[Federal Register Volume 65, Number 38 (Friday, February 25, 2000)]
[Notices]
[Pages 10125-10131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4419]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24291; File No. 812-11840]


Mutual of America Life Insurance Company, et al.

February 17, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: Mutual of America Life Insurance Company (``Mutual of 
America''), Mutual of America Separate Account No. 2 (the ``Mutual 
Annuity Account''), Mutual of America Separate Account No. 3 (the 
``Mutual VUL Account''), The American Life Insurance Company of New 
York (``American Life''), The American Separate Account No. 2 (the 
``American Annuity Account''), and The American Separate Account No. 3 
(the ``American VUL Account'').

RELEVANT SECTIONS OF THE ACT: Order requested pursuant to Section 17(b) 
granting an exemption from Section 17(a) and pursuant to Section 11(a) 
approving the terms of certain offers of exchange.

SUMMARY OF APPLICATION: Applicants seek an order that would (1) permit 
the transfer of assets from the American Annuity Account and American 
VUL Account (the ``American Accounts'') to the Mutual Annuity Account 
and Mutual VUL Account (the ``Mutual Accounts'') in connection with the 
assumption reinsurance by Mutual of America from American Life of the 
Contracts and Policies to which those assets relate, and (2) approve 
the terms of the offers of exchange of interests in the American 
Accounts for interests in the Mutual Accounts to the extent the 
exemption under Rule 11a-2 is not available for those offers.

FILING DATE: The application was filed on November 4, 1999, and amended 
and restated on February 16, 2000.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests must be in writing and should be received by the SEC by 5:30 
p.m. on March 10, 2000. Any request must 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 SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, c/o Deborah S. Becker, Esquire, Mutual of 
America Life Insurance Company, 320 Park Avenue, New York, New York 
10022.

FOR FURTHER INFORMATION CONTACT: Ann L. Vlcek, Senior Counsel, or Susan 
M. Olson, Branch Chief, Office of Insurance

[[Page 10126]]

