83 FR 62924 - American Fidelity Assurance Company, et al.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 234 (December 6, 2018)

Page Range		62924-62928
FR Document		2018-26384
Federal Register, Volume 83 Issue 234 (Thursday, December 6, 2018)
[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62924-62928]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26384]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33309; File No. 812-14822]


American Fidelity Assurance Company, et al.

November 29, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an order approving the substitution of 
certain securities pursuant to section 26(c) of the Investment Company 
Act of 1940, as amended (the ``1940 Act'').

APPLICANTS: American Fidelity Assurance Company (the ``Insurance 
Company''), American Fidelity Separate Account B and American Fidelity 
Separate Account C (each, a ``Separate Account'' and together, the 
``Separate Accounts''). Together, the Insurance Company and the 
Separate Accounts are referred to as the ``Applicants.''

SUMMARY OF APPLICATION: Applicants seek an order pursuant to section 
26(c) of the 1940 Act approving the substitution of shares of American 
Funds IS Blue Chip Income and Growth Fund (the ``American Funds Blue 
Chip Fund'') and Dreyfus VIF Opportunistic Small Cap Portfolio (the 
``Dreyfus Small Cap Fund,'' and together with the American Funds Blue 
Chip Fund, the ``Replacement Funds''), respectively, for shares of 
BlackRock Basic Value V.I. Fund (the ``BlackRock Basic Value Fund''), 
and BlackRock Advantage U.S. Total Market V.I. Fund (the ``BlackRock 
Total Market Fund,'' and together with the BlackRock Basic Value Fund, 
the ``Existing Funds''), respectively, held by the Separate Accounts 
(the ``Substitution''), to support the Separate Accounts' variable 
annuity contracts (each, a ``Contract'' and collectively, the 
``Contracts'') that are issued by the Insurance Company.

FILING DATES: The application was filed on September 26, 2017, and 
amended

[[Page 62925]]

on January 31, 2018, March 8, 2018, August 10, 2018 and November 7, 
2018.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Secretary of 
the Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on December 24, 2018, and should be accompanied 
by proof of service on Applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Pursuant to rule 0-5 under the 1940 
Act, hearing requests should state the nature of the writer's interest, 
any facts bearing upon the desirability of a hearing on the matter, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090; Applicants: Christopher T. 
Kenney, General Counsel, American Fidelity Assurance Company, P.O. Box 
73125, Oklahoma City, OK 73125-0523.

FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, or 
Andrea Ottomanelli Magovern, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or an Applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Insurance Company is a stock life insurance company 
incorporated under the laws of Oklahoma. The Insurance Company is a 
wholly-owned subsidiary of American Fidelity Corporation, which is a 
Nevada corporation that is controlled by a family investment 
partnership. The Insurance Company is the depositor of the Separate 
Accounts.
    2. Each of the Separate Accounts is a segregated asset account of 
the Insurance Company, and each Separate Account is registered with the 
Commission under the 1940 Act as a unit investment trust. The Separate 
Accounts are used by the Insurance Company to issue the Contracts. The 
Separate Accounts meet the definition of ``separate account'' contained 
in Section 2(a)(37) of the 1940 Act. The assets of the Separate 
Accounts are held in the Insurance Company's name on behalf of the 
Separate Accounts and legally belong to the Insurance Company.
    3. The Insurance Company established Separate Account B to hold the 
assets that underlie the AFAdvantage[supreg] Variable Annuity 
contracts, and established Separate Account C to hold the assets that 
underlie the AFMaxx[supreg] 457(b) Group Variable Annuity contracts. 
Separate Account B offers individual contracts, and Separate Account C 
offers group contracts. Separate Accounts B and C are divided into 12 
sub-accounts, and each sub-account invests in the securities of a 
single underlying mutual fund.
    4. Interests under the Contracts are registered under the 
Securities Act of 1933 (the ``1933 Act''). The prospectus for each of 
the Contracts contains a provision reserving the Insurance Company's 
right to substitute another eligible investment option for any one of 
the portfolios available under the Contract.\1\ Each Contract permits 
each contract owner or participant in a group account (each, a 
``Contract Owner'') to transfer Contract value from one subaccount to 
another subaccount available under the Contract at any time, subject to 
certain restrictions and charges described in the prospectuses for the 
Contracts. None of the Contract restrictions, limitations or transfer 
fees will apply in connection with the Substitution. The application 
sets forth the registration statement file numbers for the Contracts 
and the Separate Accounts.
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    \1\ The Replacement Funds were not investment options in the 
Separate Accounts as of the date of the original application; 
however, the Insurance Company added the Dreyfus Small Cap Fund as 
an investment option in each Separate Account on July 31, 2017 and 
added the American Funds Blue Chip Fund as an investment option in 
each Separate Account as of May 1, 2018.
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    5. The Applicants propose to substitute shares of each of the 
Replacement Funds for shares of the corresponding Existing Fund held by 
the Separate Accounts. The investment adviser for the American Funds 
Blue Chip Fund is Capital Research and Management Company. The 
investment adviser for the Dreyfus VIF Small Cap Fund is the Dreyfus 
Corporation. The Replacement Funds are advised by registered investment 
advisers that are not affiliates of the Applicants. Comparisons of the 
investment objectives, investment strategies, principal risks and past 
performance of the Existing Funds and Replacement Funds are included in 
the application.
    6. Applicants state that they are seeking the Substitution because 
the BlackRock Total Market Fund (f/k/a BlackRock Value Opportunities 
V.I. Fund (the ``BlackRock Value Opportunities Fund'')) made material 
changes to its investment objectives and policies effective in June 
2017. Due to the changes to its investment objectives, the fund is no 
longer categorized as a small cap fund. Additionally, the fund's entire 
portfolio management team was replaced with a new team that has a new 
investment process. As a result of these changes, Separate Account 
investors who originally invested in the BlackRock Value Opportunities 
Fund are now invested in a fund with new investment objectives, a new 
management team and new investment processes. The Applicants are 
seeking the Substitution in order to replace BlackRock Total Market 
Fund with a fund that more closely resembles the original BlackRock 
Value Opportunities Fund in which the Separate Account participants 
originally chose to invest.
    7. The Applicants also are seeking the Substitution to replace 
shares of the BlackRock Basic Value Fund with shares of the American 
Funds Blue Chip Fund. Applicants have an ongoing relationship with 
American Funds, and the Separate Accounts currently offer another 
American Funds product in their portfolio line-up. Applicants prefer to 
build on their existing relationship with American Funds by adding the 
American Funds Blue Chip Fund as the large cap investment option 
offered under the Contracts in place of the BlackRock Basic Value Fund.
    8. The Applicants have analyzed the proposed Substitution and have 
determined that the objectives and strategies of each of the 
Replacement Funds are substantially similar to the objectives and 
strategies of the corresponding Existing Fund, such that the essential 
objectives and risk expectations of those Contract Owners with 
interests in sub-accounts of the Existing Funds will continue to be met 
after the Substitution. Additionally, the total annual expenses of the 
American Funds Blue Chip Fund (0.41%) are less than those of the 
corresponding Existing Fund (0.84%); and the total annual expenses of 
the Dreyfus Small Cap Fund (0.86%) are less than those of the 
corresponding Existing Fund (1.01%). The Substitution of the American 
Funds Blue Chip Fund (0.41%) in place of the BlackRock Basic Value Fund 
(0.73%) will also result in a decreased net expense ratio. Due to 
expense waivers by the BlackRock Total Market Fund,

[[Page 62926]]

