[Federal Register Volume 64, Number 18 (Thursday, January 28, 1999)]
[Notices]
[Pages 4477-4479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1998]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC- 23661; File No. 812-11456]
MBL Life Assurance Corporation, et al.; Notice of Application
January 22, 1999.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'') approving a
substitution of securities, and pursuant to Section 17(b) of the 1940
Act exempting related transactions from Section 17(a) of the 1940 Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order to permit certain
registered unit investment trusts to substitute shares of the Dreyfus
Life and Annuity Index Fund, operating as Dreyfus Stock Index Fund for
the shares of MBL Growth Fund, Inc. currently held by those unit
investments trusts, and to permit certain in-kind redemptions of
portfolio securities in connection with the substitutions.
Applicants: MBL Life Assurance Corporation (``MBLLAC'') and MBL
Variable Contract Account-2 (``VCA-2'') and MBL Variable Contract
Account-3 (``VCA-3,'' together with VCA-2, the ``Separate Accounts'').
Filing Date: The application was filed on January 7, 1999.
Hearing Or Notification Of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving 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 February 12, 1999, 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. Persons may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Frank D.
Casciano, Esq., Executive Vice President and General Counsel, MBL Life
Assurance Corporation, 520 Broad Street, Newark, New Jersey 07102-3111;
Copies to: Frank E. Morgan II, Esq., Dewey Ballantine LLP, 1301 Avenue
of the Americas, New York, New York 10019.
[[Page 4478]]
FOR FURTHER INFORMATION CONTACT: Ethan D. Corey, Senior Counsel, at
(202) 942-0675, or Kevin M. Kirchoff, Branch Chief, at (202) 942-0672,
Office of Insurance Products, Division of Investment Management.
SUPPLEMENTAL INFORMTION: The following is a summary of the application,
the complete application may be obtained for a fee from the Public
Reference Branch of the Commission, 450 5th Street, N.W., Washington,
D.C. 20549 (tel. (202) 942-8090).
Applicants' Representation
1. MBL LIfe Assurance Corporation (``MBLLAC'') is a New Jersey
stock life insurance company. MBLLAC serves as sponsor and depositor Of
VCA-2 and VCA-3.
2. MBLLAC's is currently operating under the terms of the Plan of
Rehabilitation (``Plan'') approved by the Superior Court of New Jersey
(``Rehabilitation Court'') for its former parent, Mutual Benefit Life
Insurance Company in Rehabilitation (``MBL''). Pursuant to the terms of
the Plan, on April 29, 1994, MBL assigned to MBLLAC and MBLLAC assumed
from MBL, substantially all of MBL's assets and insurance liabilities.
MBLLAC will operate under the terms of the Plan until June 30, 1999
(the expiration date of the rehabilitation period). Upon the
termination of the Plan, the Separate Accounts are expected to be
liquidated and certain contracts, as decribed below, will be terminated
(the ``Termination'').
3. Each of the Separate Accounts is registered with the Commission
as a unit investment trust. VCA-2 serves as the funding medium for
certain group variable annuity contracts (the ``Group Contracts'').
VCA-3 serves as the funding medium for certain individual variable
annuity contracts (the ``Individual Contracts,'' together with the
Group Contracts, the ``Contracts''). VCA-3 has not accepted new or
additional contributions since July 16, 1991. Each Separate Account
invests exclusively in shares of the MBL Growth Fund, Inc. (``MBL
Fund'').
4. MBL Fund is a open-end diversified management investment company
incorporated under Maryland law and registered with the Commission
under the 1940 Act. Shares of MBL Fund are registered with the
Commission under the Securities Act of 1933 (the ``1933 Act''). MBL
Fund's primary investment objective is long-term appreciation of
capital. It seeks to achieve this objective through investment
primarily in equity-type securities including common stocks, as well as
securities convertible into, or exchangeable for, common stocks. Shares
of MBL Fund are currently sold only to separate accounts of MBLLAC to
fund variable annuity contracts. The investment adviser to MBL Fund is
Markston Investment Management (``Markston''), a partnership between
Markston International, Inc. and MBL Sales Corporation, an indirect
subsidiary of MBLLAC. Markston is a registered investment adviser under
the Investment Advisers Act of 1940.