Products, Division of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the amended 
and restated application. The complete amended and restated application 
is available for a fee from the SEC's Public Reference Branch, 450 
Fifth Street, N.W., Washington, D.C. 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Mutual of America is a mutual life insurance company organized 
under the laws of the State of New York in 1945. Mutual of America is 
authorized to sell individual and group life insurance policies and 
variable annuity contracts in 50 states and the District of Columbia. 
It has been granted variable universal life authority in 47 states and 
the District of Columbia and has applied for authority in the remaining 
3 states.
    2. The Mutual Annuity Account is a separate account of Mutual of 
America established for the purpose of providing an investment medium 
for variable contracts, including individual annuities. It is 
registered under the Act as a unit investment trust (File No. 811-
4679), and three registration statements on Form N-4 filed pursuant to 
the Securities Act of 1933 (``1933 Act'') are in effect for sales of 
interests under group and individual variable accumulation annuity 
contracts (File Nos. 2-90201, 33-5609 and 33-11023). One registration 
statement covers several forms of contracts, including Individual 
Retirement Annuity (``IRA'') contracts and Flexible Premium Deferred 
Annuity (``FPA'') contracts. The IRA and FPA contracts issued by Mutual 
of America are herein called the ``Mutual Contracts.''
    3. The Mutual VUL Account is a separate account of Mutual of 
America established for the purpose of providing an investment medium 
for variable contracts, including individual life policies. The Mutual 
VUL Account is registered under the Act as a unit investment trust 
(File No. 811-9487), and a registration statement on Form S-6 filed 
pursuant to the 1933 Act is in effect for sales of interest under 
individual variable universal life insurance policies (herein called 
the ``Mutual Policies'') (File No. 333-83413). Mutual of America began 
offering the Mutual Policy on February 1, 2000 in states that have 
approved the Mutual Policy form, and the Mutual VUL Account will begin 
operations when sales commence.
    4. American Life is a stock life insurance company organized under 
the laws of the State of New York in 1955. American Life is a wholly-
owned subsidiary of Mutual of America. American Life is authorized to 
sell individual and group life insurance and annuities, including 
variable annuities and variable life policies, in 50 states, the 
District of Columbia and the United States Virgin Islands.
    5. The American Annuity Account is a separate account of American 
Life established for the purpose of providing an investment medium for 
variable contracts, including individual annuities. The American 
Annuity Account is registered under the Act as a unit investment trust 
(File No. 811-7904), and a registration statement on Form N-4 filed 
pursuant to the 1933 Act is in effect for sales of interests under IRA 
contracts and FPA contracts, which are individual variable accumulation 
annuity contracts (File No. 33-66406). The IRA and FPA contracts issued 
by American Life are herein called the ``Contracts.'' Under an 
administrative services agreement between Mutual of America and 
American Life, Mutual of America provides all administrative services 
for the Contracts.
    6. The American VUL Account is a separate account of American Life 
established for the purpose of providing an investment medium for 
variable contracts, including individual life policies. The American 
VUL Account is registered under the Act as a unit investment trust 
(File No. 811-8368), and a registration statement on Form S-6 filed 
pursuant to the 1933 Act is in effect for sales of interests under 
individual variable universal life insurance policies (herein called 
the ``Policies'') (File No. 33-75280). Under an administrative services 
agreement between Mutual of America and American Life, Mutual of 
America provides all administrative services for the Policies.
    7. The Mutual Annuity Account and the American Accounts currently 
hold assets in their respective seventeen subaccounts (``investment 
funds''), each of which invests in shares of a corresponding mutual 
fund portfolio (collectively, the ``Underlying Funds.''). Each of the 
Underlying Funds is a series of a management investment company 
registered under the Act and its shares are registered for sale under 
the 1933 Act. Assets of the Mutual VUL Account when it commences 
operations also will be held in seventeen subaccounts, each of which 
will invest in shares of one of the Underlying Funds.
    8. The Contracts and Mutual Contracts are identical, except that 
owners of Mutual Contracts have the right to participate in the 
divisible surplus of Mutual of America, a mutual company. The Mutual 
Policies when issued will be identical to the Policies, except that 
owners of Mutual Policies will have the right to participate in the 
divisible surplus of Mutual of America.
    9. The Underlying Funds, the current administrative charges and the 
maximum permitted administrative charges, the mortality and expense 
risk charges, and the rates for the cost of insurance charges in the 
case of the Mutual Policies, are identical under the Mutual Contracts 
and Mutual Policies and the Contracts and Policies, respectively. The 
unit values for the investment funds of the Mutual Annuity Account and 
the American Annuity Account are identical. The unit values for the 
investment funds of the Mutual VUL Account when it begins operations 
will be set at the then current unit values of the corresponding 
investment funds of the American VUL Account, so that unit values for 
those accounts will be identical.
    10. Mutual of America serves as the principal underwriter of the 
Mutual Contracts, the Contracts and the Policies, and it will serve as 
the principal underwriter for the Mutual Policies. It is a broker-
dealer registered under the Securities Exchange Act of 1934 and a 
member of the National Association of Securities Dealers, Inc.
    11. As part of a consolidation by Mutual of America of its 
insurance operations, American Life will cede, and Mutual of America 
will reinsure and assume, a substantial portion of the outstanding 
Contracts and Policies issued by American Life. Mutual of America 
acquired American Life in 1988 to allow Mutual of America to write, 
through a subsidiary company, certain insurance and annuity business 
that had become taxable to Mutual of America as a result of the Tax 
Reform Act of 1986. On January 1, 1998, all of Mutual of America's 
business became subject to corporate federal income taxes. As a 
consequence, Mutual of America no longer needs to separate the business 
currently issued by American Life from Mutual of America's other 
business. Mutual of America believes that by combining all of the 
insurance operations into one entity, it will further enhance service 
to its contract and policy owners and obtain economies of scale. Mutual 
of America intends to sell all of the outstanding shares of American 
Life at the time of, or subsequent to, completion of the assumption 
reinsurance transactions described herein.
    12. American Life and Mutual of America have entered into an 
individual reinsurance and assumption agreement (the ``assumption 
agreement'') relating to various individual annuity contracts

[[Page 10127]]

