[Federal Register Volume 65, Number 238 (Monday, December 11, 2000)]
[Notices]
[Pages 77399-77402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31445]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24785; File No. 812-11332]


AIG Life Insurance Company, et al.

December 5, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940, as amended (``1940 Act'') approving 
certain substitution of securities, and pursuant to Section 17(b) of 
the 1940 Act exempting related transactions from Section 17(a) of the 
1940 Act.

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APPLICANTS: AIG Life Insurance Company (``AIG''), AIG Life Insurance 
Company Varible Account I (``Variable Account I''), American 
International Life Insurance Company of New York (``American''), 
American International Assurance Company of New York Variable Account A 
(``Variable Account A''), ReliaStar Life Life Insurance Company of New 
York (``ReliaStar,'' and together with AIG and American, the ``Variable 
Insurers'' or the ``Insurance Company Applicants''), ReliaStar Life 
Insurance Company of New York Variable Annuity Fund P (``Variable 
Annuity Fund P''), ReliaStar Life Insurance Company of New York 
Variable Annuity Fund Q (``Variable Annuity Fund Q,'' and together with 
Variable Annuity Fund P, the ``ReliaStar Separate Accounts'') 
(collectively, with Variable Account I and Variable Account A, the 
``Separate Accounts'') and Alliance Variable Products Series Fund, Inc. 
(``AVP'').

SUMMARY OF APPLICATION: Applicants request an order permitting (1) the 
substitution of shares of AVP's Total Return Portfolio (``Total Return 
Portfolio'') for shares of AVP's Conservative Investors Portfolio 
(``Conservative Investors Portfolio'') and AVP's Growth Investors 
Portfolio (``Growth Investors Portfolio'', and (2) the substitution of 
shares of AVP's Money Market Portfolio (``Money Market Portfolio'') and 
shares of the Oppenheimer Money Market Fund VA (``Money Fund'') for 
shares of AVP's Short-Term Multi Market Portfolio (``Multi Market 
Portfolio''), (The Conservative Investors Portfolio, Growth Investors 
Portfolio and Multi-Market Portfolio are referred to herein as the 
``Replaced Portfolios.'' The Total Return Portfolio, Money Market 
Portfolio and Money Fund are referred to herein as the ``Substitute 
Portfolios.'' The Replaced Portfolios and the Substitute Portfolios are 
referred to, collectively, as the ``Affected Portfolios.'') AIG, 
Variable Account I, American, Variable Account A and AVP also seek 
relief from Section 17(a) for purposes of effecting certain of the 
substitutions partially in-kind.

FILING DATE: The application was filed on May 1, 2000, and amended and 
restated on October 19, 2000. Applicants represent that they will file 
an amended and restated application during the notice period to conform 
to the representations set forth herein.

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

[[Page 77400]]

