[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Notices]
[Pages 5498-5501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2782]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22485; File No. 812-10286]
The Mutual Life Insurance Company of New York, et al.
January 29, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``1940 Act'').
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APPLICANTS: The Mutual Life Insurance Company of New York (``MONY''),
MONY Life Insurance Company of America (``MONY America,'' and
collectively with MONY, ``the Companies'') and MONY America Variable
Account A (``MONY America Account,'' and collectively with the MONY
Account, ``the Accounts'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b)
of the 1940 Act approving a proposed substitution of securities and
pursuant to Section 17(b) of the 1940 Act granting exemptions from the
provisions of Sections 17(a)(1) and 17(a)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the U.S. Government Series (``U.S. Government
Portfolio'') of OCC Accumulation Trust (``Trust'') for shares of the
Bond Series (``Bond Portfolio'') of the Trust. Applicants also seek an
exemption from Section 17(a)(1) and 17(a)(2) of the 1940 Act to the
extent necessary to permit Applicants to carry out the above referenced
substitution in part by redeeming shares of the Bond Portfolio in-kind
and using the redemption proceeds to purchase shares of the U.S.
Government Portfolio.
FILING DATE: The application was filed on August 7, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the SEC
and serving the applicants with a copy of the request, personally or by
mail. Hearing requests must be received by the Commission by 5:30 p.m.,
on February 24, 1997, and should be accompanied by proof of service on
Applicants in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Any
person may request notification of a hearing by writing to the
Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Frederick C. Tedeshi,
[[Page 5499]]
Esq., The Mutual Life Insurance Company of New York, 500 Frank W. Burr
Blvd., Teaneck, N.J. 07666-6888.
FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior
Counsel, or Patrice M. Pitts, Branch Chief, Office of Insurance
Products (Division of Investment Management) at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference Branch of the Commission.
Applicants' Representations
1. MONY is a mutual life insurance company organized in the state
of New York. MONY America, a wholly owned subsidiary of MONY, is a
stock insurance company organized in the state of Arizona.
2. MONY established the MONY Account on November 28, 1990, and MONY
America established the MONY America Account on March 27, 1987, in
accordance with the laws of the States of New York and Arizona,
respectively. The Accounts are segregated asset accounts registered
with the Commission as unit investment trusts pursuant to the
provisions of the 1940 Act and are used to fund certain individual and
group flexible payment variable annuity contracts issued by the
Companies and sold under the name ``ValueMaster'' (``ValueMaster
Contracts'').
3. The Accounts currently are divided into various sub-accounts
(``Sub-Accounts''), five of which are available to owners of
ValueMaster Contracts (``ValueMaster Contractowners'') and which
reflect the investment performance of the Bond, Equity, Managed, Money
Market and Small Cap Series of the Trust. ValueMaster Contractowners
may transfer account values among the Sub-Accounts without any charge
up to four times a year. For any additional transfers, a transfers, a
transfer charge is not imposed currently. However, the Companies
reserve the right to impose a charge. As of June 30, 1996, 3.7% of the
total assets invested in the Accounts by ValueMaster Contractowners
were allocated to the Bond Portfolio.
4. The ValueMaster Contracts are offered exclusively by agents of
Oppenheimer Life Agency, Ltd., (``Oppenheimer Life''), an affiliate of
OpCap Advisors, a registered investment adviser and the Trust's
investment manager. Oppenheimer Life is no longer actively selling the
ValueMaster Contracts.
5. The Trust was established on May 12, 1994, and is a registered
open-end management investment company consisting of seven separate
series (``Portfolios'') with differing investment objectives, policies
and restrictions. All five of the Portfolios of the Trust supporting
the ValueMaster Contract commenced operations on September 16, 1994,
when a predecessor registered investment company (the ``Old Trust'')
with portfolios corresponding to five of the current seven portfolios
of the Trust was effectively reorganized into twin investment
companies, the Old Trust and the Trust. Before September 16, 1994, the
portfolios of the Old Trust had acted as the funding vehicles for the
ValueMaster Contracts. The Trust currently also offers shares of its
Portfolios to accounts of other unaffiliated life insurance companies,
to serve as the investment vehicle for their respective variable
annuity and variable life insurance contracts.
6. The Bond Portfolio seeks a high level of current income
consistent with moderate risk of capital and maintenance of liquidity
and, under normal market conditions, invests in U.S. Government
securities and short- and intermediate-term, investment grade corporate
bond and debt obligations. Performance returns ranked the Bond
Portfolio 21st out of 33, 31st out of 34, and last out of 26 in its
peer group, as reported by Lipper Variable Insurance Products
Performance Analysis Service (``Lipper Universe Peer Group''), for the
six-month, and the one- and five-year period ending June 30, 1996.