and individual life policies, including substantially all Contracts and 
Policies. In the assumption agreement, American Life agrees to transfer 
all of its obligations, rights and liabilities under the Contracts and 
Policies of Mutual of America on an assumption reinsurance basis, and 
Mutual of America agrees to assume all such obligations, rights and 
liabilities transferred to it. The assumption reinsurance transactions 
under the assumption agreement are proposed to be effective April 1, 
2000. No fee or commission is payable by American Life, the American 
Accounts, Mutual of America, the Mutual Accounts, or any other person 
with respect to the assumption agreement. American Life will accept 
contributions under outstanding Contracts and premiums under 
outstanding Policies until they are assumption reinsured. Thereafter, 
contributions and premiums will be payable to Mutual of America. The 
assumption reinsurance transactions described herein will not be 
consummated for the Contracts and Policies unless Applicants obtain 
from the Commission all necessary orders for exemptive or other relief, 
and have effective registration statements that will cover the 
contributions and premiums under Contracts and Policies reinsured by 
Mutual of America. In addition, the assumption reinsurance transactions 
are subject to certain state insurance regulatory approvals, and owners 
of the Contracts and Policies (``Owners'') must give affirmative or 
deemed consent to the assumption, as described below. The Boards of 
Directors of Mutual of America and American Life have adopted 
resolutions approving the proposed assumption reinsurance transactions.
    13. Mutual of America will issue assumption certificates to Owners 
of the Contracts and Policies it assumption reinsures. The assumption 
certificates will have been approved for use by the appropriate state 
insurance regulatory authorities. Each assumption certificates will 
inform the Owner of the assumption by Mutual of America of all of 
American Life's obligations under the Contract or Policy and make the 
Owner a participating policy owner of Mutual of America. After 
assumption, an Owner will deal directly with Mutual of America, any 
further contributions or premiums the Owner wishes to apply to the 
Contract or Policy will be forwarded directly to Mutual of America for 
allocation to the Mutual Annuity Account or Mutual VUL Account, as 
applicable, and American Life will not longer have any obligations 
under the assumed Contract or Policy.
    14. Several jurisdictions require Owners to affirmatively consent 
to the assumption reinsurance of their Contracts and Policies by Mutual 
of America. Requests for consent and election forms used in these 
states will be in the form and sent on the schedule required by 
applicable state insurance provisions. A number of jurisdictions 
require Applicants to grant Owners the right to ``opt out'' of the 
assumption reinsurance of their Contracts or Policies, pursuant to 
which Owners must be sent two or more opt out notices within specified 
time periods before their consent can be ``deemed'' to have been given 
American Life and Mutual of America will seek the affirmative consent 
of Owners in these states instead of sending multiple opt out notices. 
A majority of states do not have statutory provisions for affirmative 
or deemed consent, and Mutual of America will provide opt out rights to 
Owners in these states pursuant to which Owners will be sent at least 
one notice of the right to opt out of the assumption reinsurance, along 
with an election form and a stamped self-addressed envelope, 30 to 60 
days prior to the scheduled date of assumption reinsurance of their 
Contracts and Policies. The New York States Insurance Department will 
not permit Mutual of America to assumption reinsure any Contracts or 
Policies issued to residents of New York if the Owners are no longer 
New York residents and, accordingly, such Owners will not be asked for 
consent to the assumption reinsurance of their Contracts and Policies. 
Applicants believe their there will be no tax consequences to an Owner 
resulting from exercise of the opt out right.
    15. Mutual of America will not assumption reinsure Contracts and 
Policies when Owners must give affirmative consent until the consents 
have been obtained. For Owners with opt out rights, Mutual of America 
will assumption reinsure their Contracts and Policies on the effective 
date of the assumption agreement, unless American Life receives timely 
notice of the exercise of opt out rights. Any Owner who is a resident 
of New York (or a resident of any other state when that state's 
insurance department or insurance law provisions so require) may opt 
out of the assumption reinsurance, even if the exercise period for the 
opt out has expired, until the time the Owner takes some action 
directed towards Mutual of America that recognizes the assumption 
reinsurance of the Contract or Policy, such as making a payment, 
receiving a benefit, or completing an administrative form. If an Owner 
opts out after the assumption reinsurance transaction has occurred, the 
Owner will be restored to the same position he or she would have had if 
the transaction had not taken place.
    16. After the effective date of the assumption agreement and before 
the closing date of Mutual of America's sale of American Life to a 
third party, Mutual of America and American Life may make an additional 
request for consent to assumption to Owners whose Contracts and 
Policies have not yet been assumptions reinsured for any reason, 
including the exercise of opt out rights, failure to affirmatively 
consent, or residence in a state that did not approve the transactions 
prior to the effective date of the assumption agreement. Mutual of 
America and American Life will comply with applicable state insurance 
laws in making any additional requests, including amending the 
assumption agreement or entering into an additional assumption 
reinsurance agreement with terms substantially identical to those of 
the assumption agreement. Owners who do not consent to the reinsurance 
of their Contracts and Policies at this time will remain with American 
Life, and their Contract and Policy account balances will be based on 
the American Annuity Account or American Life VUL Account, as 
applicable.
    17. Upon a closing of assumption reinsurance transactions, assets 
of the American Annuity Account equal to the contract liabilities 
attributable to the variable portion of the Contracts being assumption 
reinsured will be transferred to the Mutual Annuity Account, and assets 
of the American VUL Account equal to the contract liabilities 
attributable to the variable portion of the Policies being assumed 
reinsured will be transferred to the Mutual VUL Account. Assets in each 
of the American Accounts, as well as the Mutual Accounts, are 
segregated from General Account assets and are not chargeable with 
liabilities from any other businesses conducted by American Life or 
Mutual of America, respectively. American Life also will transfer to 
Mutual of America, as the effective date of assumption reinsurance, 
cash and liquid assets in an amount equal to American Life's General 
Account statutory reserves attributable to the Contracts and Policies 
being assumed.
    18. If an Owner exercises an opt out right after the Owner's 
Contract or Policy has been assumption reinsured, the assets equal to 
the contract liabilities attributable to the variable portion of the 
Owner's Contract or Policy will be