with a copy of the request, personally or by mail. Hearing requests 
should be received by the Commission by 5:30 p.m. on December 26, 2000, 
and should be accompanied by proof of service on the 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 SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, c/o Joseph B. 
Kittredge, Jr., Ropes & Gray, One International Place, Boston, 
Massachusetts 02110.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or 
Lorna J. MacLeod, Branch Chief, Office of Insurance Products, Division 
of Investment Management at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. AIG is a stock life insurance company initially organized under 
the laws of Pennsylvania and reorganized under the laws of Delaware. 
AIG is a subsidiary of American International Group, Inc., which serves 
as the holding company for a number of companies engaged in the 
international insurance business in approximately 130 countries and 
jurisdictions around the world.
    2. AIG's Variable Account I is a separate account of AIG that 
serves as a funding vehicle for a flexible premium, deferred annuity 
contract with a fixed investment option. Variable Account I is 
registered with the Commission as a unit investment trust under the 
1940 Act. Variable Account I is divided into subaccounts or divisions 
(``Divisions''), each of which invests in shares of a different 
portfolio of AVP.
    3. American is a stock life insurance company organized under the 
laws of New York. American is also a subsidiary of American 
International Group, Inc.
    4. American's Variable Account A is a separate account that serves 
as a funding vehicle for a flexible premium, deferred annuity contract 
with a fixed investment option. Variable Account A is registered with 
the Commission as a unit investment trust under the 1940 Act. Variable 
Account A is divided into Divisions, each of which invests in shares of 
a different portfolio of a mutual fund, including various series of 
AVP.
    5. ReliaStar is a stock life insurance company incorporated 
pursuant to the laws of New York in 1917 under the name ``The Morris 
Plan Insurance Society.'' It adopted the names ``Bankers Security Life 
Insurance Society'' in 1946, ``ReliaStar Bankers Security Life 
Insurance Company'' in 1996, and ``ReliaStar Life Insurance Company of 
New York'' in 1998. It is authorized to conduct business in all fifty 
states, the District of Columbia and the Dominican Republic. ReliaStar 
is a wholly-owned indirect subsidiary of ReliaStar Financial Corp., a 
holding company whose subsidiaries specialize in life insurance and 
related financial services businesses.
    6. The ReliaStar Separate Accounts are registered as unit 
investment trusts under the 1940 Act and are separate accounts as that 
term is defined in Section 2(a)(37) of the 1940 Act. Each ReliaStar 
Separate Account is divided into Divisions, each of which invests in 
shares of a different portfolio of a mutual fund, including various 
series of AVP.
    7. AVP, organized as a Maryland corporation on November 17, 1987, 
is registered under the 1940 Act as an open-end management investment 
company and is a ``series company'' as described in Rule 18f-2 under 
the 1940 Act. AVP has issued shares of beneficial interest in nineteen 
series, including the Total Return Portfolio, the Conservative 
Investors Portfolio, the Growth Investors Portfolio, the Money Market 
Portfolio and the Multi Market Portfolio, each of which represents 
interests in a different portfolio (collectively, the ``AVP 
Portfolios''). Each AVP Portfolio is managed by Alliance Capital 
Management L.P. (``Alliance'').
    8. Oppenheimer Variable Account Funds (``OVAF'') is a multi-series 
open-end diversified management investment company organized as a 
Massachusetts business trust. The Money Fund was organized as a series 
of OVAF in 1983. OVAF has issued shares of beneficial interest in ten 
series of shares, including the Money Fund, each of which represents 
interests in a different portfolio. The OVAF Portfolios, including the 
Money Fund, are managed by Oppenheimer Funds, Inc.
    9. The AVP Portfolios serve as investment vehicles for use in 
connection with variable life insurance contracts and variable annuity 
certificates and contracts (collectively, the ``Contracts)'' issued by 
the Separate Accounts. As of the date of the Application, all shares of 
the Substitute Portfolios are owned by the Separate Accounts.
    10. Each Contract reserves to AIG, American or ReliaStar the right 
to replace the shares of one AVP Portfolio held by the relevant 
Separate Account with shares of another AVP Portfolio or with shares of 
another registered investment company, subject to Commission approval. 
Applicants represent that this substitution right is clearly disclosed 
in the Separate Accounts' prospectuses.
    11. Applicants propose to substitute the Substitute Portfolios for 
the Replaced Portfolios as follows: (a) The substitution of shares of 
the Total Return Portfolio for shares of the Conservative Investors 
Portfolio and Growth Investors Portfolio (the ``C&G Substitution''); 
(b) the substitution of shares of the Money Market Portfolio in the 
case of AIG and American and their Separate Accounts and shares of the 
Oppenheimer Money Fund, in the case of ReliaStar and its Separate 
Accounts, for shares of the Multi-Market Portfolio (the ``MM 
Substitution'').
    12. Contracts issued by AIG and American limit contractowners to 
twelve free transfers a year and charge contractowners $10 for each 
additional transfer.
    13. Applicants represent that all three C&G Substitution Affected 
Portfolios operate as asset allocation portfolios, each investing 
principally in the same asset classes (i.e., stocks, bonds and money 
market instruments) but using slightly different mixes of those asset 
classes. Each C&G Substitution Affected Portfolio seeks a high total 
return by investing in a mix of debt and equity securities that covers 
a continuum, with the Total Return Portfolio's mix falling in between 
the Conservative Investors Portfolio, which tends to invest more in 
fixed-income and less in equity securities, and the Growth Investors 
Portfolio, which tends to invest more in equity and less in fixed-
income securities. Applicants represent that each of the C&G 
Substitution Affected Portfolios periodically adjusts its asset mixes 
in response to Alliance's judgment with respect to economic and market 
cycles.
    14. Applicants represent that all three MM Substitution Affected 
Portfolios seek high current income by investing either completely or 
predominately in money market instruments. Each MM Substitution 
Affected Portfolio invest in, inter alia, (a) certificates of deposit 
and bankers' acceptances and interest-bearing savings deposits issued 
or guaranteed by banks or savings and loan associations, (b) high-
quality commercial paper issued by U.S. or