7. As of June 30, 1996, the Bond Portfolio had assets of
$4,794,283, of which $2,563,131 were attributable to fewer than 100
ValueMaster Contractowners. The only other shareholder of the Bond
Portfolio besides the Accounts is a segregated account of an
unaffiliated insurance company, which account is exempt from
registration under the 1940 Act (the ``unregistered account'').
According to OpCap Advisors, the unregistered account intends to redeem
its shares of the Bond Portfolio. For the six months ending June 30,
1996, and for calendar year 1995, net redemptions by the Accounts of
shares of the Bond Portfolio, exclusive of dividend or capital gain
reinvestments, total $293,852 and $1,232,852, respectively.
8. The U.S. Government Portfolio commenced investment operations on
January 3, 1995, at which time OpCap Advisors contributed $300,000 in
seed capital to that Portfolio. Like the Bond Portfolio, the U.S.
Government Portfolio seeks a high level of current income and the
protection of capital by investing exclusively in debt obligations,
including a variety of U.S. government securities. Under normal
conditions the U.S. Government Portfolio invests at least 65 percent of
its total assets in U.S. government securities. Performance returns
ranked the U.S. Government Portfolio 2nd out of 30, and 6th out of 30
in its Lipper Universe Peer Group for the first six months of 1996, and
the one-year period ending June 30, 1996.
9. As of June 30, 1996, the U.S. Government Portfolio had assets of
$2,544,472, which included OpCap Advisors' seed capital contribution.
Shares of the U.S. Government Portfolio currently also are offered by
two unaffiliated insurance companies as a funding vehicle for their
variable products. For the six months ending June 30, 1996, and for
calendar year 1995, net sales of shares of the U.S. Government
Portfolio, exclusive of dividend or capital gain reinvestments, totaled
$1,104,391 and $1,046,574, respectively.
10. Under the Investment Advisory Agreement (``Advisory
Agreement'') between the Trust and OpCap Advisors, OpCap Advisors
provides management and investment advisory services to the Trust and
its Portfolios and is compensated by the Trust for services rendered to
the Bond and U.S. Government Portfolios on a monthly basis at the
annual rate of .50 percent of the average daily net assets of the Bond
Portfolio and .60 percent of the average daily net assets of the U.S.
Government Portfolio. Under the Advisory Agreement, OpCap Advisors has
agreed to limit the total expenses of these Portfolios to 1.25 percent
of their respective average daily net assets. Moreover, under a
provision of the Advisory Agreement, OpCap Advisors guarantees that the
total expenses of the Portfolios, in any fiscal year, exclusive of
taxes, interest, brokerage fees and distribution expense
reimbursements, shall not exceed the most restrictive state law
provisions in effect in any state. In addition, OpCap Advisors has
voluntarily agreed to limit the total expenses of the Bond and the U.S.
Government Portfolios, through April 30, 1997, to 1.00 percent of their
respective average daily net assets. As of June 30, 1996, the actual
total expenses of both the Bond and the U.S. Government Portfolios
exceeded both the voluntary expense limitation of 1.00 percent and the
operative contractual expense limitation of 1.25 percent (Bond
Portfolio at 1.45 percent and U.S. Government Portfolio at 3.33
percent). OpCap Advisors waived its fees and reimbursed both the Bond
and the U.S. Government Portfolios so that the net expenses of those
Portfolios remained at
[[Page 5500]]
1.00 percent of their respective average daily net assets.
The Proposed Substitution
11. Applicants propose to substitute shares of the U.S. Government
Portfolio for all shares of the Bond Portfolio attributable to the
ValueMaster Contracts (``Substitution''). The ValueMaster
Contractowners will not bear any expenses and transaction costs of the
proposed Substitution, including any applicable brokerage commissions;
any such expenses will be borne by OpCap Advisors. Soon after the
filing of this application for exemptive relief, the prospectuses for
the Accounts will be supplemented to reflect the proposed Substitution
and distributed to all ValueMaster Contractowners. The Substitution
will occur as soon as practicable after receipt of an order. As of the
effective date of the Substitution, the Companies will redeem shares of
the Bond Portfolio. Simultaneously, the Companies will use the proceeds
to purchase the appropriate number of shares of the U.S. Government
Portfolio. The Substitution will take place at relative net asset
values of the Bond and U.S. Government Portfolios, with no change in
the amount of any ValueMaster Contractowner's account values.
