[Federal Register Volume 61, Number 57 (Friday, March 22, 1996)]
[Notices]
[Pages 11906-11910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6969]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21827; File No. 812-9902]
Connecticut Mutual Life Insurance Company, et al.
March 15, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Connecticut Mutual Life Insurance Company (``CML''), C.M.
Life Insurance Company (``C.M. Life''), CML Accumulation Annuity
Account E (``Account E''), Panorama Separate Account (``Panorama
Account''), Connecticut Mutual Variable Life Separate Account I (``CML
VLI Account''), Panorama Plus Separate Account (``Plus Account'') and
C.M. Life Variable Life Separate Account I (``C.M. Life VLI Account'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b)
of the 1940 Act approving the proposed substitution of securities and
pursuant to Section 17(b) of the 1940 Act exempting the proposed
transaction from the provisions of Section 17(a) of the 1940 Act.
SUMMARY OF THE APPLICATION: Applicants seek an order approving the
substitution of securities issued by certain management investment
companies and held by Account E, Panorama Account, CML VLI Account,
Plus Account and C.M. Life VLI Account (collectively, the ``Accounts,''
and individually, an ``Account'') to support variable life insurance
contracts and/or variable annuity contracts (collectively, the
``Contracts'') issued by CML or C.M. Life. Applicants also seek an
order exempting them and Massachusetts Mutual Life Insurance Company
(``MassMutual''), Connecticut Mutual Financial Services Series Fund I,
Inc. (``CMFS Series Fund''), and Oppenheimer Variable Account Funds
(``Oppenheimer Series Fund'') (together, the ``Funds,'' and
individually, a ``Fund'') from Section 17(a) of the 1940 Act to the
extent necessary to permit C.M. Life and either CML or MassMutual to
carry out the above referenced substitution of securities by redeeming
securities issued by CMFS Series Fund in kind (or partly in kind) and
using the redemption proceeds to purchase securities issued by
Oppenheimer Series Fund.
FILING DATE: December 18, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be
[[Page 11907]]
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
April 9, 1996, 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 requester'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, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, Richard M. Howe, Esq., Second Vice President and
Associate General Counsel, Massachusetts Mutual Life Insurance Company,
1295 State Street, Springfield, Massachusetts 01111; Michael A. Chong,
Esq., and Bernard S. Carrey, Esq., Connecticut Mutual Life Insurance
company, 140 Garden Street, Hartford, Connecticut 06154.
FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Wendy Finck Friedlander, Deputy 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. CML, a mutual life insurance company, is principally engaged in
the offering of life insurance, annuity and disability income contracts
and is authorized to conduct business in all 50 states, the District of
Columbia and Puerto Rico. CML is the depositor and sponsor of Account
E. Panorama Account and CML VLI Account.
2. C.M. Life, a stock life insurance company and wholly-owned
subsidiary of CML, is principally engaged in the sale of life insurance
and annuity contracts. It is authorized to conduct business in all
states except New York. C.M. Life is the depositor and sponsor of Plus
Account and C.M. Life VLI Account.
3. MassMutual, a mutual life insurance company, is currently
licensed to transact life, accident, and health insurance business in
all states, the District of Columbia and certain provinces of Canada.
MassMutual is the depositor and sponsor of a number of variable life
insurance and variable annuity separate accounts registered as
investment companies.
4. Each of the Accounts is registered under the 1940 Act as a unit
investment trust. The assets of each Account support either variable
annuity contracts or variable life insurance contracts. Interests in
each of the Accounts offered through such Contracts have been
registered under the Securities Act of 1933 (the ``1933 Act'') on
either Form S-6 or Form N-4.
5. Account E invests exclusively in shares of the Income Portfolio
of CMFS Series Fund. CML has not sold Contracts offered through Account
E since February, 1982.
6. The Panorama Account is divided into eight subaccounts: four
holding assets supporting Contracts issued in connection with employee
benefit plans or retirement programs receiving favorable treatment
under the Internal Revenue Code of 1986, as amended, and four holding
assets supporting Contracts issued to the general public. Two
subaccounts invest exclusively in shares of each of the following
investment portfolios of CMFS Series Fund: Money Market Portfolio,
Income Portfolio, Total Return Portfolio and Growth Portfolio.