[[Page 77401]]

foreign companies, and (c) certain types of U.S. Government securities.
    15. Applicants represent that the Variable Insurers are no longer 
offering the Replaced Portfolios as investment options under new 
insurance contracts, and these Portfolios are unlikely to attract other 
insurance companies to utilize them as funding vehicles for variable 
products and therefore are unlikely to grow in the future.
    16. Applicants represent that as of December 31, 1999, the total 
net assets of the portfolios were as follows (in millions):

------------------------------------------------------------------------
                                                               Total net
                                                                 assets
------------------------------------------------------------------------
Replaced Portfolio:
  Conservative Investors Portfolio...........................        $31
  Growth Investors Portfolio.................................         19
  Multi-Market Portfolio.....................................         44
Substitute Portfolio:
  Total Return Portfolio.....................................         75
  Money Market Portfolio.....................................        136
  Money Fund.................................................        201
------------------------------------------------------------------------

    17. Applicants represent that, for the fiscal year ended December 
31, 1999, the portfolios' expenses were as follows:

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                                                                                    Fee waivers
       Replaced portfolio          Advisory fees       Other           Total          and/or       Net expenses
                                                     expenses        expenses     reimbursements
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Conservative Investors Portfolio            0.75            0.42            1.17            0.22            0.95
Growth Portfolio................            0.75            0.72            1.47            0.52            0.95
Multi-Market Portfolio..........            0.55            2.10            2.65            1.70            0.95
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----------------------------------------------------------------------------------------------------------------
                                                                                    Fee waivers
      Substitute portfolio         Advisory fees       Other           Total          and/or       Net expenses
                                                     expenses        expenses     reimbursements
----------------------------------------------------------------------------------------------------------------
Total Return Portfolio..........            0.63            0.24            0.86            0.00            0.86
Money Market Portfolio..........            0.50            0.14            0.64            0.00            0.64
Money Fund......................            0.45            0.03            0.48            0.00            0.48
----------------------------------------------------------------------------------------------------------------