5. In accordance with the terms of the Plan, MBLLAC will operate
under the terms of the Plan until June 30, 1999 (the expiration date of
the rehabilitation period). Pursuant to the Plan (as amended by the
Rehabilitation Court in November 1998) on or before the effective date
of the Termination (the ``Termination Date''), MBLLAC and the Separate
Accounts will be liquidated and the Contracts will be terminated.
6. The Contracts expressly reserve to MBLLAC the right, subject to
either: (a) a vote of holders of the Contracts (``Contractholders'');
or (b) compliance with the 1940 Act, to substitute shares of another
open-end management investment company for shares of MBL Fund held by
the appropriate Separate Account.
7. MBLLAC, on its own behalf and on behalf of the Separate
Accounts, proposes to substitute shares of Dreyfus Life and Annuity
Index Fund, operating as Dreyfus Stock Index Fund (``Index Fund''), an
open-end, non-diversified, management investment company for shares of
MBL Fund currently held by the Separate Accounts (the
``Substitution''). Applicants assert that the Substitution will benefit
the Contract owners and the Separate Account because it is intended to:
(a) ensure that the interests of Contractholders in the Separate
Accounts will at all times until the Termination Date be sufficiently
liquid such that the Separate Accounts are able to honor and comply
with any and all requests for transfer or redemption by Contractholders
of their contract or account values (the ``Account Values''), within
the terms and provisions of the 1940 Act; (b) maintain the Separate
Accounts' investment objectives prior to the Termination; and (c)
provide for the final payout to the remaining Contractholders in
connection with the Termination.
8. The investment objective of the Index Fund is to provide
investment results that correspond to the price and yield performance
of publicly traded common stocks in the aggregate, as represented by
the Standard & Poor's 500 Composite Stock Price Index. Applicants
assert that the investment objectives and policies of the MBL Fund are
sufficiently similar to the investment objectives and policies of the
Index Fund such that the Index Fund will provide a comparable
investment strategy and level of risk exposure to that of the Fund,
which will serve the interests of Contractholders.
9. The total expenses of the Index Fund currently are 0.26%. The
total expenses of the MBL Fund are 0.77%. The total return of the Index
Fund has been 8.7%, 22.2%, and 19.4% for the one, three and five year
periods ending September 30, 1998. The total return of the MBL Fund has
been 8.7%, 25.3% and 19.8% for the last one, three and five year
periods. As of September 30, 1998, the Index Fund had $2,606,084,554 in
net assets, compared to $58,520,509 for the MBL Fund.
10. On August 6, 1998, MBLLAC notified Contractholders in VCA-2 and
VCA-3 that MBLLAC planned to terminate the Contracts and to liquidate
the Separate Account on the Termination Date.
11. MBLLAC asserts that it will effect the Substitution as soon as
practicable following the issuance of the requested order so as to
maximize the liquidity benefits to be realized from the Substitution.
12. Within five days after the Substitution, MBLLAC will send to
Contractholders written notice of the Substitution (the ``Substitution
Notice'') which will identify the shares of MBL Fund that have been
eliminated and the shares of the Index Fund that have been substituted.
In addition, if a propsectus relating to the Index Fund has not already
been forwarded to Contractholders, the Substitution Notice will be
accompanied by such a prospectus. Contractholders will be advised in
the Substitution Notice that Contracts which remain with MBLLAC at the
Termination Date are subject to termination, and the associated Account
Value will be paid as required by law and the Plan (as amended).
13. The Substitution will not result in any change to the Contract
fees and charges currently being paid by existing Contract owners.