[[Page 10128]]

transferred from the related Mutual Account back to the appropriate 
American Account.
    19. No change in any terms of the Contracts or Policies will be 
made by Mutual of America in connection with its assumption reinsurance 
of the Contracts and Policies, except that Owners will be given the 
right to participate in the divisible surplus of Mutual of America. The 
effect of the assumption reinsurance, therefore, will be to change only 
the identity of the issuing company and depositor of the separate 
through which the Contracts or Policies are funded.
    20. The assumption reinsurance of the Contracts and Policies will 
not change the separate account charges or other charges under the 
Contracts and Policies, the number of accumulation units credited under 
the Contracts and Policies or the value of such units, or the available 
separate account investment funds through which allocations are made to 
the Underlying Funds. Owners' account balances under the Contracts and 
Policies assumption reinsured by Mutual of America will be the same as 
they would have been had the assumption reinsurance transaction not 
occurred. Applicants believe there will be no tax consequences, adverse 
or otherwise, to Owners as a result of the assumption reinsurance of 
their Contracts and Policies.
    21. If Applicants undo the assumption reinsurance of any Contract 
or Policy upon the exercise by an Owner of an opt out right after the 
date of the assumption, the number of accumulation units credited under 
the Contract on Policy and their values will be identical to what they 
would have been had the assumption reinsurance transaction not 
occurred.
    22. Shares of the Underlying Funds held by the American Accounts 
that are attributable to the Contracts and Policies being assumed will 
be transferred to the respective Mutual Accounts. The transfer will be 
made by book entry on the Underlying Funds' shareholder records, 
through simultaneous purchase orders by the Mutual Accounts and 
redemption orders in identical amounts by the American Accounts. 
Neither the American Accounts, the Mutual Accounts nor the Underlying 
Funds will incur any charge or expense for the transfer of shares of 
the Underlying Funds.\1\ In addition, the Underlying Funds are not 
parties to the assumption agreement or transactions, and the terms of 
the participation agreements pursuant to which they sell shares to the 
American Accounts and Mutual Accounts are not affected by the 
assumption transactions. Accordingly, Applicants anticipate that the 
assumption reinsurance transactions will have no impact on the 
Underlying Funds.
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    \1\ The transfer of General Account statutory reserves from 
American Life to Mutual of America for the fixed portion of the 
Contracts and Policies being assumption reinsured also will be 
without charge or expense to the Owners.
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    23. Owners will be sent, at their addresses as shown in American 
Life's records, a current prospectus for the Mutual Contracts or the 
Mutual Policies, as appropriate, when they are mailed the initial 
notice from American Life requesting their affirmative or deemed 
consent to Mutual of America's assumption of their Contracts or 
Policies. If Owners are sent additional notices asking for their 
consent to assumption, these Owners will receive subsequent supplements 
to the prospectuses and any updated prospectuses, so that Owners will 
have been sent current prospectuses, as supplemented, at any time they 
are asked for consent to the assumption reinsurance of their Contracts 
or Policies.
    24. Applicants anticipate that a limited number of Owners will 
remain with American Life. The terms of the Contracts and Policies will 
remain unchanged for the Owners who do not consent to assumption 
reinsurance. Some Policy owners have the option of paying premiums 
through a payroll deduction arrangement between American Life and their 
employer. It is possible that an employer may choose not to provide 
payroll deduction for both Mutual Policies and any remaining Policies 
owned by employees after the proposed assumption transactions. If an 
employer terminates its payroll deduction arrangement with American 
Life, Policy owners who have opted out of the assumption will pay 
premiums by sending them directly to American Life. Some Contract 
owners have IRA Contracts purchased under their employer's Simplified 
Employee Pension (``SEP'') or Savings Incentive Match Plan for 
Employees (``SIMPLE''). Each employer with a SEP or SIMPLE funded with 
American Life IRA Contracts is expected to amend its SEP or SIMPLE to 
provide for funding with Mutual of America IRA Contracts, and as a 
consequence any Contracts owned by employees who do not consent to 
assumption reinsurance will not be eligible to receive employer 
contributions under the employer's SEP or SIMPLE. In such case, those 
employees are expected to apply for Mutual of America IRA Contracts in 
order to receive employer contributions. Pursuant to federal tax law 
provisions, the employees may roll over amounts under their Mutual IRA 
Contracts to their American Life IRA Contracts or to any other IRA 
contract. Employees will not pay any surrender or withdrawal charges 
for rollovers, because the Mutual Contracts do not impose such charges.
    Depending on the number of Owners who remain in each of the 
American Accounts, American Life may seek at a future date to 
deregister either one or both of the American Accounts pursuant to 
Section 8(f) of the Act, or it may take such other steps as it deems 
appropriate to reduce the number of Contracts and Policies outstanding 
or the administrative burdens presented by such Contracts and Policies. 
The administrative charges American Life currently imposes under the 
Contracts and Policies are less than the maximum amounts permitted. 
American Life, after it is purchased by a third party or in connection 
with additional requests for consent to Owners after the effective date 
of the assumption agreement, may increase the administrative charges 
under the Contracts and Policies.\2\
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    \2\ Owners currently pay a monthly administrative contract fee 
of $2 per month. American Life may raise this fee to $10 per month 
for each Policy owner and $2.50 per month for each Contract owner, 
subject in each case to a limit of \1/2\ of 1% of the Owner's 
account balance in that month. American Life's current Separate 
Account administrative charge is 40% of the Separate Account's net 
assets. Under the Policies, the maximum permitted charge is .65% of 
net assets. Under the Contracts, the maximum charge against net 
assets for all expenses, excluding mortality risk, is 2% of net 
assets. Any increase by American Life in administrative charges will 
be subject to its continued ability to provide the undertaking to 
the Commission that the charges under the Contracts and Policies, in 
the aggregate, are reasonable in relation to the services rendered, 
the expenses expected to be incurred, and the risks assumed by 
American Life.
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    25. In connection with the sale of American Life's outstanding 
shares by Mutual of America, American Life and Mutual of America 
anticipate that they will enter into a new administrative services 
agreement pursuant to which Mutual of America will perform the 
administrative services specified therein for the Contracts and 
Policies remaining with American Life. In addition, Mutual of America 
and American Life may enter into an indemnity reinsurance agreement 
covering the Contracts and Policies not transferred to Mutual of 
America, with terms to be negotiated between Mutual of America and the 
purchaser of American Life. Under such an agreement, Mutual of America 
would agree to assume from American Life and indemnify American Life 
for, and American Life would agree to cede to Mutual of America on an 
indemnity reinsurance basis, all of American Life's