12. To the extent the Bond Portfolio incurs brokerage fees and
expenses in connection with the redemption by the Companies of its
shares, these expenses would be charged to the applicable Portfolio,
but borne by OpCap Advisors. To alleviate the impact of any such
brokerage fees and expenses upon the Bond Portfolio and ultimately
OpCap Advisors, the Trust and OpCap Advisors propose that the
redemption of the Bond Portfolio shares be accomplished, in part, by
``in kind'' transactions. Under the Proposal, the Trust would transfer
to the Companies their proportionate interest in cash and/or securities
held by the Bond Portfolio on the date of the Substitution, and the
Companies will then use such cash and/or securities to purchase shares
of the U.S. Government Portfolio. The valuation of any ``in kind''
transfers will be on a basis consistent with the normal valuation
procedures of the Bond and U.S. Government Portfolios.
13. Within five days after the Substitution, the Companies will
send to ValueMaster Contractowners written notice of the Substitution
stating that shares of the Bond Portfolio have been eliminated and that
shares of the U.S. Government Portfolio have been substituted. The
Companies will include in such mailing a second supplement to the
prospectuses of the Accounts which discloses that the Substitution has
occurred. The notice will advise ValueMaster Contractowners that for a
period of thirty days from the mailing of the notice, the ``Free
Transfer Period,'' they may transfer all assets, as substituted, to any
other available Sub-Account, without limitation and without the
transfer being deemed a transfer for purposes of determining any
transfer charge. Following the Substitution, ValueMaster Contractowners
will be afforded the same contract rights, including surrender and
other transfer rights, as they currently have. Any applicable surrender
(or contingent deferred sales) charges will continue to be imposed, but
will not be affected in any way by the Substitution.
Applicants' Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides, in pertinent part, that
``[i]t shall be 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
shall have approved such substitution.'' Applicants assert that the
purpose of Section 26(b) is to protect the expectation of investors in
a unit investment trust that the unit investment trust will accumulate
the shares of a particular issuer, and to prevent unscrutinized
substitutions which might, in effect, force investors dissatisfied with
the substituted security to redeem their shares, thereby possibly
incurring a loss of the sales load deducted from initial purchase
payments, an additional sale load upon reinvestment of the redemption
proceeds, or both. Section 26(b) affords this protection to investors
by preventing a depositor or trustee of a unit investment trust holding
the shares of one issuer from substituting for those shares the shares
of another issuer, unless the Commission approves that substitution.
2. Section 17(a)(1) of the 1940 Act prohibits an affiliated person
of a registered investment company or an affiliated person of such
person, acting as principal, from selling any security or other
property to such registered investment company. Section 17(a)(2) of the
1940 Act prohibits any such affiliated person, acting as principal,
from purchasing any security or other property from such registered
investment company. Applicants state that the transfer of proceeds
emanating from the in-kind redemption of shares of the Bond Portfolio
from the Bond Sub-Account to the U.S. Government Sub-Account could be
deemed to involve a purchase and sale between the Bond Sub-Account and
U.S. Government Sub-Account, each of which is an affiliated person of
the other.
3. Section 17(b) of the 1940 Act provides that the Commission may
grant an order exempting a proposed transaction from the provisions of
Section 17(a) provided: (a) the terms of the proposed transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned; (b) 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 1940 Act; and (c)
the proposed transaction is consistent with the general purpose of the
1940 Act.
4. Applicants submit that the purposes, terms and conditions of the
proposed Substitution are consistent with the principles and purposes
of Section 26(b) of the 1940 Act and do not entail any of the abuses
that Section 26(b) is designed to prevent. Applicants assert that a
Substitution is an appropriate solution to the limited ValueMaster
Contractowner interest or investment in the Bond Portfolio, which
currently is, and in the future may be, of insufficient size to promote
consistent investment performance or to reduce operating expenses.
Applicants further assert that the proposed Substitution will not cause
the fees and charges currently being paid by ValueMaster Contractowners
to be greater after the Substitution than before the Substitution.