7. The CML VLI Account is currently divided into seven subaccounts,
four of which invest exclusively in shares of one of the following
investment portfolios of CMFS Series Fund: Income Portfolio, Total
Return Portfolio, Growth Portfolio and Government Securities Portfolio.
The other three subaccounts each invest in shares of open-end
management investment companies that are not affiliated persons of CML
or MassMutual.
8. The Plus Account is currently divided into six subaccounts, each
of which invests in shares of one of the following investment
portfolios of CMFS Series Fund: Money Market Portfolio, Income
Portfolio, Total Return Portfolio, Growth Portfolio, Government
Securities Portfolio and International Equity Portfolio.
9. The C.M. Life VLI Account is currently divided into eleven
subaccounts, eight of which invest exclusively in shares of one of the
following investment portfolios of the CMFS Series Fund: Government
Securities Portfolio, Income Portfolio, Total Return Portfolio, Growth
Portfolio, International Equity Portfolio, LifeSpan Capital
Appreciation Portfolio, LifeSpan Balanced Portfolio and LifeSpan
Diversified Portfolio. The remaining three subaccounts each invest in
shares of open-end management investment companies that are not
affiliated persons of CML or MassMutual.
10. The CMFS Series Fund was organized as a Maryland corporation on
August 17, 1981 and is registered under the 1940 Act as an open-end
management investment company. CMFS Series Fund is a series investment
company as defined by Rule 18f-2 under the 1940 Act and is currently
comprised of nine investment portfolios: Money Market Portfolio,
Government Securities Portfolio, Income Portfolio, Total Return
Portfolio, Growth Portfolio, International Equity Portfolio, LifeSpan
Capital Appreciation Portfolio, LifeSpan Balanced Portfolio and
LifeSpan Diversified Portfolio. CMFS Series Fund issues a separate
series of shares in connection with each portfolio and has registered
these shares under the 1933 Act on Form N-1A. G.R. Phelps & Co., Inc.,
a wholly-owned subsidiary of CML, is the investment adviser to CMFS
Series Fund.
11. The Money Market Portfolio seeks as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity by investing in money market instruments. The Government
Securities Portfolio seeks a high level of current income with a high
degree of safety of principal by investing primarily in U.S. Government
securities and U.S. Government-related securities. The Income Portfolio
seeks high current income consistent with prudent investment risk and
preservation of capital by investing primarily in corporate debt
securities and securities issued by the U.S. Government and by U.S.
Government agencies and instrumentalities.
12. Oppenheimer Series Fund was organized as a Massachusetts
business trust on August 28, 1984 and is registered under the 1940 Act
as an open-end management investment company. Oppenheimer Series Fund
is a series investment company as defined by Rule 18f-2 under the 1940
Act and is currently comprised of nine investment portfolios:
Oppenheimer Money Fund, Oppenheimer High Income Fund, Oppenheimer Bond
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund,
Oppenheimer Multiple Strategies Fund, Oppenheimer Growth & Income Fund,
Oppenheimer Global Securities Fund and Oppenheimer Strategic Bond Fund.
Oppenheimer Series Fund issues a separate series of shares of
beneficial interest in connection with each portfolio and has
registered these shares under the 1933 Act on Form N-1A. Oppenheimer
Management Corporation, a subsidiary of MassMutual, is the investment
adviser of Oppenheimer Series Fund.
[[Page 11908]]
13. The Oppenheimer Money Fund seeks the maximum current income
from investments in ``money market'' securities consistent with low
capital risk and the maintenance of liquidity. The Oppenheimer Bond
Fund seeks a high level of current income from investments in high-
yield, fixed-income securities rated ``Baa'' or better by Moody's or
``BBB'' or better by Standard & Poor's. As a secondary investment
objective, the Oppenheimer Bond Fund seeks capital growth when
consistent with its primary objective.
14. The Contracts income a variety of variable life insurance and
variable annuity contracts issued by CML and C.M. Life. Applicants
state that although considerable variation exists among the provisions
of the various Contracts, all of the Contracts (except those issued
through Account E which provides only one investment option) permit,
subject to certain limitations, at least 4 transfers per Contract year
of cash value among and between the subaccounts available as investment
options without the imposition of a transfer charge. All of the
Contracts that permit transfers of cash values among and between
subaccounts reserve for CML or C.M. Life the right to eliminate or
further restrict transfer privileges.