[[Page 10129]]

liability under such Contracts and Policies, and American Life would 
remain liable to Owners for obligations under the Contracts and 
Policies. If any of the Contracts or Policies subject to an indemnity 
reinsurance agreement were included in any subsequent assumption 
reinsurance transaction by Mutual of America, they no longer would be 
covered by the indemnity reinsurance agreement. Mutual of America also 
anticipates it will agree with American Life's purchaser that it will 
continue to serve as the principal underwriter of the Contracts and 
Policies until the final assumption reinsurance transactions occur or 
until another date agreed upon by Mutual of America and the purchaser.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, makes it unlawful 
for an affiliated person of or principal underwriter for a registered 
investment company to knowingly sell to or purchase from the registered 
company any security or other property, with exceptions not applicable 
to the transactions described herein.
    2. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include any person directly or indirectly 
controlling, controlled by, or under common control with, such person.
    3. Applicants state that the prohibitions of Section 17(a) would 
prohibit the American Annuity Account's and the American VUL Account's 
sales of shares of the Underlying Funds to the Mutual Annuity Account 
and the Mutual VUL Account, respectively, in connection with the 
assumption reinsurance of the Contracts and Policies, because the 
American Accounts are affiliated persons of the Mutual Accounts as long 
as Mutual of America wholly owns American Life. Similarly, Applicants 
state that Section 17(a) would prohibit the Mutual Accounts' purchase 
of shares of the Underlying Funds from the American Annuity Account and 
the American VUL Account, because the Mutual Accounts are affiliated 
persons of the American Accounts as long as Mutual of America wholly 
owns American Life. Even if Mutual of America no longer owns any of the 
outstanding stock of American Life at the time certain of the Contracts 
and Policies are assumption reinsured, Applicants believe that Section 
17(a) may nevertheless apply both to the American Accounts' sales, and 
to the Mutual Accounts' purchases, of shares of the Underlying Funds 
because an assumption agreement will have been executed when Mutual of 
America wholly owns American Life and because it will bind the parties 
to the assumption reinsurance transactions. Moreover, Applicants state 
that Mutual of America will continue to act as principal underwriter 
for the American Accounts until the final assumption reinsurance 
transactions occur for the Contracts and Policies, which may be after 
the closing of the sale of American Life by Mutual of America.
    4. Section 17(b) of the Act requires the Commission to exempt an 
affiliated transaction from the provisions of Section 17(a) upon 
application when the evidence establishes that 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, 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 the proposed transaction is consistent with the 
general purposes of the Act.
    5. Applicants therefore request an exemption pursuant to Section 
17(b) of the Act from the prohibitions of Section 17(a) to the extent 
necessary to permit the transfers of shares of the Underlying Funds 
from the American Accounts to the Mutual Accounts in connection with 
the assumption reinsurance of the Contracts and Policies as described 
herein. Applicants submit that the proposed transfers of assets meet 
the standards for relief under Section 17(b).
    6. Applicants submit that the terms of the transfers are reasonable 
and fair, because the only consideration to be received by the American 
Accounts and to be paid by the Mutual Accounts is the Mutual Accounts' 
assumption of the contract liabilities held in the American Accounts 
for the variable portion of the Contract and Policies being assumption 
reinsured. Applicants state that the value of the shares of the 
Underlying Funds to be transferred will equal the amount of the 
liabilities assumed, and such value will be computed in accordance with 
provisions of the Act and the rules thereunder. Applicants maintain 
that the unit values in the American Accounts and Mutual Accounts will 
not change as a result of the assumption reinsurance, and no person 
will receive a fee or commission in connection with the assumption 
reinsurance, so that there is no overreaching by any person in 
connection with the assumption transactions.
    7. Applicants submit that the terms of the transactions are 
consistent with the politics of each American Account and Mutual 
Account, because the policy of the American Accounts and the Mutual 
Accounts is to invest exclusively in shares of the Underlying Funds.
    8. Applicants submit that the proposed transactions are consistent 
with the general purposes of the Act because the interests of Owners 
are not adversely affected by the reinsurance of the Contracts and 
Policies. Applicants state that, upon assumption reinsurance the terms 
of the Contracts and Policies will be the same except for the addition 
of the right of Owners to participate in the divisible surplus of 
Mutual of America. Applicants maintain that the number of accumulation 
units credited to each Owner and the unit values thereof, and therefore 
each Owner's account balance, will not change as a result of the 
assumption. Applicants note that Mutual of America has been providing 
administrative services for the Contracts and Policies, so services 
provided will remain the same. Applicants state that Mutual of America 
has wholly owned American Life during the time all of the Contracts and 
Policies were issued, and the proposed reinsurance of the Contracts and 
Policies affords Owners the opportunity to have their Contracts and 
Policies remain with the Mutual of America group of companies, 
notwithstanding Mutual of America's anticipated sale of the outstanding 
stock of American Life. Applicants note that Mutual of America is a 
larger company than American Life with significant greater assets and 
surplus to support its obligations under the assumed Contracts and 
Policies.
    9. Applicants note that the Commission has previously granted 
exemptive relief under Section 17(b) to applicants for transactions 
similar to Applicants' proposed assumption reinsurance transactions.\3\ 
Applicants