however, the Substitution of the Dreyfus Small Cap Fund (0.86%) in 
place of the BlackRock Total Market Fund (0.55% after June 12, 2017; 
0.92% before June 12, 2017) will not result in decreased net expense 
ratios. The application sets forth the fees and expenses of each 
Existing Fund and its corresponding Replacement Fund in greater detail.
    9. Applicants represent that as of the Substitution Date (defined 
below), the Separate Accounts will redeem shares of the Existing 
Portfolios for cash. Redemption requests and purchase orders will be 
placed simultaneously so that Contract values will remain fully 
invested at all times.
    10. Each Substitution will take place at the relative net asset 
values of the respective shares (in accordance with section 22(c) of 
the 1940 Act and rule 22c-1 thereunder) without the imposition of any 
transfer or similar charges by Applicants. The Substitution will be 
effected with no change in the amount or value of any Contract held by 
Contract Owners whose assets are allocated to the Replacement Funds as 
part of the Substitution (the ``Affected Contract Owners'').\2\
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    \2\ Applicants state that, because the Substitution will occur 
at relative net asset value, and the fees and charges under the 
Contracts will not change as a result of the Substitution, the 
benefits offered by the guarantees under the Contracts will be the 
same immediately before and after the Substitution. Applicants also 
state that what effect the Substitution may have on the value of the 
benefits offered by the Contract guarantees would depend, among 
other things, on the relative future performance of the Existing 
Funds and Replacement Funds, which Applicants cannot predict. 
Nevertheless, Applicants note that at the time of the Substitution, 
the Contracts will offer a comparable variety of investment options 
with as broad a range of risk/return characteristics.
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    11. The Substitution is designed to provide Contract Owners with 
the ability to continue their investment in a similar investment option 
without interruption and at no additional cost to them. In this regard, 
the Insurance Company has agreed to bear all expenses incurred in 
connection with the Substitution and related filings and notices, 
including legal, accounting, brokerage, and other fees and expenses. 
The Contract values of the Contract Owners impacted by the Substitution 
will not change on the date of the Substitution as a result of the 
Replacement Funds replacing the Existing Funds.
    12. The proposed Substitution will not cause the Contract fees and 
charges currently being paid by Contract Owners to be greater after the 
proposed Substitution than before the proposed Substitution. No 
brokerage commissions, fees or other remuneration will be paid by 
either the Existing Funds or the Replacement Funds or by Contract 
Owners in connection with the Substitution. The terms of the benefits 
available under the Contracts will not change as a result of the 
proposed Substitutions. The Substitution will not result in adverse tax 
consequences to Affected Contract Owners and will not alter any tax 
benefits associated with the Contracts and no tax liability will arise 
for the Affected Contract Owners as a result of the Substitution.
    13. At least 30 days prior to the Substitution Date, Contract 
Owners will be notified, via prospectus supplements, that Applicants 
received or expect to receive Commission approval of the proposed 
Substitution and of the anticipated date of implementation of the 
proposed Substitution (the ``Substitution Date'', and such supplements, 
the ``Pre-Substitution Notice''). Pre-Substitution Notices sent to 
Contract Owners will be filed with the Commission pursuant to rule 
497(e) under the 1933 Act. The Pre-Substitution Notice will advise 