15. In order to achieve certain business purposes, CML and
MassMutual signed a merger agreement dated September 13, 1995, pursuant
to which CML would merge with and into MassMutual, leaving MassMutual
as the surviving company. The merger agreement provided, among other
things, that C.M. Life would become a wholly-owned subsidiary of
MassMutual but that the Plus Account and C.M. Life VLI Account would
remain intact and unchanged by the merger and that C.M. Life would
remain the depositor of each.
16. The merger agreement also provided that the merger would
operate to transfer the CML separate accounts, including Account E, the
Panorama Account and the CML VLI Account (the ``CML Accounts''), to
MassMutual. MassMutual would then be the legal owner of the assets of
the CML Accounts and thereby become the depositor of each. Applicants
state that the merger agreement did not provide for the merger or
consolidation of the CML Accounts with any other separate account of
CML or MassMutual in connection with the merger. Except as contemplated
by the proposed substitution, the merger agreement provided that the
CML Accounts would continue to maintain the subaccounts that currently
comprise each of the CML Accounts, and would continue to hold in each
such subaccount shares of the same management investment company that
each currently holds. The merger agreement also provided that no
charges would be imposed upon owners of Contracts or other deductions
made in connection with the transfer of the CML Accounts to MassMutual
nor would such transfers affect the net asset value of any subaccount
of the CML Accounts.
17. Applicants state that, in an effort to reduce expenses, the
management of CML and MassMutual are seeking to consolidate the assets
of a number of smaller management investment companies which are
advised by affiliated persons of CML with those of larger management
investment companies having substantially identical or very similar
investment objectives advised by MassMutual or affiliated persons of
MassMutual. Applicants state that the Money Market Portfolio,
Government Securities Portfolio and Income Portfolio of CMFS Series
Fund are relatively small when compared with many other similar
investment portfolios of open-end management investment companies. As a
result, the annual expense ratios of these portfolios have generally
been higher than the ratios of most similar but larger portfolios.
Applicants also state that although the past performance of these three
portfolios has not been poor in recent years, neither has it been
outstanding for any of them. The Money Fund an Bond Fund of Oppenheimer
Series Fund are somewhat larger than their counterparts among the three
portfolios of CMFS Series Fund.
18. By supplements to the various prospectuses for the Contracts
and the Accounts, all current and prospective Contract owners were
notified of the intent of CML, C.M. Life and MassMutual to substitute
shares of Oppenheimer Money Fund and Oppenheimer Bond Fund (the
``substitute funds'') for those of the Money Market Portfolio,
Government Securities Portfolio and Income Portfolio (the ``removed
funds'') of CMFS Series Fund. The supplements advise current and
prospective Contract owners that they will remain able to allocate net
purchase payments to or transfer cash values to the subaccounts of the
Accounts corresponding to each of the removed funds until the
consummation of the merger but that sometime after the merger, the
substitute funds will replace the removed funds as the underlying
investment for such subaccounts. The supplements further apprise
current and prospective Contract owners that from the date of the
supplements until the date of the proposed substitution, Contract
owners will be permitted to make one transfer of all cash value under a
Contract invested in any one of the affected subaccounts on the date of
the supplement to another subaccount other than one of the other
affected subaccounts without that transfer counting as one of a limited
number of transfers permitted in a Contract year or as one of a limited
number of transfers permitted in a Contract year free of charge. In
addition, the supplements inform current and prospective Contract
owners that CML, C.M. Life and MassMutual will not exercise any rights
reserved by CML or C.M. Life under any of the Contracts to impose
additional restrictions on transfers (or discontinue transfer
privileges entirely) until at least 30 days after the proposed
substitution.
The Proposed Substitution
1. Applicants propose that C.M. Life and either CML or MassMutual
substitute (1) shares of the Money Fund of Oppenheimer Series Fund for
shares of the Money Market Portfolio of CMFS Series Fund held by
corresponding subaccounts of the Accounts, (2) shares of the Bond Fund
of Oppenheimer Series Fund for shares of the Government Securities
Portfolio of CMFS Series Fund held by corresponding subaccounts of the
Accounts, and (3) shares of the Bond Fund of Oppenheimer Series Fund
for shares of the Income Portfolio of CMFS Series Fund held by
corresponding subaccounts of the Accounts. Applicants propose to have
C.M. Life and either CML or MassMutual redeem shares of each removed
fund in kind (or partly in kind) and purchase with the proceeds shares
of the corresponding substitute fund.