    18. Applicants represent that Alliance has agreed to cap expenses 
for each AVP Substitute Portfolio for one year from the date of the 
substitutions at a level equal to the percentage expense level 
experienced by its corresponding Replaced Portfolio for the most recent 
fiscal year prior to the substitutions. To the extent that the expenses 
of any Substitute Portfolio exceed the 1999 expense level of a Replaced 
portfolio for each fiscal period that is no longer than a fiscal 
quarter during the one-year period following the substitutions, the 
applicable Insurance Company Applicant(s) will undertake to limit 
separate account expenses such that, with respect to each contractowner 
affected by the substitutions, the amount of the relevant surviving 
portfolio's operating expenses, together with its corresponding 
separate account's expenses, on an annualized basis, will be no greater 
than the sum of the corresponding Substitute Portfolio's expenses, 
together with its separate account's expenses, for the most recent 
fiscal year prior to the substitutions. Furthermore, the Insurance 
Company Applicants undertake not to increase account or contract 
expenses for each contractowner affected by the substitutions for a 
period of one year from the date of the substitutions.
    19. The Insurance Company Applicants represent that owners of the 
Contracts that invest in the Replaced Portfolios (``C&G 
Contractowners'' and ``MM Contractowners,'' as appropriate) were sent 
notice, which disclosed the proposed substitutions, in the form of an 
amendment to the prospectuses of the relevant Separate Accounts. Within 
five days after the substitutions, each Insurance Company Applicant 
will send to its C&G Contractowners and MM Contractowners a second 
notice of the proposed substitutions (``Second Notice'') that will 
indicate that shares of the Replaced Portfolios have been eliminated 
and that shares of the Substitute Portfolios, as applicable, have been 
substituted. To the extent required, each Insurance Company Applicant 
will include in such mailing a supplement to the prospectus of AVP that 
discloses the completion of the substitutions.
    20. Applicants represent that C&G Contractowners and MM 
Contractowners will be advised in each Second Notice that they may 
transfer the value of their Contracts allocable to the Substitute 
Portfolios to any other available Separate Accounts or Divisions 
investing in the other AVP Portfolios or other investment options 
unrelated to AVP, without limitation, within sixty days after the date 
of the Second Notice free of charge. A copy of the current prospectus 
of each relevant Substitute Portfolio will be delivered to each 
Contractowner to whom such current prospectus has not already been 
delivered. The C&G Substitution and/or the MM Substitution will not be 
counted as a transfer under any contractual provisions of the contracts 
that limit allowable transfers.
    21. Applicants represent that following the C&G and MM 
Substitutions, the C&G and MM Contractowners will be afforded the same 
contract rights that they currently have, including surrender and other 
transfer rights with regard to amounts invested under the Contracts. 
The C&G Substitution and the MM Substitution will have no adverse 
federal income tax consequences for C&G and MM Contractowners. In 
addition, the C&G Substitution and the MM Substitution will in no way 
alter the insurance benefits to C&G and MM Contractowners or the 
contractual obligations of AIG, American and/or ReliaStar.
    22. Applicants represent that the proposed substitutions will take 
place at relative net asset value with no increase or decrease in the 
amount of policy value for any C&G or MM Contractowner. In addition, 
the substitutions will not result in any additional fees for C&G or MM 
Contractowners, nor will current charges be increased. Applicants also 
represent that the costs of the C&G Substitution and the MM 
Substitution, including any additional brokerage costs or expenses, 
will not be borne directly or indirectly by the C&G Contractowners or 
MM Contractowners.
    23. Applicants anticipate that the relevant Separate Accounts will 
redeem, partly for cash and partly for securities as a redemption in-
kind, all shares of the Conservative Investors Portfolio and the Growth 
Investors Portfolio attributable to C&G Contractowners at the close of 
business on the date

[[Page 77402]]

selected for the substitutions. Applicants represent that the 
Conservative Investors Portfolio and the Growth Investors Portfolio 
will effect the redemptions in-kind to the extent that the securities 
paid on redemption to the relevant Separate Accounts have 
characteristics that are consistent with the investment objective and 
diversification requirements applicable to the Total Return Portfolio. 
Applicants further represent that the in-kind redemptions and purchases 
will be effected pursuant to AVP's procedures for valuing portfolio 
securities and that portfolio securities of the Substitute and Replaced 
Portfolios will be valued consistently.