Contract Owners that, for at least 30 days before the Substitution Date 
through at least 30 days after the Substitution Date, (i) Affected 
Contract Owners may make at least one transfer of Contract value from 
the subaccount investing in the respective Existing Fund (before the 
Substitution Date) or the corresponding Replacement Fund (after the 
Substitution Date) to any other available investment option under the 
Contract without charge, and (ii) that, except with respect to market 
timing/short-term trading, the Applicants will not exercise any right 
they may have under the Contracts to impose restrictions on transfers 
between subaccounts under the Contract,. In addition, Affected Contract 
Owners will receive a prospectus for the applicable Replacement Fund at 
least 30 days before the Substitution Date.
    14. In addition to the Pre-Substitution Notices distributed to the 
Contract Owners, within five business days of the Substitution Date, 
Affected Contract Owners will be sent a written confirmation that will 
include: (1) A confirmation that the Substitution was carried out as 
previously notified, (2) a notice reiterating the information set forth 
in the Pre-Substitution Notice, and (3) the values of the Contract 
Owner's positions in the Existing Fund before the Substitution and the 
Replacement Fund after the Substitution.

Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to section 26(c) of the 1940 Act approving the proposed Substitution. 
Section 26(c) of the 1940 Act prohibits any depositor or trustee of a 
registered unit investment trust that invests exclusively in the 
securities of a single issuer from substituting the securities of 
another issuer without the approval of the Commission. Section 26(c) 
provides that such approval shall be granted by order from the 
Commission if the evidence establishes that the substitution is 
consistent with the protection of investors and the purposes of the 
1940 Act.
    2. Applicants submit that the Substitution meets the standards set 
forth in section 26(c) and that, if implemented, the Substitution would 
not raise any of the concerns that Congress intended to address when 
the 1940 Act was amended to include this provision. Applicants state 
Substitution of the American Funds Blue Chip Fund in place of the 
BlackRock Basic Value Fund will result in decreased net expense ratios 
for investors in the BlackRock Basic Value Fund. Thus, the Substitution 
protects the Contract Owners who are invested in the BlackRock Basic 
Value Fund by providing a replacement fund that (1) is substantially 
similar to the Existing Fund, and (2) reduces net operating expenses.
    3. Applicants submit that, although the Substitution of the Dreyfus 
Small Cap Fund in place of the BlackRock Total Market Fund will not 
result in decreased net expense ratios because of expense waivers by 
the BlackRock Total Market Fund that were implemented as of June 12, 
2017 when the fund changed its investment strategy from a small cap 
strategy to an all cap strategy, the proposed Substitution will result 
in Contract Owners holding shares of a fund that has investment 
objectives and policies that are substantially similar to the 
corresponding Existing Fund, prior to the investment strategy changes. 
Therefore, the Substitution of the Dreyfus Small Cap Fund in place of 
the BlackRock Total Market Fund is consistent with the protection of 
Contract Owners and the purposes fairly intended by the policy and 
provisions of the 1940 Act and, thus, meets the standards necessary to 
support an order pursuant to Section 26(c) of the 1940 Act.
    4. The Insurance Company has reserved the right under the each of 
the Separate Account's Contracts to substitute shares of another 
underlying mutual fund for one of the current underlying mutual funds 
offered as an investment option under the Contracts. The Contract 
prospectuses disclose this right.

