicants in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to rule 0–5 under the 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 emailing the
Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
Kimberly A. Plante, Esq., Vice President
and Counsel, The Ohio National Life
Insurance Company,
OhioNationalFund@ohionational.com.
FOR FURTHER INFORMATION CONTACT: Asaf
Barouk, Attorney-Advisor at (202) 551–
4029 or David Nicolardi, Branch Chief
at (202) 551–6825 (Chief Counsel’s
Office, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website 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. Ohio National is a stock life
insurance company. Ohio National
offers individual annuities and
previously offered variable annuities.
National Security is a stock life
insurance company. National Security
previously offered variable annuities
and variable universal life insurance.
Ohio National is the depositor and
sponsor of Ohio National Variable
Account A, Ohio National Variable
Account B and Ohio National Variable
Account D. National Security is the
depositor and sponsor of National
Security Variable Account N.
2. Each Separate Account meets the
definition of ‘‘separate account,’’ as
defined in section 2(a)(37) of the Act.
The Separate Accounts are registered
with the Commission under the Act as
unit investment trusts. The Separate
Accounts are segmented into
subaccounts, and each subaccount
invests in an underlying registered
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open-end management investment
company or series thereof, such as each
of the Existing Portfolios.
3. The Contracts are single and
flexible premium deferred individual
variable annuity contracts (the
‘‘Individual Contracts’’) and flexible
premium deferred group variable
annuity contracts (the ‘‘Group
Contracts’’). Each Contract is registered
under the Securities Act of 1933, as
amended (the ‘‘1933 Act’’). The
application sets forth the registration
statement file numbers for the Contracts
and the Separate Accounts.
4. By the terms of the Contracts and
subject to certain restrictions (and as set
forth in the prospectuses for the
Contracts), Contract owners (each, a
‘‘Contract owner,’’ and collectively,
‘‘Contract owners’’) may allocate some
or all of their Contract values to the
subaccounts that are available as
investment options under their
respective Contracts, as well as any
available fixed rate options. A Contract
owner may transfer Contract value
among any available subaccounts during
the accumulation period, as well as
during the annuitization period if the
Contract owner elected a variable
annuity payout option.
5. As disclosed in the Contracts’
prospectuses, Ohio National and
National Security impose or reserve the
right to impose certain limitations on
transfers among subaccounts. Currently,
Ohio National and National Security do
not impose fees on transfers or expressly
limit the number or frequency of
transfers among subaccounts. Also,
Ohio National and National Security
impose or may impose limits on the
total number of subaccounts to which a
Contract owner may allocate Contract
value.
6. Certain Individual Contracts made
available guaranteed death benefit riders
(each, a ‘‘Death Benefit Rider,’’ and
collectively the ‘‘Death Benefit Riders’’)
and guaranteed living benefit riders
(each, a ‘‘Living Benefit Rider,’’ and
collectively, the ‘‘Living Benefit
Riders’’). The terms of certain Death
Benefit Riders and certain Living
Benefit Riders include investment
restrictions that limit the available
investment options to identified
categories consisting of a specified
selection of investment options. A
Contract owner with a Death Benefit
Rider or Living Benefit Rider that has
investment restrictions may transfer
Contract value by reallocating all of his
or her Contract value within the
parameters of the investment
restrictions.
7. Applicants state that, as set forth in
the prospectuses for the Contracts, each
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Contract provides that Ohio National or
National Security, as applicable,
reserves the right to substitute shares of
the funds in which the Separate
Accounts invest for shares of any funds
already held or to be held in the future
by the Separate Accounts.
8. Ohio National and National
Security, each on its own behalf and on
behalf of its Separate Accounts,
proposes to exercise its contractual right
to substitute shares of certain
Substitutions. Additional information
for each Existing Portfolio and the
corresponding Replacement Portfolio,
including investment objectives,
principal investment strategies,
principal risks, and performance, as
well as the fees and expenses of each
Existing Portfolio and its corresponding
Replacement Portfolio, can be found in
the application.
Sub No.
Existing portfolio
Replacement portfolio
1 ......................
2 ......................
AB VPS Dynamic Asset Allocation Portfolio (Class B) .............
PIMCO Global Diversified Allocation Portfolio (Administrative
Share Class).
Federated Hermes Managed Volatility Fund II (Primary Shares
and Service Shares).
Janus Henderson VIT U.S. Low Volatility Portfolio (Service
Shares).
Morgan Stanley VIF Core Plus Fixed Income Portfolio (Class
II).
PIMCO Total Return Portfolio (Administrative Share Class) .....
AB VPS Global Risk Allocation-Moderate Portfolio (Class B).1
AB VPS Global Risk Allocation-Moderate Portfolio (Class B).
3 ......................
4 ......................
5 ......................
6 ......................
9. ON Fund and ONII have received
an exemptive order from the
Commission (File No. 812–12288) (the
‘‘Manager of Managers Order’’) that
provides an exemption from section
15(a) of the Act with respect to ON
Fund’s sub-advisory agreements. The
Manager of Managers Order permits
ONII, subject to certain conditions,
including the approval of ON Fund’s
Board of Directors, but without the
approval of shareholders, to hire
unaffiliated sub-advisers, and to modify
any existing or future sub-advisory
agreement with, unaffiliated subadvisers. The Manager of Managers
Order applies to each of the ON
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underlying funds currently available
under the Contracts for shares of
different underlying funds. The Section
26 Applicants propose to substitute
shares of the Existing Portfolios that are
held in subaccounts of their respective
Separate Accounts for shares of the
corresponding Replacement Portfolios
below. All shares of the Existing
Portfolios utilized as investment
allocation options under the Contracts
will be replaced through the proposed
1 The Replacement Portfolio for Substitutions 1–
2 is a series of AB Variable Products Series Fund,
Inc. (‘‘AB VPS Fund’’), a Maryland corporation. AB
VPS Fund is registered with the Commission as an
open-end management investment company under
the Act, and its shares are registered under the 1933
Act. The AB VPS Global Risk Allocation-Moderate
Portfolio (Class B) is one of the Replacement
Portfolios. AllianceBernstein L.P.
(‘‘AllianceBernstein’’) is a master limited
partnership organized under the State of Delaware
and is a registered investment adviser.