Applicants' Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides that it 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; and the Commission shall issue an order approving such
[[Page 4479]]
substitution if the evidence establishes that it is consistent with the
protection of investors and the purposes fairly intended by the
policies and provisions of the 1940 Act. Section 26(b) protects the
expectation of investors that the unit investment trust will accumulate
shares of a particular issuer and is intended to insure that
unnecessary or burdensome sales loads, additional reinvestment costs or
other charges will not be incurred due to unapproved substitutions of
securities.
2. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the Substitution. Applicants represent that the
purposes, terms, and conditions of the Substitution are consistent with
the protection for which Section 26(b) was designed. Applicants believe
the Substitution will benefit Contractholders because funds in the
Separate Accounts would immediately become invested in a larger and
more diverse pool of securities than those in which they are currently
invested, thereby assuring liquidity. In addition, Applicants assert
that the Index Fund provides an investment strategy and level of risk
exposure that are comparable to those the MBL Fund. Applicants further
assert that the Substitution is consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the 1940 Act because the Substitution is an appropriate interim step
in connection with the withdrawal of MBL Fund as an investment option
under the Contracts and the proposed termination of the Contracts.
3. Applicants represent that the Contractholders have the right, at
any time, both before and after the Substitution Date and prior to the
Termination Date, to transfer Account Values from the Separate Accounts
to any other separate account which funds similar contracts without
incurring any additional fees or charges with respect to such transfer
at any time. Applicants represent that the Substitution will in no way
alter or interfere with this right.
4. Applicants assert that, following the Substitution and until the
Termination Date, Contractholders will be afforded the same contract
rights, including surrender and other transfer rights with regard to
amounts invested under the Contracts, as they currently have. MBLLAC
will bear the cost of the Substitution, including any brokerage, legal
and/or accounting fees. Contractholders will not incur any additional
fees or charges as a result of the Substitution, nor will their rights
or the obligations under any of the Contracts diminish in any way. The
Substitution will not result in any adverse tax consequences to any
Contractholder, any change in the economic interest or Account Value of
any Contractholder or any change in the dollar value of any Contract
held by a Contractholder.
5. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
or an affiliate of an affiliated person, of a registered investment
company, from selling any security or other property to such registered
investment company. Section 17(a)(2) of the 1940 Act prohibits such
affiliated persons from purchasing any security or other property from
such registered investment company.
6. Section 17(b) of the 1940 Act authorizes the Commission to issue
an order exempting a proposed transaction from Section 17(a) if: (a)
the terms of the proposed transaction are fair and reasonable 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; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
7. Applicants request an order pursuant to Section 17(b) of the
1940 Act exempting them from the provisions of Section 17(a) to the
extent necessary to use a portion of the securities received in-kind by
the Separate Accounts (the ``Accepted Underlying Securities'') from MBL
Fund to purchase shares of the Index Fund (the ``In Kind
Transactions'').
8. Applicants assert that the proposed In Kind Transactions,
including the consideration to be paid and received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned. As part of the In Kind Transactions, MBLLAC on behalf of the
Separate Accounts, will seek to simultaneously place redemption
requests with MBL Fund and purchase shares of the Index Fund so that
purchases will be for the exact amount of the redemption proceeds. The
In Kind Transactions will not effect an appreciable economic change on
the Contractholders. MBLLAC, on behalf of the Separate Accounts, will
effect the redemption in-kind and the transfer of the Accepted
Underlying Securities in a manner that is consistent with the
investment objectives and policies and diversification requirements
applicable to the Index Fund. MBLLC, on behalf of the Separate
Accounts, will take appropriate steps to assure that the Accepted
Underlying Securities are suitable investments for the Index Fund.
9. Applicants assert that the Substitution is consistent with the
general purposes of the 1940 Act and that the In Kind Transactions do
not present any of the conditions or abuses that the 1940 Act was
designed to prevent.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the Substitution and In Kind Transactions
should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-1998 Filed 1-27-99; 8:45 am]
BILLING CODE 8010-01-M