[[Page 10130]]

assert that the assumption reinsurance transactions for which orders 
were granted in Security First Life Insurance Company et al., Sentry 
Life Insurance Company, et al., Hartford Life and Accident Insurance 
Company et al., and Family Life Insurance Company, et al.\4\ were 
substantially similar to the assumption reinsurance transactions 
proposed by Applicants. According to the Applicants, the applicants for 
these previous orders represented that the contracts, when assumed, 
would be identical or identical in all material respects to the ceded 
contracts, except for the change in the identity of the issuing company 
and depositor of the separate account funding the contracts. Applicants 
maintain that these applicants also represented that the underlying 
investment fund, separate account unit values, and owners' account 
balances would be unchanged by the assumption reinsurance transactions, 
as is the case for the assumption reinsurance transactions proposed by 
Applicants. On the basis of these precedents and Applicants' 
fulfillment of the requirements for exemptive relief set forth in 
Section 17(b), Applicants submit that the exemption they have requested 
from Section 17(a) should be granted.
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    \3\ A number of orders have related to the transfer of assets 
between separate accounts of affiliated companies, see, e.g., 
Security First Life Insurance Company et al., Inv. Co. Act Rel. Nos. 
22263 (Oct. 4, 1996) (notice) and 22309 (Oct. 31, 1996, as corrected 
Nov. 4, 1996) (order); Sentry Life Insurance Company, et al., Inv. 
Co. Act Rel. Nos. 20576 (Sept. 26, 1994) (notice) and 20654 (Oct. 
25, 1994) (order); Hartford Life and Accident Insurance Company, et 
al., Inv. Co. Act Rel. Nos. 19800 (Oct. 18, 1993) (notice) and 19878 
(Nov. 16, 1993) (order); and Family Life Insurance Company, et al., 
Inv. Co. Act Rel. Nos. 18179 (June 3, 1991) (notice) and 18217 (July 
2, 1991) (order). All transfers other than those in Hartford Life 
were in contemplation of the sale of the affiliated corporation from 
which the contracts were being assumption reinsured. Several orders 
have concerned the transfer of assets between separate accounts of 
non-affiliated companies, see e.g., The Lincoln National Life 
Insurance Company, et al., Inv. Co. Act Rel. Nos. 22189 (Aug. 29, 
1996) (notice) and 22251 (Sept. 26, 1996) (order); AUSA Life 
Insurance Company, Inc. et al., Inv. Co. Act Rel. Nos. 20518 (Aug. 
31, 1994) (notice) and 20587 (Sept. 28, 1994) (order); and Pacific 
Corinthian Life Insurance Company, et al., Inv. Co. Act Rel. Nos. 
18925 (Sept. 2, 1992) (notice) and 18975 (Sept. 24, 1992) (order).
    \4\ Refer to the citations in Note 3 above.
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    10. Section 11(a) of the Act makes it unlawful for a registered 
open-end investment company or its principal underwriter to offer 
securities of an investment company in exchange for other securities of 
the same or another investment company, unless the exchange either is 
based on the respective net asset values of the securities or the terms 
of the offer have received prior approval of the Commission. Section 
11(c) provides that in the case of a unit investment trust, the 
prohibition of Section 11(a) is applicable irrespective of the basis of 
exchange.
    11. Rule 11a-2 under the Act exempts from the provisions of Section 
11 an offer by a registered separate account or any principal 
underwriter for such an account to the holder of a security of any 
other registered separate account having an insurance company depositor 
or sponsor that is an affiliate of the offering account's depositor or 
sponsor to exchange his or her security for a security of the offering 
account when certain conditions are met.
    12. Rule 11a-2(b)(1) covers exchanges of variable annuity contracts 
and provides that for contracts with no front end or deferred sales 
charges, as is the case for the Contracts and the Mutual Contracts, the 
only conditions are that an exchange must be made at the relative net 
asset values of the securities to be exchanged and any administrative 
fee assessed in connection with the exchange must be disclosed in the 
prospectus. Rule 11a-2(b)(2) covers exchanges of variable life 
insurance contracts and provides that an exchange must be made at the 
relative net asset values of the securities to be exchanged and any 
administrative fee assessed in connection with the exchange must be 
disclosed in the prospectus. Rule 11a-2(b)(2) does not permit the 