AllianceBernstein serves as the investment adviser
for the AB VPS Global Risk Allocation-Moderate
Portfolio.
2 The Replacement Portfolios listed in the table
above for Substitutions 3–6 are all a series of ON
Fund (‘‘ON Replacement Portfolios’’). ON Fund is
a Maryland corporation that is registered with the
Commission as an open-end management
investment company under the Act. Shares of ON
Fund are registered under the 1933 Act. Except for
the ON Federated Core Plus Bond Portfolio, which
began operations on May 1, 2020, the other ON
Replacement Portfolios will not begin operations
until the proposed Substitutions are performed.
ONII is an Ohio corporation and registered
investment adviser. ONII serves as the investment
adviser for ON Fund, including each of the ON
Replacement Portfolios.
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ON iShares Managed Risk Balanced Portfolio.2
ON Janus Henderson U.S. Low Volatility Portfolio.
ON Federated Core Plus Bond Portfolio.
ON Federated Core Plus Bond Portfolio.
Replacement Portfolios, and ON Fund’s
registration statement discloses and
explains the substance and effect of the
Manager of Managers Order.
10. The Insurance Company
Applicants state the proposed
Substitutions are part of an ongoing
effort to make the Contracts more
attractive to existing Contract owners
and to make the Contracts more efficient
to administer. The Insurance Company
Applicants represent that the proposed
Substitutions involve replacing an
Existing Portfolio with a Replacement
Portfolio with substantially similar
investment objective(s), principal
investment strategies and principal
risks. The Insurance Company
Applicants further state that the
proposed Substitutions are designed to
provide Contract owners with an
opportunity to continue their
investment in a similar investment
option without interruption and without
any cost to them.
11. For the Substitution 3–6
Replacement Portfolios, after the
Substitution Date, ONII will not change
a Replacement Portfolio’s sub-adviser,
add a new sub-adviser, or otherwise rely
on the Manager of Managers Order or
any replacement order from the
Commission with respect to any such
Replacement Portfolio without first
obtaining shareholder approval of the
change in sub-adviser, the new subadviser, or the Replacement Portfolio’s
ability to rely on the Manager of
Managers Order, or any replacement
order from the Commission, at a
shareholder meeting, the record date for
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which shall be after the proposed
Substitution has been effected.
12. The Section 26 Applicants
represent that at least 30 days prior to
the Substitution Date, they will deliver
to all affected Contract owners
prospectus supplements filed with the
Commission or other supplemental
disclosure documents that describe the
proposed Substitutions (collectively, the
‘‘Supplements’’). The Section 26
Applicants represent that each
Supplement will:
• Provide Contract owners notice of
the respective Insurance Company
Applicant’s intent to take the necessary
actions, including seeking the order
requested by this Application, to
substitute shares of the Existing
Portfolios as described herein on the
Substitution Date;
• Advise Contract owners that for at
least thirty (30) days before the
Substitution Date, they are permitted to
make at least one transfer of Contract
value from each subaccount investing in
an Existing Portfolio (‘‘Existing Portfolio
Subaccount’’) to any other available
investment option offered under their
Contract, without any transfer charge
(and without the transfer being counted
as a transfer for purposes of transfer
charges that would otherwise be
applicable under the terms of the
Contracts);
• Instruct Contract owners how to
submit transfer requests in light of the
proposed Substitutions;
• Advise Contract owners that any
Contract value remaining in an Existing
Portfolio Subaccount on the
Substitution Date will be transferred to
a subaccount investing in the
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corresponding Replacement Portfolio
(‘‘Replacement Portfolio Subaccount’’),
and that the Substitutions will take
place at relative net asset value;
• Inform Contract owners that for at
least 30 days following the Substitution
Date, they will be permitted to make at
least one transfer of Contract value from
each Replacement Portfolio Subaccount
to any other available investment option
offered under their Contract, without
any transfer charge (and without the
transfer being counted as a transfer for
purposes of transfer charges that would
otherwise be applicable under the terms
of the Contracts); and
• Inform Contract owners that, except
as described in the market timing/shortterm trading provisions of the relevant
prospectus or limitations imposed by
Death Benefit Riders or Living Benefit
Riders with investment restrictions, the
Insurance Company Applicants will not
exercise any right they 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.
13. At least 30 days prior to the
Substitution Date, the Section 26
Applicants will also deliver to affected
Contract owners a prospectus for each
applicable Replacement Portfolio.
14. Within five business days after the
Substitution Date, the Insurance
Company Applicants will send Contract
owners a written confirmation of the
completed proposed Substitutions in
accordance with rule 10b–10 under the
Securities Exchange Act of 1934. The
confirmation statement will include or
be accompanied by a statement that
reiterates the free transfer rights
disclosed in the Supplements. The
confirmation will also reflect the
Contract owners’ Contract values before
and after the Substitution(s).
15. Each Substitution will take place
at the applicable Existing and
Replacement Portfolios’ relative per
share net asset values determined on the
Substitution Date in accordance with
section 22 of the Act and rule 22c–1
thereunder. Accordingly, the Insurance
Company Applicants assert that the
proposed Substitutions will have no
negative financial impact on any
Contract owner. Each proposed
Substitution will be effected by having
each Existing Portfolio Subaccount
redeem its Existing Portfolio shares in
cash and/or in-kind on the Substitution
Date at net asset value per share and
purchase shares of the appropriate
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Replacement Portfolio at net asset value
per share calculated on the same date.3
16. The Insurance Company
Applicants or an affiliate will pay all
expenses and transaction costs
reasonably related to the proposed
Substitutions, including all legal,
accounting, and brokerage expenses
relating to the proposed Substitutions,
the below described disclosure
documents, and this Application. No
costs of the proposed Substitutions will
be borne directly or indirectly by
Contract owners. Contract owners will
not incur any fees or charges as a result
of the proposed Substitutions, nor will
their rights or the obligations of the
Insurance Company Applicants under
the Contracts be altered in any way.
17. The proposed Substitutions will
not cause the fees and charges under the
Contracts currently being paid by
Contract owners to be greater after the
proposed Substitutions than before the
proposed Substitutions. The charges for
optional death benefit and living benefit
riders may change from time to time in
accordance the applicable rider and as
disclosed in the applicable prospectus
and any such changes would be
unrelated to the proposed Substitutions.