2. Applicants state that the proposed substitutions will take place
at relative net asset value with no change in the amount of any
Contract owner's cash value or death benefit or in the dollar value of
his or her investment in any of the Accounts. Contract owners will not
incur any fees or charges as a result of the proposed substitutions nor
will their rights or MassMutual's or C.M. Life's obligations under the
Contracts be altered in any way. Applicants state that all expenses
incurred in connection with the proposed substitutions, including
legal, accounting and other fees and expenses, will be paid by CML or
MassMutual. Applicants also state that the proposed substitutions will
not impose any tax liability on Contract owners. Furthermore, the
proposed substitutions will not cause the Contract fees and charges
currently being paid by existing Contract owners to be greater
[[Page 11909]]
after the proposed substitutions than before the proposed
substitutions.
3. Applicants state that in addition to the prospectus supplements
distributed to current and prospective Contract owners, within 5 days
after the proposed substitutions, any Contract owners who were affected
by the substitutions will be sent a written notice informing them that
the substitutions carried out and that they may make one transfer of
all cash value under a Contract invested in any one of the affected
subaccounts on the date of the notice to another subaccount without
that transfer counting as one of a limited number of transfers
permitted in a Contract year or as one of a limited number of transfers
permitted in a Contract year free of charge.
4. Applicants state that CML and MassMutual are also seeking
approval of the proposed substitutions from the Massachusetts Insurance
Department and such other state insurance regulators as may be
necessary or appropriate.
Applicants' Legal Analysis
Request for an Order Under Section 26(b)
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.'' 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 shareholders dissatisfied with the substituted
security to redeem their shares, thereby incurring either a loss of the
sales load deducted from initial proceeds, an additional sales 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 shares of one issuer from
substituting for those shares the shares of another issuer, unless the
Commission approves that substitution.
2. Applicants represent that the proposed substitutions are
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act. Applicants
assert that, after the proposed substitutions, the substitute funds
will provide Contract owners with more favorable or comparable overall
investment results than would be the case if the proposed substitutions
do not take place. In support of this, Applicants state that the
proposed substitutions would effectively consolidate the assets of the
substitute funds with those of the removed funds resulting, in most
cases, in a larger fund with lower anticipated future expense ratios
than the past expense ratios of the removed fund. Each of the three
substitute funds is larger (and after it receives the assets of the
removed fund(s) will be substantially larger) than the removed fund
that it would replace. The Money Fund of Oppenheimer Series Fund has
had more favorable expense ratios over the last three years than the
Money Market Portfolio of CMFS Series Fund. The Bond Fund has had more
favorable expense ratios over the last three years than the Government
Securities Portfolio of CMFS Series Fund. The Bond Fund has had only
somewhat less favorable expense ratios over the last three years than
the Income Portfolio of CMFS Series Fund. Applicants also state that
each of the substitute funds has had somewhat more favorable investment
performance over the past three years than the removed fund that it
would replace.
3. Applicants also maintain that each of the substitute funds is a
suitable and appropriate investment vehicle for Contract owners. Except
for the proposed substitution of shares of the Bond Fund of Oppenheimer
Series Fund for those of CMFS Series Fund Government Securities
Portfolio, each of the substitute funds has substantially identical
investment objectives to the removed fund that it would replace. The
Bond Fund has investment objectives that are similar to and compatible
with those of the Government Securities Portfolio.
Request for an Order Under Section 17(b)
1. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
of a registered investment company, or an affiliated person of an
affiliated 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 of such affiliated persons, acting as
principal, from purchasing any security or other property from such
registered investment company.
2. The proposed substitution may be deemed to entail one or more
purchases or sales of securities between and among affiliated persons
as a result of the purchase by the subaccounts of the Accounts of
shares of the Money Fund and Bond Fund of the Oppenheimer Series Fund
with proceeds from the redemption of shares in kind (or partly in kind)