imposition of any sales load in connection with an exchange. Applicants 
state that there is uncertainty that the relief in Rule 11a-2(b) would 
extend to an offer of exchange of variable life insurance contracts.
    13. Applicants state that, in the majority of states, Owners will 
be notified of the assumption reinsurance of their Contracts or 
Policies and advised that their consent will be deemed if they do not, 
within the time period specified in the notice, exercise their right to 
opt out of the assumption reinsurance. Applicants explain that, in a 
number of states, Owners will be asked for their affirmative consent to 
the assumption of their Contracts or Policies by Mutual of America. 
Applicants state that opt our rights and requests for affirmative 
consents constitute offers of exchange to Owners relating to their 
variable interests in the American Accounts and the Mutual Accounts, 
which are registered unit investment trusts, to which the provisions of 
Sections 11 (a) and (c) will apply.
    14. Applicants state that in Alexander Hamilton Funds (available 
July 20, 1994), the staff of the Commission stated its view that the 
legislative history of Section 11(a) shows that ``Congress primarily 
intended to deter switching between affiliated investment funds,'' 
rather than offers by unaffiliated investment companies, so long as 
offers are at relative net asset values. The staff noted, however, that 
``there may be circumstances when Section 11(a) would apply to exchange 
offers between unaffiliated funds.'' As an example, in Footnote 4, the 
staff states that ``Section 11 would apply if two unaffiliated fund 
complexes agree, formally or informally, to offer a waiver of sales 
load or some other incentive for an exchange of shares from one fund 
family to another.'' Applicants state that the American Accounts and 
Mutual Accounts will no longer be affiliates after Mutual of America 
sells American Life, and any exchange offers made or transactions 
effected after the date of sale might be viewed as occurring between 
non-affiliates and outside the scope of section 11. However, Mutual of 
America states that it may have an economic incentive to assume the 
remaining Contracts and Policies, based on its expected role as 
principal underwriter for those Contracts and Policies, as the provider 
of administrative services to the purchaser of American Life for the 
Contracts and Policies, and as the indemnity reinsurer for the 
Contracts and Policies. In addition, American Life, as previously 
noted, may increase its administrative charges for the Contracts and 
Policies not assumed. Applicants therefore believes that Section 11(a) 
may apply to any offers or exchanges made when American Life is no 
longer a subsidiary of Mutual of America and consider it appropriate to 
seek exemptive relief from the provisions of Section 11(a) for any 
assumption transactions that occur when Rule 11a-2 would not be 
available.
    15. Applicants submit that the offers of exchange involved in the 
assumption reinsurance of the Contracts will satisfy all of the 
conditions of Rule 11a-2 and will be permitted by that Rule so long as 
Mutual of America is an affiliate of American Life at the time the 
offers are made. Applicants also submit that the offers of exchange 
involved in the assumption reinsurance of the Policies arguably satisfy 
the conditions of Rule 11a-2 because the securities involved have no 
sales loads. Applicants state that Mutual of America will be an 
affiliate of American Life at the time the assumption agreement is 
executed, at which time it becomes contractually obligated to 
assumption reinsure the Contracts and Policies. According to the 
Applicants, Mutual of America anticipates that it will wholly own 
American Life at the date most assumption reinsurance transactions 
occur. Applicants state that the Contracts and the Mutual Contracts, 
and the Policies and Mutual Policies, do not have any front end sales 
charges or deferred sales charges, no administrative fee will be 
assessed in connection with the assumption transactions will be made at 
the relative net asset values of the securities to be exchanged.
    16. Applicants state that Mutual of America intends to sell all of 
the outstanding shares of American Life, and therefore Mutual of 
America and American Life may not be affiliates at the time certain of 
the Contracts and Policies are assumption reinsured by Mutual of 
America, which would result in the relief afforded by Rule 11a-2