18. With respect to Substitutions 1
and 2, for a period of two (2) years
following the Substitution Date and for
those Contracts with assets allocated to
the applicable Existing Portfolio on the
Substitution Date, the Insurance
Company Applicants will make a
corresponding reduction in Separate
Account (or subaccount) expenses, no
later than the last business day of each
fiscal quarter, to Contract owners whose
subaccount invests in the applicable
Replacement Portfolio to the extent that
the applicable Replacement Portfolio’s
annual net operating expenses for such
period exceeds, on an annualized basis,
the annual net operating expenses of the
corresponding Existing Portfolio for
fiscal year 2019.
19. With respect to Substitutions 3–6,
ONII will enter into a written contract
with the applicable Replacement
Portfolio whereby during the two years
following the Substitution Date the
annual net operating expenses of the
applicable Replacement Portfolio will
3 The process for accomplishing the transfer of
assets from each Existing Portfolio to its
corresponding Replacement Portfolio will be
determined on a case-by-case basis. In some cases,
it is expected that the Substitutions will be effected
by redeeming shares of an Existing Portfolio for
cash and using the cash to purchase shares of the
Replacement Portfolio. In other cases, it is expected
that the Substitutions will be effected by redeeming
the shares of an Existing Portfolio in-kind; those
assets will then be contributed in-kind to the
corresponding Replacement Portfolio to purchase
shares of that Portfolio.
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not exceed the annual net operating
expenses of the Existing Portfolio for the
fiscal year ended December 31, 2019.
Legal Analysis—Section 26(c) of the Act
1. The Section 26 Applicants request
that the Commission issue an order
pursuant to section 26(c) of the Act
approving the proposed Substitutions.
Section 26(c) of the Act makes it
unlawful for any depositor or trustee of
a registered unit investment trust
holding the security of a single issuer to
substitute another security for such
security unless the Commission
approves the substitution. Section 26(c)
requires the Commission to issue an
order approving 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 the Act.
2. The Section 26 Applicants assert
that the Substitutions are in furtherance
of the exercise, by the Insurance
Company Applicants, of rights reserved
under the Contracts and disclosed in
prospectuses relating thereto.
Furthermore, they state the terms and
conditions of the Substitutions are
consistent with the principles and
purposes of section 26(c) and do not
entail any of the abuses that section
26(c) is designed to prevent. The
Section 26 Applicants assert that
proposed Substitutions will not result in
the type of costly forced redemption
that section 26(c) was intended to guard
against and are consistent with the
protection of investors and the purposes
fairly intended by the Act.
Legal Analysis—Section 17 of the Act
3. The Section 17 Applicants request
that the Commission issue an order
pursuant to section 17(b) of the Act
exempting them from the provisions of
section 17(a) of the Act to the extent
necessary to permit them to carry out
the In-Kind Transactions.
4. Section 17(a)(1) of the Act, in
relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such a person, acting as principal, from
knowingly selling any security or other
property to that company. Section
17(a)(2) of the Act generally prohibits
the same persons, acting as principals,
from knowingly purchasing any security
or other property from the registered
investment company.
5. Section 17(b) of the Act provides
that the Commission may, upon
application, issue an order exempting
any proposed transaction from the
provisions of section 17(a) if evidence
establishes that: (1) The terms of the
proposed transaction, including the
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consideration to be paid or received, are
reasonable and fair and do not involve
overreaching on the part of any person
concerned; (2) the proposed transaction
is consistent with the policy of each
registered investment company
concerned, as recited in its registration
statement and reports filed under the
Act; and (3) the proposed transaction is
consistent with the general purposes of
the Act.
6. Currently, the Insurance Company
Applicants, through their Separate
Accounts, own more than 25% of the
shares of each Existing Portfolio and
each corresponding Replacement
Portfolio involved in Substitutions 3–5,
and therefore may be deemed to be a
control person of such Existing Portfolio
and each corresponding Replacement
Portfolio. In addition, ONII, as the
investment manager of each
Replacement Portfolio in Substitutions
3–6, may be deemed to be a control
person thereof. Because the Insurance
Company Applicants and ONII are
under common control, entities that
they control likewise may be deemed to
be under common control, and thus
affiliated persons of each other,
notwithstanding the fact that the
Contract owners may be considered the
beneficial owners of those shares held
in the Separate Accounts.
7. Each Existing Portfolio and the
corresponding Replacement Portfolio
also may be deemed to be affiliated
persons of affiliated persons. Regardless
of whether the Insurance Company
Applicants can be considered to control
an applicable Existing Portfolio and the
corresponding Replacement Portfolio,
the Insurance Company Applicants may
be deemed to be affiliated persons
thereof because they, through their
Separate Accounts, own of record 5% or
more of the outstanding shares of such
Portfolios. In addition, the Insurance
Company Applicants may be deemed
affiliated persons of each applicable
Replacement Portfolio because their
affiliate, ONII, may be deemed to
control each applicable Replacement
Portfolio by virtue of serving as its
investment adviser. As a result of these
relationships, an applicable Existing
Portfolio may be deemed to be an
affiliated person of an affiliated person
(the Insurance Company Applicants or
the Separate Accounts) of each
corresponding Replacement Portfolio,
and vice versa.
8. The proposed In-Kind Transactions
with respect to Substitutions 3–6,
therefore, could be seen as the indirect
purchase of shares of the applicable
Replacement Portfolios with portfolio
securities of the corresponding Existing
Portfolios and conversely the indirect
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sale of portfolio securities of the
applicable Existing Portfolios for shares
of the corresponding Replacement
Portfolios. The proposed In-Kind
Transactions with respect to
Substitutions 3–6 also could be
categorized as a purchase of shares of
the applicable Replacement Portfolios
by the corresponding Existing
Portfolios, acting as principal, and a sale
of portfolio securities by the applicable
Existing Portfolios, acting as principal,
to the corresponding Replacement
Portfolios. In addition, the proposed InKind Transactions with respect to
Substitutions 3–6 could be viewed as a
purchase of securities from the
applicable Existing Portfolios and a sale
of securities to the corresponding
Replacement Portfolios by the Insurance
Company Applicants (or the Separate
Accounts), acting as principal. If
characterized in this manner, the
proposed In-Kind Transactions with
respect to Substitutions 3–6 may be
deemed to contravene section 17(a) due
to the affiliated status of these entities.