of the Money Market Portfolio, Government Securities Portfolio and
Income Portfolio of the CMFS Series Fund. Applicants state that the
proposed substitutions could come within the scope of Section 17(a) of
the 1940 Act. In addition, the proposed substitution would not be
exempt from Section 17 of the 1940 Act pursuant to Rule 17a-7
thereunder because (1) the affiliations among the Accounts, the
Oppenheimer Series Fund and the CMFS Series Fund do not arise solely by
reason of having common investment advisers, common directors, and/or
common officers, and (2) the transaction will not satisfy the condition
in Rule 17a-7 which requires that the transaction be a purchase or sale
for no consideration other than cash payment against prompt delivery or
a security for which market quotations are readily available. The
proposed purchase of Oppenheimer Series Funds shares with portfolio
investment securities entails the purchase and sale of securities for
securities. Therefore, the proposed substitution requires an exemption
from Section 17(a) of the 1940 Act, pursuant to Section 17(b) of the
1940 Act.
3. Section 17(b) of the 1940 Act provides that the Commission may
grant an order exempting the transactions prohibited by Section 17(a)
upon application if evidence establishes that: (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 investment 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 purposes of the 1940 Act.
4. Applicants assert that the terms of the proposed transaction are
reasonable and fair and do not involve overreaching. The boards of
directors of both CMFS Series Fund and Oppenheimer Series Fund have
adopted procedures pursuant to which each of the Funds may purchase and
sell securities to and from its affiliates. Applicants also state the
proposed substitutions will be carried out in conformity with all of
the requirements of Rule 17a-7 and each Fund's procedures thereunder,
except that the consideration paid for the securities being purchased
or sold may not be entirely cash. Applicants state that although the
transaction may not be
[[Page 11910]]
entirely for cash, each will be effected based upon (1) the independent
market price of the portfolio securities valued as specified in
paragraph (b) of Rule 17a-7, and (2) the net asset value per share of
Oppenheimer Series Fund's Money Fund or Bond Fund or CMFS Series Fund's
Money Market Portfolio, Income Portfolio or Government Securities
Portfolio valued in accordance with the procedures disclosed in the
respective Fund's registration statement and as required by Rule 22c-1
under the 1940 Act. Applicants state that no brokerage commission, fee
or other remuneration will be paid to any party in connection with the
proposed transaction. In addition, the boards of directors of both
Funds will subsequently review the proposed substitutions and make the
determinations required by paragraph (e)(3) of Rule 17a-7.
5. Applicants also assert that the proposed transaction is
consistent with the investment policy of each investment company
concerned. Applicants state the proposed redemption of CMFS Series Fund
shares is consistent with the investment policy of the Fund and its
Money Market Portfolio, Income Portfolio and Government Securities
Portfolio, as recited in the Fund's registration statement, provided
that the shares are redeemed at their net asset value in conformity
with Rule 22c-1 under the 1940 Act. In addition, the sale of
Oppenheimer Series Funds shares for investment securities is consistent
with the investment policy of the Fund and its Money Fund and Board
Fund as recited in the Fund's registration statement, provided that (1)
the shares are sold at their net asset value, and (2) the portfolio
securities are of the type and quality that the Money Fund and Bond
Fund each would have acquired with the proceeds from share sales had
the shares been sold for cash. Applicants state that to assure that the
second of these conditions is met, the Oppenheimer Series Fund's
investment adviser will examine the portfolio securities being offered
to that Fund and accept only those securities as consideration for
shares that it would have acquired for the Money Fund or the Bond Fund,
as the case may be, in a cash transaction.
6. Applicants maintain that the proposed transaction is consistent
with the general purposes of the Act. Applicants state the proposed
transaction does not present any of the conditions or abuses that the
1940 Act was designed to prevent.
Applicants' Conclusion
For the reasons discussed above, Applicants represent that the
terms of the proposed substitution, including the consideration to be
paid and received, are reasonable and fair to: (1) Oppenheimer Series
Fund, including its Money Fund and Bond Fund, (2) investors in the
Money Fund and Bond Fund, (3) CMFS Series Fund, including its Money
Market Portfolio, Income Portfolio and Government Securities Portfolio,
and (4) Contract owners invested in the Money Market Portfolio, Income
Portfolio and Government Securities Portfolio; and do not involve
overreaching on the part of any person concerned. Furthermore,
Applicants represent that the proposed substitutions will be consistent
with the policies of Oppenheimer Series Fund and of its Money Fund and
Bond Fund and with the policies of CMFS Series Fund and its Money
Market Portfolio, Income Portfolio and Government Securities Portfolio
as stated in the current registration statement and reports filed under
the 1940 Act by each Fund and with the general purposes of the 1940
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6969 Filed 3-21-96; 8:45am]
BILLING CODE 8010-01-M