Applicant's Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to Section 26(b) of the 1940 Act permitting the Separate Accounts (a) 
to substitute shares of the Total Return Portfolio for shares of the 
Conservative Investors Portfolio and the Growth Investors Portfolio 
held by Separate Accounts, and (b) to substitute shares of the Money 
Market Portfolio or the Money Fund, as applicable, for shares of the 
Multi-Market Portfolio held by the Separate Accounts.
    2. Section 26(b) of the 1940 Act requires the depositor of a 
registered unit investment trust holding the securities of a single 
issuer to receive Commission approval before substituting the 
securities held by the trust. Section 26(b) also states that the 
Commission shall issue an order approving such 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 1940 Act.
    3. Applicants represent that AIG and American believe that the C&G 
Substitution is consistent with the interests of its Contractowners 
because, although they follow different asset allocation models, there 
are substantial similarities between the types of investments made by 
the Conservative Investors Portfolio, the Growth Investors Portfolio 
and the Total Return Portfolio. Furthermore, Applicants argue that the 
C&G substitution is expected to confer economic benefits on the C&G 
Contractowners because the Conservative Investors Portfolio's and the 
Growth Investors Portfolio's expenses and net redemptions are expected 
to make it increasingly difficult for those Portfolios to achieve 
competitive results, because operation of the consolidated C&G 
Substitution Affected Portfolios (i.e., the Return Portfolio going 
forward) will result in economies of scale and reduced operating 
expenses as a result of lower management fees paid by the Total Return 
Portfolio, and because the size of the Total Return Portfolio suggests 
that the Total Return Portfolio will offer a more favorable opportunity 
for achieving a substantially similar investment objective while 
bearing lower expenses than each of the Conservative Investors 
Portfolio and the Growth Investors Portfolio has borne.
    4. Applicants also argue that the MM Substitution is expected to 
confer economic benefits on the MM Contractowners because the Multi-
Market Portfolio's expenses and net redemptions are expected to make it 
increasingly difficult for that Portfolio to achieve competitive 
results, because operation of the consolidated MM Substitution Affected 
Portfolios (i.e., the Money Market Portfolio and Oppenheimer Money Fund 
going forward) will result in economies of scale and reduced operating 
expenses as a result of lower management fees paid by the Money Market 
Portfolio and the Oppenheimer Money Fund, and because the size of the 
Money Market Portfolio and the Oppenheimer Money Fund, their 
competitive returns and their historically higher total returns suggest 
that each of the Money Market Portfolio and the Oppenheimer Money Fund 
will offer a more favorable long-term opportunity for achieving a 
substantially similar investment objective while bearing lower expenses 
than the Multi-Market Portfolio has borne.
    5. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or an affiliate of such affiliated 
person, from selling any security or other property to such registered 
investment company. Section 17(a)(2) of the 1940 Act prohibits any 
affiliated person from purchasing any security or other property from 
such registered investment company.
    6. AIG, Variable Account I, American, Variable Account A, and AVP 
(collectively, the ``Section 17 Applicants'') request an order of the 
Commission pursuant to Section 17(b) of the 1940 Act exempting them 
from the provisions of Section 17(a) of the 1940 Act. Section 17(b) of 
the 1940 Act provided that the Commission may grant an order exempting 
a proposed transaction from Section 17(a) of the 1940 Act if evidence 
establishes that: (a) The terms of the proposed transaction, including 
the consideration to be paid or received, 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. The Section 17 Applicants assert that the terms of the C&G 
Substitution, including the consideration to be paid or received in 
connection with such Substitution, meet all of the requirements of 
Section 17(b). First, the Section 17 Applicants contend that the terms 
of the C&G Substitution are reasonable and fair and do not involve 
overreaching on the part of any person concerned. The Section 17 
Applicants represent that the C&G Substitution will be effected 
pursuant to AVP's procedures for valuing portfolio securities and that 
portfolio securities of the Affected Portfolios are and will be valued 
in a consistent manner. Consequently, the Sections 17 Applicants assert 
that there will be no overreaching because all securities redeemed in-
kind and used to purchase shares of the Total Return Portfolio will be 
consistently valued for all purposes. Second, the C&G Substitution as 
proposed is consistent with the investment policies of the C&G 
Substitution Affected Portfolios because the securities received by the 
relevant Separate Account from the Conservative Investors Portfolio and 
the Growth Investors Portfolio from redemptions in-kind will be 
selected by Alliance to correspond to the investment policies of the 
Total Return Portfolio. Third, the C&G Substitution is consistent with 
the general purposes of the 1940 Act because it will provide the C&G 
Contractowners with economic and other benefits.

Conclusion

    Applicants submit that, for all the reasons stated above, the 
exemptive relief requested pursuant to Section 26(b) of the 1940 Act is 
necessary and appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policies and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31445 Filed 12-8-00; 8:45 am]
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