9. The Section 17 Applicants
maintain that the terms of the proposed
In-Kind Transactions are reasonable and
fair and do not involve overreaching on
the part of any person concerned
because: (1) The proposed In-Kind
Transactions will not adversely affect or
dilute the interests of Contract owners;
and (2) the proposed In-Kind
Transactions will comply with the
conditions set forth in rule 17a–7 under
the Act, other than the requirement
relating to cash consideration, as
described in the Application. Even
though the proposed In-Kind
Transactions will not comply with the
cash consideration requirement of
paragraph (a) of rule 17a–7, the terms of
the proposed In-Kind Transactions will
offer to the applicable Existing
Portfolios and corresponding
Replacement Portfolios the same degree
of protection from overreaching that
rule 17a–7 generally provides in
connection with the purchase and sale
of securities under that rule in the
ordinary course of business. In
particular, the Section 17 Applicants
cannot effect the proposed In-Kind
Transactions at a price that is
disadvantageous to either the applicable
Existing Portfolio or corresponding
Replacement Portfolio, and the
proposed In-Kind Transactions will not
occur absent an exemptive order from
the Commission.
10. The Section 17 Applicants further
maintain that the proposed redemption
of shares of the applicable Existing
Portfolios are, or will be, consistent with
all relevant policies of the applicable
Existing Portfolios and corresponding
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Replacement Portfolios, as recited in
their respective registration statements
and reports filed under the Act.
11. Finally, the Section 17 Applicants
assert that the proposed In-Kind
Transactions, as described herein, are
consistent with the general purposes of
the Act.
Applicants’ Conditions
The Section 26 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 Insurance Company
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 Insurance Company 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 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 Act and rule 22c–1
thereunder without the imposition of
any transfer or similar charges by the
Section 26 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 affected Contract owners as a
result of the Substitutions.
5. The rights or obligations of the
Section 26 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 since
each Replacement Portfolio will be an
allowable investment option for use
with such riders as of the Substitution
Date.
6. Affected Contract owners will be
permitted to make at least one transfer
of Contract value from each Existing
Portfolio Subaccount (before the
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jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Notices
Substitution Date) or each Replacement
Portfolio Subaccount (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 or limitations imposed by
Death Benefit Riders or Living Benefit
Riders with investment restrictions, the
Insurance Company Applicants will not
exercise any right they 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 the 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 Insurance
Company Applicants will deliver to all
affected Contract owners, at least 30
days before the Substitution Date, a
prospectus for each applicable
Replacement Portfolio.
8. The Insurance Company 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 Supplements; and (c) before and
after account values.
9. With respect to Substitutions 1 and
2, for a period of two (2) years following
the Substitution Date and for those
Contracts with assets allocated to the
applicable Existing Portfolio on the
Substitution Date, the Insurance
Company Applicants will make a
corresponding reduction in Separate
Account (or subaccount) expenses, no
later than the last business day of each
fiscal quarter, to Contract owners whose
subaccount invests in the applicable
Replacement Portfolio to the extent that
the applicable Replacement Portfolio’s
annual net operating expenses for such
period exceeds, on an annualized basis,
the annual net operating expenses of the
corresponding Existing Portfolio for
fiscal year 2019.
The Section 26 Applicants further
agree that separate account charges or
expenses (e.g., mortality and expense
VerDate Sep<11>2014
17:42 Apr 12, 2021
Jkt 253001
risk and account expense charges) of
any subaccounts investing in the
Substitution 1 and 2 Replacement
Portfolios for any applicable Contract
owner on the Substitution Date will not
be increased at any time during the two
year period following the Substitution
Date.
10. In addition, with respect to
Substitutions 3–6, ONII will enter into
a written contract with the applicable
Replacement Portfolio whereby during
the two years following the Substitution
Date the annual net operating expenses
of the applicable Replacement Portfolio
will not exceed the annual net operating
expenses of the Existing Portfolio for the
fiscal year ended December 31, 2019.
The Section 26 Applicants further
agree that separate account charges or
expenses (e.g., mortality and expense
risk account expenses charges) of any
subaccounts investing in the
Substitution 3–6 Replacement Portfolios
for any applicable Contract owner on
the Substitution Date will not be
increased at any time during the two
year period following the Substitution
Date.
11. The Substitution 3–6 Replacement
Portfolios will not rely on the Manager
of Managers Order unless such action is
approved by a majority of the applicable
Replacement Portfolio’s outstanding
voting securities, as defined in the Act,
at a meeting whose record date is after
the applicable Substitution has been
effected.
For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–07488 Filed 4–12–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91496; File No. SR–
PEARL–2021–10]
Self-Regulatory Organizations: Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change by MIAX
PEARL, LLC To Amend the MIAX Pearl
Fee Schedule
April 7, 2021.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 25 2021, MIAX PEARL, LLC
(‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00093
Fmt 4703
Sfmt 4703
19303
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
add liquidity indicator codes to the fee
schedule applicable for MIAX Pearl
Equities, an equities trading facility of
the Exchange (the ‘‘Fee Schedule’’). The
Exchange also proposes to add new
Section 4 to the Fee Schedule
concerning the Exchange’s obligations
under Section 31 of the Act.3
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX Pearl’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to add liquidity indicator
codes to the MIAX Pearl Equities Fee
Schedule. The Exchange also proposes
to add new Section 4 to the Fee
Schedule concerning the Exchange’s
obligations under Section 31 of the
Exchange Act.
Liquidity Indicator Codes
Liquidity indicator codes would be
applied to a transaction so that the
Equity Member 4 that entered the order
3 15
U.S.C. 78ee.
term ‘‘Equity Member’’ is defined as ‘‘a
Member authorized by the Exchange to transact
business on MIAX Pearl Equities. See Exchange
Rule 1901.
4 The
E:\FR\FM\13APN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 69 (Tuesday, April 13, 2021)]
[Notices]
[Pages 19299-19303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07488]
[[Page 19299]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34242; File No. 812-15101]
The Ohio National Life Insurance Company, et al.