[[Page 62927]]

    5. Applicants submit that the Substitution will provide Contract 
Owners with a comparable investment vehicle which will not circumvent 
Contract Owner-initiated decisions and the Insurance Company's 
obligations under the Contracts, and will enable Contract Owners to 
continue to use the full range of applicable Contract features as they 
currently use them. The Substitution will have no impact on the 
Contract Owners' rights or privileges under the Contracts.
    6. Applicants submit that the proposed Substitution is not the type 
of costly forced redemption that section 26 was designed to prevent. 
The Contracts provide Contract Owners with investment discretion to 
allocate and reallocate their Contract values among the available sub-
accounts that invest in the underlying mutual fund investment options. 
Applicants submit that, after the proposed Substitution, ten investment 
options will be offered under the Separate Account Contracts, and as 
such, the likelihood of a Contract Owner being invested in an undesired 
underlying mutual fund is minimized because the Contract Owners are 
able to select from ten investment options that have a full range of 
investment objectives, investment strategies and managers. Applicants 
further state that the proposed Substitution is designed to provide 
Contract Owners with the foregoing benefits while enabling them to 
continue their investment in a similar investment option without 
interruption and at no additional cost to them.
    7. The proposed transactions will take place at relative net asset 
value in conformity with the requirements of section 22(c) of the 1940 
Act and rule 22c-1 thereunder without the imposition of any transfer or 
similar charges by the Applicants. The Substitution will be effected 
without change in the amount or value of any Contract held by the 
Affected Contract Owners. The Substitution will in no way alter the tax 
treatment of Affected Contract Owners in connection with their 
Contracts, and no tax liability will arise for Affected Contract Owners 
as a result of the Substitution. The Substitution will not result in an 
increase in Contract fees and expenses, including mortality and expense 
risk fees and administration and distribution fees charged by the 
Separate Accounts.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Substitution will not be effected unless the Insurance 
Company determines that: (a) The Contracts allow the substitution of 
shares of registered open-end investment companies in the manner 
contemplated by the application; (b) the Substitution can be 
consummated as described in the application under applicable insurance 
laws; and (c) any regulatory requirements in each jurisdiction where 
the Contracts are qualified for sale have been complied with to the 
extent necessary to complete the Substitution.
    2. The Insurance Company or its affiliates will pay all expenses 
and transaction costs of the Substitution, including legal and 
accounting expenses, any applicable brokerage expenses and other fees 
and expenses. No fees or charges will be assessed to the Affected 
Contract Owners to effect the Substitution. The proposed Substitution 
will not cause the Contract fees and charges currently being paid by 
Contract Owners to be greater after the proposed Substitution than 
before the proposed Substitution.
    3. The Substitution will be effected at the relative net asset 
values of the respective shares of the Replacement Funds in conformity 
with section 22(c) of the 1940 Act and rule 22c-1 thereunder without 
the imposition of any transfer or similar charges by Applicants. The 
Substitution will be effected without change in the amount or value of 
any Contracts held by Affected Contract Owners.
    4. The Substitution will in no way alter the tax treatment of 
Affected Contract Owners in connection with their Contracts, and no tax 
liability will arise for Affected Contract Owners as a result of the 
Substitution.
    5. The obligations of the Applicants and the rights of the Affected 
Contract Owners under the Contracts will not be altered in any way. The 
Substitution will not adversely affect any riders under the Contracts.
    6. Affected Contract Owners will be permitted to make at least one 
transfer of Contract value from the subaccount investing in the 
respective Existing Fund (before the Substitution Date) or the 
corresponding Replacement Fund (after the Substitution Date) to any 
other available investment option under the Contract without charge for 
a period beginning at least 30 days before the Substitution Date 
through at least 30 days following the Substitution Date. Except as 
described in any market timing/short-term trading provisions of the 
relevant prospectus, the Applicants will not exercise any right they 
may have under the Contracts to impose restrictions on transfers 
between the subaccounts under the Contracts, including limitations on 
the future number of transfers, for a period beginning at least 30 days 
before the Substitution Date through at least 30 days following the 
Substitution Date.
    7. All Affected Contract Owners will be notified at least 30 days 
before the Substitution Date about: (a) The intended substitution of 
the Existing Funds with the Replacement Funds; (b) the intended 
Substitution Date; and (c) information with respect to transfers as set 
forth in Condition 6 above. In addition, the Applicants will deliver to 
all Affected Contract Owners, at least thirty (30) days before the 
Substitution Date, a prospectus for the applicable Replacement Fund.
    8. The Applicants will deliver to each Affected Contract Owner 
within five (5) business days of the Substitution Date a written 
confirmation which will include: (a) A confirmation that the 
Substitution was carried out as previously notified; (b) a restatement 
of the information set forth in the Pre-Substitution Notice; and (c) 
the values of the Contract Owners' positions in the Existing Funds 
before the Substitution and the Replacement Funds after the 
Substitution.
    9. Applicants and their affiliates will not receive, for three 
years from the Substitution Date, any direct or indirect benefits from 
the Replacement Funds, their investment advisers or underwriters (or 
their affiliates), in connection with assets attributable to Contracts 
affected by the Substitution, at a higher rate than they had received 
from the Existing Funds, their investment advisers or underwriters (or 
their affiliates), including without limitation 12b-1 fees, shareholder 
service, administrative or other service fees, revenue sharing, or 
other arrangements.
    10. Applicants agree that for those Contracts with assets allocated 
to the BlackRock Total Market Fund on the Substitution Date, for a 
period of one year following the Substitution Date, the Insurance 
Company or an affiliate thereof will reimburse, at least as frequently 
as the last business day of each fiscal quarter, the Contract Owners 
whose subaccounts invest in the Dreyfus Small Cap Fund to the extent 
that the Dreyfus Small Cap Fund's net annual operating expenses (taking 
into account fee waivers and expense reimbursements) for such period 
exceed, on an annualized basis, the net annual operating expenses of 
the BlackRock Total Market Fund for the most recent fiscal year 
preceding the date of the most recently filed application. The 
Insurance Company will not increase the Contract fees and charges that 
would otherwise be assessed under the terms of the