5. Applicants represent that the Substitution will not result in
the type of costly forced redemption that Section 26(b) was intended to
guard against, and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act for the following reasons:
(a) The objectives, policies, and restrictions of the Bond Portfolio
are substantially similar to the objectives, policies, and restrictions
of the U.S. Government Portfolio; (b) OpCap Advisors voluntarily agreed
to limit the total operating expenses of both the U.S. Government and
Bond Portfolios, through April 30, 1997, to 1.00 percent of their
respective average daily net assets; (c) if a ValueMaster Contractowner
so requests during the Free Transfer Period, Contract value affected by
the Substitution will be reallocated for investment in any other
available Sub-Account selected by the ValueMaster Contractowner; (d)
the Substitution will be a net asset value of the respective Portfolio
shares, without
[[Page 5501]]
imposition of any transfer or similar charge; (e) OpCap Advisors will
assume any expenses and transaction costs relating to the Substitution,
including legal and accounting fees and any brokerage commissions; (f)
the Substitution will not alter the insurance benefits or contractual
obligations of the Companies to ValueMaster Contractowners, or the tax
benefits and consequences to ValueMaster Contractowners; and (g) the
Substitution is expected to confer certain modest economic benefits to
ValueMaster Contractowners by virtue of the possible enhanced asset
size of the U.S. Government Portfolio, and to avoid the detriments
associated with investment in the Bond Portfolio, whose assets are
declining. In this regard, Applicants also note that, within five days
after the Substitution, the Companies will send to ValueMaster
Contractowners written notice of the Substitution stating that shares
of the Bond Portfolio have been eliminated and that shares of the U.S.
Government Portfolio have been substituted therefor. The Companies will
include in such mailing a second supplement to the prospectuses of the
Accounts which discloses that the Substitution has occurred. For the
reason cited above, Applicants also contend that the terms of the
proposed Substitution meet the standards of Section 17(b).
6. Applicants assert that the decreasing asset base of the Bond
Portfolio, the impending redemption of Bond Portfolio shares by the
unregistered account, and the mediocre performance results of the Bond
Portfolio have made it difficult for that Portfolio to retain current
investors and attract new investors. Moreover, Oppenheimer Life
Agency's limited effort in selling the ValueMaster Contract, coupled
with a constant amount of fixed costs incurred by the Bond Portfolio,
can reasonably be expected to lead to an increase in the actual
expenses of the Bond Portfolio in the future. In contrast, the actual
expenses of the U.S. Government Portfolio can reasonably be expected to
decrease in the future: net sales of U.S. Government Portfolio shares
from its inception to date suggest that the asset base of that
Portfolio will continue to grow; superior performance results should
assist the U.S. Government Portfolio in retaining existing investors
and attracting new investors; and the use of the U.S. Government
Portfolio in various variable products should increase distribution
capabilities.
7. Applicants also note that the continuous accumulation of assets
of the U.S. Government Portfolio and positive reaction of investors of
that Portfolio has persuaded OpCap Advisors to extend its voluntary
agreement to limit the operating expenses of the U.S. Government
Portfolio to 1.00 percent of its average daily net assets past April
30, 1997, to at least April 30, 1998. OpCap Advisors has not assured
the Companies that it will do the same for the Bond Portfolio.
Therefore, the total expense ratio of the Bond Portfolio may increase
after April 30, 1997, whereas, through April 30, 1998, the total
expenses of the U.S. Government Portfolio are guaranteed not to exceed
1.00 percent of its average daily net assets.
8. Applicants contend that the relatively small asset size of the
Bond Portfolio hampers the ability to maintain optimal diversification
of its investments. In contrast, increasing asset size will permit the
U.S. Government Portfolio to purchase attractive portfolio securities.
Consequently the U.S. Government Portfolio can be expected to achieve
greater portfolio diversification and to react more readily to changes
in market conditions. Applicants assert that ValueMaster Contractowners
will benefit through the more effective management of a potentially
larger asset base with more diversified portfolio securities, such as
that available through the U.S. Government Portfolio.
9. Applicants submit that the ValueMaster Contracts reserve to the
Companies the right to replace the shares of the Portfolios held by the
Accounts with shares of another portfolio, such as the U.S. Government
Portfolio, if: (a) shares of a Portfolio should no longer be available
for investment by the Accounts; or (b) in the judgment of the
Companies, further investment in a Portfolio should become
inappropriate in view of the purpose of the ValueMaster Contracts. Any
such substitution must be approved by the Commission and must comply
with applicable rules and regulations. The Companies believe that
further investment in shares of the Bond Portfolio is no longer
appropriate in view of the purposes of the ValueMaster Contracts.
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the proposed Substitution meets the standards set forth in
Sections 26(b) and 17(b) of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2782 Filed 2-4-97; 8:45 am]
BILLING CODE 8010-01-M