April 7, 2021.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
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 ``Act'') and an order of exemption
pursuant to section 17(b) of the Act from section 17(a) of the Act.
Applicants: The Ohio National Life Insurance Company (``Ohio
National'') and National Security Life and Annuity Company (``National
Security'' and collectively with Ohio National, the ``Insurance Company
Applicants''); their respective separate accounts, Ohio National
Variable Account A, Ohio National Variable Account B, Ohio National
Variable Account D and National Security Variable Account N
(collectively, the ``Separate Accounts,'' and together with the
Insurance Company Applicants, the ``Section 26 Applicants''); the
Section 26 Applicants, Ohio National Fund, Inc. (``ON Fund'') and Ohio
National Investments, Inc. (``ONII'') (collectively the ``Section 17
Applicants'' or the ''Applicants'').
Summary of Application: The Section 26 Applicants seek an order
pursuant to section 26(c) of the Act, approving the substitution of
shares issued by certain investment portfolios of registered investment
companies (the ``Existing Portfolios'') for the shares of certain
investment portfolios of registered investment companies (the
``Replacement Portfolios''), held by the Separate Accounts as
investment options for certain variable annuity contracts (the
``Contracts'') issued by Ohio National and National Security (the
``Substitutions''). The Section 17 Applicants seek an order pursuant to
section 17(b) of the Act exempting them from section 17(a) of the Act
to the extent necessary to permit them to engage in certain in-kind
transactions in connection with the Substitutions (``In-Kind
Transactions'').
Filing Dates: The application was filed on February 27, 2020 and
amended on June 26, 2020, November 20, 2020, January 29, 2021, April 1,
2021, and April 2, 2021.
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 emailing the Commission's
Secretary at [email protected] 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 May 3, 2021 and should be
accompanied by proof of service on the Applicants in the form of an
affidavit or, for lawyers, a certificate of service. Pursuant to rule
0-5 under the 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 emailing the Commission's Secretary.
ADDRESSES: The Commission: [email protected]. Applicants:
Kimberly A. Plante, Esq., Vice President and Counsel, The Ohio National
Life Insurance Company, [email protected].
FOR FURTHER INFORMATION CONTACT: Asaf Barouk, Attorney-Advisor at (202)
551-4029 or David Nicolardi, Branch Chief at (202) 551-6825 (Chief
Counsel's Office, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website 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. Ohio National is a stock life insurance company. Ohio National
offers individual annuities and previously offered variable annuities.
National Security is a stock life insurance company. National Security
previously offered variable annuities and variable universal life
insurance. Ohio National is the depositor and sponsor of Ohio National
Variable Account A, Ohio National Variable Account B and Ohio National
Variable Account D. National Security is the depositor and sponsor of
National Security Variable Account N.
2. Each Separate Account meets the definition of ``separate
account,'' as defined in section 2(a)(37) of the Act. The Separate
Accounts are registered with the Commission under the Act as unit
investment trusts. The Separate Accounts are segmented into
subaccounts, and each subaccount invests in an underlying registered
open-end management investment company or series thereof, such as each
of the Existing Portfolios.
3. The Contracts are single and flexible premium deferred
individual variable annuity contracts (the ``Individual Contracts'')
and flexible premium deferred group variable annuity contracts (the
``Group Contracts''). Each Contract is registered under the Securities
Act of 1933, as amended (the ``1933 Act''). The application sets forth
the registration statement file numbers for the Contracts and the
Separate Accounts.
4. By the terms of the Contracts and subject to certain
restrictions (and as set forth in the prospectuses for the Contracts),
Contract owners (each, a ``Contract owner,'' and collectively,
``Contract owners'') may allocate some or all of their Contract values
to the subaccounts that are available as investment options under their
respective Contracts, as well as any available fixed rate options. A
Contract owner may transfer Contract value among any available
subaccounts during the accumulation period, as well as during the
annuitization period if the Contract owner elected a variable annuity
payout option.
5. As disclosed in the Contracts' prospectuses, Ohio National and
National Security impose or reserve the right to impose certain
limitations on transfers among subaccounts. Currently, Ohio National
and National Security do not impose fees on transfers or expressly
limit the number or frequency of transfers among subaccounts. Also,
Ohio National and National Security impose or may impose limits on the
total number of subaccounts to which a Contract owner may allocate
Contract value.
6. Certain Individual Contracts made available guaranteed death
benefit riders (each, a ``Death Benefit Rider,'' and collectively the
``Death Benefit Riders'') and guaranteed living benefit riders (each, a
``Living Benefit Rider,'' and collectively, the ``Living Benefit
Riders''). The terms of certain Death Benefit Riders and certain Living
Benefit Riders include investment restrictions that limit the available
investment options to identified categories consisting of a specified
selection of investment options. A Contract owner with a Death Benefit
Rider or Living Benefit Rider that has investment restrictions may
transfer Contract value by reallocating all of his or her Contract
value within the parameters of the investment restrictions.
7. Applicants state that, as set forth in the prospectuses for the
Contracts, each
[[Page 19300]]
Contract provides that Ohio National or National Security, as
applicable, reserves the right to substitute shares of the funds in
which the Separate Accounts invest for shares of any funds already held
or to be held in the future by the Separate Accounts.
8. Ohio National and National Security, each on its own behalf and
on behalf of its Separate Accounts, proposes to exercise its
contractual right to substitute shares of certain underlying funds
currently available under the Contracts for shares of different
underlying funds. The Section 26 Applicants propose to substitute
shares of the Existing Portfolios that are held in subaccounts of their
respective Separate Accounts for shares of the corresponding
Replacement Portfolios below. All shares of the Existing Portfolios
utilized as investment allocation options under the Contracts will be
replaced through the proposed Substitutions. Additional information for
each Existing Portfolio and the corresponding Replacement Portfolio,
including investment objectives, principal investment strategies,
principal risks, and performance, as well as the fees and expenses of
each Existing Portfolio and its corresponding Replacement Portfolio,
can be found in the application.