[[Page 62928]]

Contracts for a period of at least one year following the Substitution 
Date.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26384 Filed 12-4-18; 8:45 am]
 BILLING CODE 8011-01-P
62924 Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices

non-convertible preferred stocks, reasons for so finding or (ii) as to which Number SR–NYSEArca–2018–82, and
warrants and Work Out Securities. the self-regulatory organization should be submitted on or before
The Exchange accordingly believes consents, the Commission will: December 27, 2018.
that it is appropriate and in the public (A) By order approve or disapprove For the Commission, by the Division of
interest to approve listing and trading of the proposed rule change, or Trading and Markets, pursuant to delegated
Shares of the Fund on the Exchange (B) institute proceedings to determine authority. 32
notwithstanding that the Fund would whether the proposed rule change Eduardo A. Aleman,
not meet the requirements of should be disapproved.
Assistant Secretary.
Commentary .01(a)(1), (a)(2), (b)(4) and IV. Solicitation of Comments [FR Doc. 2018–26514 Filed 12–4–18; 8:45 am]
(b)(5) to Rule 8.600–E. The Exchange
notes that, other than Commentary Interested persons are invited to BILLING CODE 8011–01–P

.01(a)(1), (a)(2), (b)(4) and (b)(5) to Rule submit written data, views, and
8.600–E, the Fund’s portfolio will meet arguments concerning the foregoing,
including whether the proposed rule SECURITIES AND EXCHANGE
all other requirements of Rule 8.600–E.
change is consistent with the Act. COMMISSION
The proposed rule change is designed
to perfect the mechanism of a free and Comments may be submitted by any of
the following methods: [Investment Company Act Release No.
open market and, in general, to protect 33309; File No. 812–14822]
investors and the public interest in that Electronic Comments
it will facilitate the listing and trading American Fidelity Assurance
of an additional type of actively • Use the Commission’s internet
Company, et al.
managed ETF that will enhance comment form (http://www.sec.gov/
competition among market participants, rules/sro.shtml); or November 29, 2018.
• Send an email to rule-comments@ AGENCY: Securities and Exchange
to the benefit of investors and the
sec.gov. Please include File Number SR– Commission (‘‘Commission’’).
marketplace. As noted above, the
NYSEArca–2018–82 on the subject line.
Exchange has in place surveillance ACTION: Notice.
procedures relating to trading in the Paper Comments
Shares and may obtain information via Notice of application for an order
• Send paper comments in triplicate approving the substitution of certain
ISG from other exchanges that are to Secretary, Securities and Exchange
members of ISG or with which the securities pursuant to section 26(c) of
Commission, 100 F Street NE, the Investment Company Act of 1940, as
Exchange has entered into a CSSA. In Washington, DC 20549–1090.
addition, as noted above, investors have amended (the ‘‘1940 Act’’).
All submissions should refer to File
ready access to information regarding APPLICANTS: American Fidelity
Number SR–NYSEArca–2018–82. This
the Fund’s holdings, the PIV, the Assurance Company (the ‘‘Insurance
file number should be included on the
Disclosed Portfolio, and quotation and Company’’), American Fidelity Separate
subject line if email is used. To help the
last sale information for the Shares. Account B and American Fidelity
Commission process and review your
Separate Account C (each, a ‘‘Separate
B. Self-Regulatory Organization’s comments more efficiently, please use
Account’’ and together, the ‘‘Separate
Statement on Burden on Competition only one method. The Commission will
Accounts’’). Together, the Insurance
The Exchange does not believe that post all comments on the Commission’s
Company and the Separate Accounts are
the proposed rule change will impose internet website (http://www.sec.gov/
referred to as the ‘‘Applicants.’’
any burden on competition that is not rules/sro.shtml). Copies of the
submission, all subsequent SUMMARY OF APPLICATION: Applicants
necessary or appropriate in furtherance seek an order pursuant to section 26(c)
of the purpose of the Act. The Exchange amendments, all written statements
with respect to the proposed rule of the 1940 Act approving the
notes that the proposed rule change will substitution of shares of American
facilitate the listing and trading of an change that are filed with the
Commission, and all written Funds IS Blue Chip Income and Growth
additional type of actively managed ETF Fund (the ‘‘American Funds Blue Chip
that principally holds fixed income communications relating to the
proposed rule change between the Fund’’) and Dreyfus VIF Opportunistic
securities and that will enhance Small Cap Portfolio (the ‘‘Dreyfus Small
competition among market participants, Commission and any person, other than
those that may be withheld from the Cap Fund,’’ and together with the
to the benefit of investors and the American Funds Blue Chip Fund, the
marketplace. public in accordance with the
provisions of 5 U.S.C. 552, will be ‘‘Replacement Funds’’), respectively, for
C. Self-Regulatory Organization’s available for website viewing and shares of BlackRock Basic Value V.I.
Statement on Comments on the printing in the Commission’s Public Fund (the ‘‘BlackRock Basic Value
Proposed Rule Change Received From Reference Room, 100 F Street NE, Fund’’), and BlackRock Advantage U.S.
Members, Participants, or Others Washington, DC 20549, on official Total Market V.I. Fund (the ‘‘BlackRock
business days between the hours of Total Market Fund,’’ and together with
No written comments were solicited
10:00 a.m. and 3:00 p.m. Copies of the the BlackRock Basic Value Fund, the
or received with respect to the proposed
filng also will be available for ‘‘Existing Funds’’), respectively, held by
rule change.
inspection and copying at the principal the Separate Accounts (the
III. Date of Effectiveness of the office of the Exchange. All comments ‘‘Substitution’’), to support the Separate
Proposed Rule Change and Timing for received will be posted without change. Accounts’ variable annuity contracts
khammond on DSK30JT082PROD with NOTICES

Commission Action Persons submitting comments are (each, a ‘‘Contract’’ and collectively, the
Within 45 days of the date of cautioned that we do not redact or edit ‘‘Contracts’’) that are issued by the
publication of this notice in the Federal personal identifying information from Insurance Company.
Register or within such longer period comment submissions. You should FILING DATES: The application was filed
up to 90 days (i) as the Commission may submit only information that you wish on September 26, 2017, and amended
designate if it finds such longer period to make available publicly. All
to be appropriate and publishes its submissions should refer to File 32 17 CFR 200.30–3(a)(12).

VerDate Sep<11>2014 20:35 Dec 04, 2018 Jkt 247001 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 E:\FR\FM\06DEN1.SGM 06DEN1
62926 Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices

however, the Substitution of the Dreyfus Existing Funds or the Replacement the proposed Substitution. Section 26(c)
Small Cap Fund (0.86%) in place of the Funds or by Contract Owners in of the 1940 Act prohibits any depositor
BlackRock Total Market Fund (0.55% connection with the Substitution. The or trustee of a registered unit investment
after June 12, 2017; 0.92% before June terms of the benefits available under the trust that invests exclusively in the
12, 2017) will not result in decreased Contracts will not change as a result of securities of a single issuer from
net expense ratios. The application sets the proposed Substitutions. The substituting the securities of another
forth the fees and expenses of each Substitution will not result in adverse issuer without the approval of the
Existing Fund and its corresponding tax consequences to Affected Contract Commission. Section 26(c) provides that
Replacement Fund in greater detail. Owners and will not alter any tax such approval shall be granted by order
9. Applicants represent that as of the benefits associated with the Contracts from the Commission if the evidence
Substitution Date (defined below), the and no tax liability will arise for the establishes that the substitution is
Separate Accounts will redeem shares of Affected Contract Owners as a result of consistent with the protection of
the Existing Portfolios for cash. the Substitution. investors and the purposes of the 1940
Redemption requests and purchase 13. At least 30 days prior to the Act.
orders will be placed simultaneously so Substitution Date, Contract Owners will 2. Applicants submit that the
that Contract values will remain fully be notified, via prospectus supplements, Substitution meets the standards set
invested at all times. that Applicants received or expect to forth in section 26(c) and that, if
10. Each Substitution will take place receive Commission approval of the implemented, the Substitution would
at the relative net asset values of the proposed Substitution and of the not raise any of the concerns that
respective shares (in accordance with anticipated date of implementation of Congress intended to address when the
section 22(c) of the 1940 Act and rule the proposed Substitution (the 1940 Act was amended to include this
22c–1 thereunder) without the ‘‘Substitution Date’’, and such provision. Applicants state Substitution
imposition of any transfer or similar supplements, the ‘‘Pre-Substitution of the American Funds Blue Chip Fund
charges by Applicants. The Substitution Notice’’). Pre-Substitution Notices sent in place of the BlackRock Basic Value
will be effected with no change in the to Contract Owners will be filed with Fund will result in decreased net
amount or value of any Contract held by the Commission pursuant to rule 497(e) expense ratios for investors in the
Contract Owners whose assets are under the 1933 Act. The Pre- BlackRock Basic Value Fund. Thus, the
allocated to the Replacement Funds as Substitution Notice will advise Contract Substitution protects the Contract
part of the Substitution (the ‘‘Affected Owners that, for at least 30 days before Owners who are invested in the
Contract Owners’’).2 the Substitution Date through at least 30 BlackRock Basic Value Fund by
11. The Substitution is designed to days after the Substitution Date, (i) providing a replacement fund that (1) is
provide Contract Owners with the Affected Contract Owners may make at substantially similar to the Existing
ability to continue their investment in a least one transfer of Contract value from Fund, and (2) reduces net operating
similar investment option without the subaccount investing in the expenses.
interruption and at no additional cost to respective Existing Fund (before the 3. Applicants submit that, although
them. In this regard, the Insurance Substitution Date) or the corresponding the Substitution of the Dreyfus Small
Company has agreed to bear all Replacement Fund (after the Cap Fund in place of the BlackRock
expenses incurred in connection with Substitution Date) to any other available Total Market Fund will not result in
the Substitution and related filings and investment option under the Contract decreased net expense ratios because of
notices, including legal, accounting, without charge, and (ii) that, except expense waivers by the BlackRock Total
brokerage, and other fees and expenses. with respect to market timing/short- Market Fund that were implemented as
The Contract values of the Contract term trading, the Applicants will not of June 12, 2017 when the fund changed
Owners impacted by the Substitution exercise any right they may have under its investment strategy from a small cap
will not change on the date of the the Contracts to impose restrictions on strategy to an all cap strategy, the
Substitution as a result of the transfers between subaccounts under proposed Substitution will result in
Replacement Funds replacing the the Contract,. In addition, Affected Contract Owners holding shares of a
Existing Funds. Contract Owners will receive a fund that has investment objectives and
12. The proposed Substitution will prospectus for the applicable policies that are substantially similar to
not cause the Contract fees and charges Replacement Fund at least 30 days the corresponding Existing Fund, prior
currently being paid by Contract before the Substitution Date. to the investment strategy changes.
Owners to be greater after the proposed 14. In addition to the Pre-Substitution Therefore, the Substitution of the
Substitution than before the proposed Notices distributed to the Contract Dreyfus Small Cap Fund in place of the
Substitution. No brokerage Owners, within five business days of the BlackRock Total Market Fund is
commissions, fees or other Substitution Date, Affected Contract consistent with the protection of
remuneration will be paid by either the Owners will be sent a written Contract Owners and the purposes fairly
confirmation that will include: (1) A intended by the policy and provisions of
2 Applicants state that, because the Substitution
confirmation that the Substitution was the 1940 Act and, thus, meets the
will occur at relative net asset value, and the fees standards necessary to support an order
and charges under the Contracts will not change as
carried out as previously notified, (2) a
a result of the Substitution, the benefits offered by notice reiterating the information set pursuant to Section 26(c) of the 1940
the guarantees under the Contracts will be the same forth in the Pre-Substitution Notice, and Act.
immediately before and after the Substitution. (3) the values of the Contract Owner’s 4. The Insurance Company has
Applicants also state that what effect the reserved the right under the each of the
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Substitution may have on the value of the benefits
positions in the Existing Fund before
offered by the Contract guarantees would depend, the Substitution and the Replacement Separate Account’s Contracts to
among other things, on the relative future Fund after the Substitution. substitute shares of another underlying
performance of the Existing Funds and mutual fund for one of the current
Replacement Funds, which Applicants cannot Legal Analysis underlying mutual funds offered as an
predict. Nevertheless, Applicants note that at the
time of the Substitution, the Contracts will offer a
1. Applicants request that the investment option under the Contracts.
comparable variety of investment options with as Commission issue an order pursuant to The Contract prospectuses disclose this
broad a range of risk/return characteristics. section 26(c) of the 1940 Act approving right.