[[Page 10131]]

being unavailable. Even if Mutual of America and American Life are 
affiliates at the time of the exchange offers and assumption 
transactions, Applicants state that there is uncertainty that the 
exemptive relief provided by Rule 11a-2 would extend to offers of 
exchange of variable life insurance policies. Accordingly, Applicants 
request an order pursuant to Section 11(a) approving the terms of any 
offers of exchange involved in the assumption reinsurance of the 
Contracts and Policies for which the exemption provided under Rule 11a-
2 is unavailable.
    17. Applicants submit that the terms of any offers of exchange 
involved in the proposed assumption reinsurance of the Contracts and 
Policies by Mutual of America are fair to Owners and should be approved 
by the Commission. Applicants assert that, since no sales or other 
charges will be assessed in connection with the assumption reinsurance 
of the Contracts and Policies by Mutual of America, the sales charge 
abuse to which Section 11(a) is directed will not be present.\5\ 
Applicants state that the only change resulting from the reinsurance of 
the Contracts and Policies, which is in effect an exchange of American 
Contracts and Policies for Mutual Contracts and Policies, is in the 
identity of the issuing insurance company and the depositor of the 
separate account through which the Contracts and Policies are funded. 
Applicants believe as well that there will be no adverse tax 
consequences for Owners as a result of the exchange offers, the 
assumption reinsurance, or the decision by any Owners to opt out of 
assumption reinsurance. Applicants maintain that Mutual of America has 
substantial assets and surplus to assure the performance of its 
obligations under the Contracts and Policies, and it currently performs 
all administrative services for the Contracts and Policies under an 
agreement with American life.
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    \5\ The Commission's Report on the ``Public Policy Implications 
of Investment Company Growth,'' H.R. Rep. No. 2337 (1966) at p. 331, 
stated:
    Section 11(a) was specifically designed to prevent the practices 
of ``switching'' and ``reloading'' whereby the holders of securities 
were induced to exchange their certificates for new certificates on 
which a new load would be payable.
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    18. Applicants stated that Owners will receive current prospectuses 
for the Mutual Contracts or Mutual Policies, as applicable, and will 
have complete information about the exchange offer in terms of their 
opt out rights or the requirement for their affirmative consent. 
Applicants also state that the exchanges of interests will be made on 
the basis of relative net asset values, and that no provision of the 
Contracts or Policies will be changed upon their assumption except for 
the addition of the right to participate in Mutual of America's 
divisible surplus. According to the Applicants, Owners will have 
investment funds available in the Mutual Accounts with the same 
Underlying Funds as prior to the assumption, and the number and value 
of units credited under the Mutual Contracts and Mutual Policies upon 
assumption reinsurance will be the same as under the Contracts and 
Policies.
    19. Applicants note that the Commission has previously approved 
offers of exchange involved in assumption reinsurance transactions in 
circumstances when Rule 11a-2 would not apply because the insurance 
companies were not affiliated or might not be affiliated at the time 
certain exchange offers for variable annuities were made or assumption 
transactions were consummated.\6\ Applicants state that the terms of 
their proposed exchange offers would satisfy all of the conditions of 
Rule 11a-2 applicable to affiliated companies if made prior to the sale 
of American Life and that the offers satisfy the standards of the 
Commission for determining that the terms of an exchange offer are fair 
to Owners. On the basis of the precedents cited and the showing by 
Applicants that the terms of the exchange offers involved are fair, 
Applicants submit that the requested relief should be granted.
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    \6\ Family Life Insurance Company, et al., supra note 3, 
involving assumption reinsurance between affiliates in connection 
with the sale of the ceding company, and The Lincoln National Life 
Insurance Company, et al., AUSA Life Insurance Company, Inc. et al., 
and Pacific Corinthian Life Insurance Company, et al., involving 
exchange offers under variable annuity assumption reinsurance 
transactions between non-affiliates when Rule 11a-2 would have been 
available if the insurance companies had been affiliated.
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Conclusion

    Applicants submit that for the reasons and upon the facts set forth 
above, the requested exemption pursuant to Section 17(b) from Section 
17(a) and the necessary approval pursuant to Section 11(a) should be 
granted.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-4419 Filed 2-24-00; 8:45 am]
BILLING CODE 8010-01-M