------------------------------------------------------------------------
Sub No. Existing portfolio Replacement portfolio
------------------------------------------------------------------------
1..................... AB VPS Dynamic Asset AB VPS Global Risk
Allocation Portfolio Allocation-Moderate
(Class B). Portfolio (Class
B).\1\
2..................... PIMCO Global AB VPS Global Risk
Diversified Allocation Allocation-Moderate
Portfolio Portfolio (Class B).
(Administrative Share
Class).
3..................... Federated Hermes ON iShares Managed Risk
Managed Volatility Balanced Portfolio.\2\
Fund II (Primary
Shares and Service
Shares).
4..................... Janus Henderson VIT ON Janus Henderson U.S.
U.S. Low Volatility Low Volatility
Portfolio (Service Portfolio.
Shares).
5..................... Morgan Stanley VIF Core ON Federated Core Plus
Plus Fixed Income Bond Portfolio.
Portfolio (Class II).
6..................... PIMCO Total Return ON Federated Core Plus
Portfolio Bond Portfolio.
(Administrative Share
Class).
------------------------------------------------------------------------
9. ON Fund and ONII have received an exemptive order from the
Commission (File No. 812-12288) (the ``Manager of Managers Order'')
that provides an exemption from section 15(a) of the Act with respect
to ON Fund's sub-advisory agreements. The Manager of Managers Order
permits ONII, subject to certain conditions, including the approval of
ON Fund's Board of Directors, but without the approval of shareholders,
to hire unaffiliated sub-advisers, and to modify any existing or future
sub-advisory agreement with, unaffiliated sub-advisers. The Manager of
Managers Order applies to each of the ON Replacement Portfolios, and ON
Fund's registration statement discloses and explains the substance and
effect of the Manager of Managers Order.
---------------------------------------------------------------------------
\1\ The Replacement Portfolio for Substitutions 1-2 is a series
of AB Variable Products Series Fund, Inc. (``AB VPS Fund''), a
Maryland corporation. AB VPS Fund is registered with the Commission
as an open-end management investment company under the Act, and its
shares are registered under the 1933 Act. The AB VPS Global Risk
Allocation-Moderate Portfolio (Class B) is one of the Replacement
Portfolios. AllianceBernstein L.P. (``AllianceBernstein'') is a
master limited partnership organized under the State of Delaware and
is a registered investment adviser. AllianceBernstein serves as the
investment adviser for the AB VPS Global Risk Allocation-Moderate
Portfolio.
\2\ The Replacement Portfolios listed in the table above for
Substitutions 3-6 are all a series of ON Fund (``ON Replacement
Portfolios''). ON Fund is a Maryland corporation that is registered
with the Commission as an open-end management investment company
under the Act. Shares of ON Fund are registered under the 1933 Act.
Except for the ON Federated Core Plus Bond Portfolio, which began
operations on May 1, 2020, the other ON Replacement Portfolios will
not begin operations until the proposed Substitutions are performed.
ONII is an Ohio corporation and registered investment adviser. ONII
serves as the investment adviser for ON Fund, including each of the
ON Replacement Portfolios.
---------------------------------------------------------------------------
10. The Insurance Company Applicants state the proposed
Substitutions are part of an ongoing effort to make the Contracts more
attractive to existing Contract owners and to make the Contracts more
efficient to administer. The Insurance Company Applicants represent
that the proposed Substitutions involve replacing an Existing Portfolio
with a Replacement Portfolio with substantially similar investment
objective(s), principal investment strategies and principal risks. The
Insurance Company Applicants further state that the proposed
Substitutions are designed to provide Contract owners with an
opportunity to continue their investment in a similar investment option
without interruption and without any cost to them.
11. For the Substitution 3-6 Replacement Portfolios, after the
Substitution Date, ONII will not change a Replacement Portfolio's sub-
adviser, add a new sub-adviser, or otherwise rely on the Manager of
Managers Order or any replacement order from the Commission with
respect to any such Replacement Portfolio without first obtaining
shareholder approval of the change in sub-adviser, the new sub-adviser,
or the Replacement Portfolio's ability to rely on the Manager of
Managers Order, or any replacement order from the Commission, at a
shareholder meeting, the record date for which shall be after the
proposed Substitution has been effected.
12. The Section 26 Applicants represent that at least 30 days prior
to the Substitution Date, they will deliver to all affected Contract
owners prospectus supplements filed with the Commission or other
supplemental disclosure documents that describe the proposed
Substitutions (collectively, the ``Supplements''). The Section 26
Applicants represent that each Supplement will:
Provide Contract owners notice of the respective Insurance
Company Applicant's intent to take the necessary actions, including
seeking the order requested by this Application, to substitute shares
of the Existing Portfolios as described herein on the Substitution
Date;
Advise Contract owners that for at least thirty (30) days
before the Substitution Date, they are permitted to make at least one
transfer of Contract value from each subaccount investing in an
Existing Portfolio (``Existing Portfolio Subaccount'') to any other
available investment option offered under their Contract, without any
transfer charge (and without the transfer being counted as a transfer
for purposes of transfer charges that would otherwise be applicable
under the terms of the Contracts);
Instruct Contract owners how to submit transfer requests
in light of the proposed Substitutions;
Advise Contract owners that any Contract value remaining
in an Existing Portfolio Subaccount on the Substitution Date will be
transferred to a subaccount investing in the
[[Page 19301]]
corresponding Replacement Portfolio (``Replacement Portfolio
Subaccount''), and that the Substitutions will take place at relative
net asset value;
Inform Contract owners that for at least 30 days following
the Substitution Date, they will be permitted to make at least one
transfer of Contract value from each Replacement Portfolio Subaccount
to any other available investment option offered under their Contract,
without any transfer charge (and without the transfer being counted as
a transfer for purposes of transfer charges that would otherwise be
applicable under the terms of the Contracts); and
Inform Contract owners that, except as described in the
market timing/short-term trading provisions of the relevant prospectus
or limitations imposed by Death Benefit Riders or Living Benefit Riders
with investment restrictions, the Insurance Company Applicants will not
exercise any right they 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.
13. At least 30 days prior to the Substitution Date, the Section 26
Applicants will also deliver to affected Contract owners a prospectus
for each applicable Replacement Portfolio.
14. Within five business days after the Substitution Date, the
Insurance Company Applicants will send Contract owners a written
confirmation of the completed proposed Substitutions in accordance with
rule 10b-10 under the Securities Exchange Act of 1934. The confirmation
statement will include or be accompanied by a statement that reiterates
the free transfer rights disclosed in the Supplements. The confirmation
will also reflect the Contract owners' Contract values before and after
the Substitution(s).
15. Each Substitution will take place at the applicable Existing
and Replacement Portfolios' relative per share net asset values
determined on the Substitution Date in accordance with section 22 of
the Act and rule 22c-1 thereunder. Accordingly, the Insurance Company
Applicants assert that the proposed Substitutions will have no negative
financial impact on any Contract owner. Each proposed Substitution will
be effected by having each Existing Portfolio Subaccount redeem its
Existing Portfolio shares in cash and/or in-kind on the Substitution
Date at net asset value per share and purchase shares of the
appropriate Replacement Portfolio at net asset value per share
calculated on the same date.\3\
---------------------------------------------------------------------------
\3\ The process for accomplishing the transfer of assets from
each Existing Portfolio to its corresponding Replacement Portfolio
will be determined on a case-by-case basis. In some cases, it is
expected that the Substitutions will be effected by redeeming shares
of an Existing Portfolio for cash and using the cash to purchase
shares of the Replacement Portfolio. In other cases, it is expected
that the Substitutions will be effected by redeeming the shares of
an Existing Portfolio in-kind; those assets will then be contributed
in-kind to the corresponding Replacement Portfolio to purchase
shares of that Portfolio.
---------------------------------------------------------------------------
16. The Insurance Company Applicants or an affiliate will pay all
expenses and transaction costs reasonably related to the proposed
Substitutions, including all legal, accounting, and brokerage expenses
relating to the proposed Substitutions, the below described disclosure
documents, and this Application. No costs of the proposed Substitutions
will be borne directly or indirectly by Contract owners. Contract
owners will not incur any fees or charges as a result of the proposed
Substitutions, nor will their rights or the obligations of the
Insurance Company Applicants under the Contracts be altered in any way.
17. The proposed Substitutions will not cause the fees and charges
under the Contracts currently being paid by Contract owners to be
greater after the proposed Substitutions than before the proposed
Substitutions. The charges for optional death benefit and living
benefit riders may change from time to time in accordance the
applicable rider and as disclosed in the applicable prospectus and any
such changes would be unrelated to the proposed Substitutions.
18. With respect to Substitutions 1 and 2, for a period of two (2)
years following the Substitution Date and for those Contracts with
assets allocated to the applicable Existing Portfolio on the
Substitution Date, the Insurance Company Applicants will make a
corresponding reduction in Separate Account (or subaccount) expenses,
no later than the last business day of each fiscal quarter, to Contract
owners whose subaccount invests in the applicable Replacement Portfolio
to the extent that the applicable Replacement Portfolio's annual net
operating expenses for such period exceeds, on an annualized basis, the
annual net operating expenses of the corresponding Existing Portfolio
for fiscal year 2019.
19. With respect to Substitutions 3-6, ONII will enter into a
written contract with the applicable Replacement Portfolio whereby
during the two years following the Substitution Date the annual net
operating expenses of the applicable Replacement Portfolio will not
exceed the annual net operating expenses of the Existing Portfolio for
the fiscal year ended December 31, 2019.
Legal Analysis--Section 26(c) of the Act
1. The Section 26 Applicants request that the Commission issue an
order pursuant to section 26(c) of the Act approving the proposed
Substitutions. Section 26(c) of the Act makes it unlawful for any
depositor or trustee of a registered unit investment trust holding the
security of a single issuer to substitute another security for such
security unless the Commission approves the substitution. Section 26(c)
requires the Commission to issue an order approving 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 the Act.
2. The Section 26 Applicants assert that the Substitutions are in
furtherance of the exercise, by the Insurance Company Applicants, of
rights reserved under the Contracts and disclosed in prospectuses
relating thereto. Furthermore, they state the terms and conditions of
the Substitutions are consistent with the principles and purposes of
section 26(c) and do not entail any of the abuses that section 26(c) is
designed to prevent. The Section 26 Applicants assert that proposed
Substitutions will not result in the type of costly forced redemption
that section 26(c) was intended to guard against and are consistent
with the protection of investors and the purposes fairly intended by
the Act.
Legal Analysis--Section 17 of the Act
3. The Section 17 Applicants request that the Commission issue an
order pursuant to section 17(b) of the Act exempting them from the
provisions of section 17(a) of the Act to the extent necessary to
permit them to carry out the In-Kind Transactions.
4. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such a person, acting as principal, from knowingly selling
any security or other property to that company. Section 17(a)(2) of the
Act generally prohibits the same persons, acting as principals, from
knowingly purchasing any security or other property from the registered
investment company.
5. Section 17(b) of the Act provides that the Commission may, upon
application, issue an order exempting any proposed transaction from the
provisions of section 17(a) if evidence establishes that: (1) The terms
of the proposed transaction, including the
[[Page 19302]]
consideration to be paid or received, are reasonable and fair and do
not involve overreaching on the part of any person concerned; (2) the
proposed transaction is consistent with the policy of each registered
investment company concerned, as recited in its registration statement
and reports filed under the Act; and (3) the proposed transaction is
consistent with the general purposes of the Act.
6. Currently, the Insurance Company Applicants, through their
Separate Accounts, own more than 25% of the shares of each Existing
Portfolio and each corresponding Replacement Portfolio involved in
Substitutions 3-5, and therefore may be deemed to be a control person
of such Existing Portfolio and each corresponding Replacement
Portfolio. In addition, ONII, as the investment manager of each
Replacement Portfolio in Substitutions 3-6, may be deemed to be a
control person thereof. Because the Insurance Company Applicants and
ONII are under common control, entities that they control likewise may
be deemed to be under common control, and thus affiliated persons of
each other, notwithstanding the fact that the Contract owners may be
considered the beneficial owners of those shares held in the Separate
Accounts.
7. Each Existing Portfolio and the corresponding Replacement
Portfolio also may be deemed to be affiliated persons of affiliated
persons. Regardless of whether the Insurance Company Applicants can be
considered to control an applicable Existing Portfolio and the
corresponding Replacement Portfolio, the Insurance Company Applicants
may be deemed to be affiliated persons thereof because they, through
their Separate Accounts, own of record 5% or more of the outstanding
shares of such Portfolios. In addition, the Insurance Company
Applicants may be deemed affiliated persons of each applicable
Replacement Portfolio because their affiliate, ONII, may be deemed to
control each applicable Replacement Portfolio by virtue of serving as
its investment adviser. As a result of these relationships, an
applicable Existing Portfolio may be deemed to be an affiliated person
of an affiliated person (the Insurance Company Applicants or the
Separate Accounts) of each corresponding Replacement Portfolio, and
vice versa.
8. The proposed In-Kind Transactions with respect to Substitutions
3-6, therefore, could be seen as the indirect purchase of shares of the
applicable Replacement Portfolios with portfolio securities of the
corresponding Existing Portfolios and conversely the indirect sale of
portfolio securities of the applicable Existing Portfolios for shares
of the corresponding Replacement Portfolios. The proposed In-Kind
Transactions with respect to Substitutions 3-6 also could be
categorized as a purchase of shares of the applicable Replacement
Portfolios by the corresponding Existing Portfolios, acting as
principal, and a sale of portfolio securities by the applicable
Existing Portfolios, acting as principal, to the corresponding
Replacement Portfolios. In addition, the proposed In-Kind Transactions
with respect to Substitutions 3-6 could be viewed as a purchase of
securities from the applicable Existing Portfolios and a sale of
securities to the corresponding Replacement Portfolios by the Insurance
Company Applicants (or the Separate Accounts), acting as principal. If
characterized in this manner, the proposed In-Kind Transactions with
respect to Substitutions 3-6 may be deemed to contravene section 17(a)
due to the affiliated status of these entities.
9. The Section 17 Applicants maintain that the terms of the
proposed In-Kind Transactions are reasonable and fair and do not
involve overreaching on the part of any person concerned because: (1)
The proposed In-Kind Transactions will not adversely affect or dilute
the interests of Contract owners; and (2) the proposed In-Kind
Transactions will comply with the conditions set forth in rule 17a-7
under the Act, other than the requirement relating to cash
consideration, as described in the Application. Even though the
proposed In-Kind Transactions will not comply with the cash
consideration requirement of paragraph (a) of rule 17a-7, the terms of
the proposed In-Kind Transactions will offer to the applicable Existing
Portfolios and corresponding Replacement Portfolios the same degree of
protection from overreaching that rule 17a-7 generally provides in
connection with the purchase and sale of securities under that rule in
the ordinary course of business. In particular, the Section 17
Applicants cannot effect the proposed In-Kind Transactions at a price
that is disadvantageous to either the applicable Existing Portfolio or
corresponding Replacement Portfolio, and the proposed In-Kind
Transactions will not occur absent an exemptive order from the
Commission.
10. The Section 17 Applicants further maintain that the proposed
redemption of shares of the applicable Existing Portfolios are, or will
be, consistent with all relevant policies of the applicable Existing
Portfolios and corresponding Replacement Portfolios, as recited in
their respective registration statements and reports filed under the
Act.
11. Finally, the Section 17 Applicants assert that the proposed In-
Kind Transactions, as described herein, are consistent with the general
purposes of the Act.
Applicants' Conditions
The Section 26 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 Insurance
Company 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 Insurance Company 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
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
Act and rule 22c-1 thereunder without the imposition of any transfer or
similar charges by the Section 26 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 affected Contract owners as a result of the
Substitutions.
5. The rights or obligations of the Section 26 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 since each Replacement Portfolio will be an allowable
investment option for use with such riders as of the Substitution Date.
6. Affected Contract owners will be permitted to make at least one
transfer of Contract value from each Existing Portfolio Subaccount
(before the
[[Page 19303]]
Substitution Date) or each Replacement Portfolio Subaccount (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 or limitations imposed by
Death Benefit Riders or Living Benefit Riders with investment
restrictions, the Insurance Company Applicants will not exercise any
right they 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
the 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 Insurance
Company Applicants will deliver to all affected Contract owners, at
least 30 days before the Substitution Date, a prospectus for each
applicable Replacement Portfolio.
8. The Insurance Company 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 Supplements; and (c)
before and after account values.
9. With respect to Substitutions 1 and 2, for a period of two (2)
years following the Substitution Date and for those Contracts with
assets allocated to the applicable Existing Portfolio on the
Substitution Date, the Insurance Company Applicants will make a
corresponding reduction in Separate Account (or subaccount) expenses,
no later than the last business day of each fiscal quarter, to Contract
owners whose subaccount invests in the applicable Replacement Portfolio
to the extent that the applicable Replacement Portfolio's annual net
operating expenses for such period exceeds, on an annualized basis, the
annual net operating expenses of the corresponding Existing Portfolio
for fiscal year 2019.
The Section 26 Applicants further agree that separate account
charges or expenses (e.g., mortality and expense risk and account
expense charges) of any subaccounts investing in the Substitution 1 and
2 Replacement Portfolios for any applicable Contract owner on the
Substitution Date will not be increased at any time during the two year
period following the Substitution Date.
10. In addition, with respect to Substitutions 3-6, ONII will enter
into a written contract with the applicable Replacement Portfolio
whereby during the two years following the Substitution Date the annual
net operating expenses of the applicable Replacement Portfolio will not
exceed the annual net operating expenses of the Existing Portfolio for
the fiscal year ended December 31, 2019.
The Section 26 Applicants further agree that separate account
charges or expenses (e.g., mortality and expense risk account expenses
charges) of any subaccounts investing in the Substitution 3-6
Replacement Portfolios for any applicable Contract owner on the
Substitution Date will not be increased at any time during the two year
period following the Substitution Date.
11. The Substitution 3-6 Replacement Portfolios will not rely on
the Manager of Managers Order unless such action is approved by a
majority of the applicable Replacement Portfolio's outstanding voting
securities, as defined in the Act, at a meeting whose record date is
after the applicable Substitution has been effected.
For the Commission, by the Division of Investment Management,
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07488 Filed 4-12-21; 8:45 am]
BILLING CODE 8011-01-P