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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices 62927

5. Applicants submit that the the substitution of shares of registered beginning at least 30 days before the
Substitution will provide Contract open-end investment companies in the Substitution Date through at least 30
Owners with a comparable investment manner contemplated by the days following the Substitution Date.
vehicle which will not circumvent application; (b) the Substitution can be 7. All Affected Contract Owners will
Contract Owner-initiated decisions and consummated as described in the be notified at least 30 days before the
the Insurance Company’s obligations application under applicable insurance Substitution Date about: (a) The
under the Contracts, and will enable laws; and (c) any regulatory intended substitution of the Existing
Contract Owners to continue to use the requirements in each jurisdiction where Funds with the Replacement Funds; (b)
full range of applicable Contract features the Contracts are qualified for sale have the intended Substitution Date; and (c)
as they currently use them. The been complied with to the extent information with respect to transfers as
Substitution will have no impact on the necessary to complete the Substitution. set forth in Condition 6 above. In
Contract Owners’ rights or privileges 2. The Insurance Company or its addition, the Applicants will deliver to
under the Contracts. affiliates will pay all expenses and all Affected Contract Owners, at least
6. Applicants submit that the transaction costs of the Substitution, thirty (30) days before the Substitution
proposed Substitution is not the type of including legal and accounting Date, a prospectus for the applicable
costly forced redemption that section 26 expenses, any applicable brokerage Replacement Fund.
was designed to prevent. The Contracts expenses and other fees and expenses. 8. The Applicants will deliver to each
provide Contract Owners with No fees or charges will be assessed to Affected Contract Owner within five (5)
investment discretion to allocate and the Affected Contract Owners to effect business days of the Substitution Date a
reallocate their Contract values among the Substitution. The proposed written confirmation which will
the available sub-accounts that invest in Substitution will not cause the Contract include: (a) A confirmation that the
the underlying mutual fund investment fees and charges currently being paid by Substitution was carried out as
options. Applicants submit that, after Contract Owners to be greater after the previously notified; (b) a restatement of
the proposed Substitution, ten proposed Substitution than before the the information set forth in the Pre-
investment options will be offered proposed Substitution. Substitution Notice; and (c) the values
under the Separate Account Contracts, 3. The Substitution will be effected at of the Contract Owners’ positions in the
and as such, the likelihood of a Contract the relative net asset values of the Existing Funds before the Substitution
Owner being invested in an undesired respective shares of the Replacement and the Replacement Funds after the
underlying mutual fund is minimized Funds in conformity with section 22(c) Substitution.
because the Contract Owners are able to of the 1940 Act and rule 22c–1 9. Applicants and their affiliates will
select from ten investment options that thereunder without the imposition of not receive, for three years from the
have a full range of investment any transfer or similar charges by Substitution Date, any direct or indirect
objectives, investment strategies and Applicants. The Substitution will be benefits from the Replacement Funds,
managers. Applicants further state that effected without change in the amount their investment advisers or
the proposed Substitution is designed to or value of any Contracts held by underwriters (or their affiliates), in
provide Contract Owners with the Affected Contract Owners. connection with assets attributable to
foregoing benefits while enabling them 4. The Substitution will in no way Contracts affected by the Substitution, at
to continue their investment in a similar alter the tax treatment of Affected a higher rate than they had received
investment option without interruption Contract Owners in connection with from the Existing Funds, their
and at no additional cost to them. their Contracts, and no tax liability will investment advisers or underwriters (or
7. The proposed transactions will take arise for Affected Contract Owners as a their affiliates), including without
place at relative net asset value in result of the Substitution. limitation 12b–1 fees, shareholder
conformity with the requirements of 5. The obligations of the Applicants service, administrative or other service
section 22(c) of the 1940 Act and rule and the rights of the Affected Contract fees, revenue sharing, or other
22c–1 thereunder without the Owners under the Contracts will not be arrangements.
imposition of any transfer or similar altered in any way. The Substitution 10. Applicants agree that for those
charges by the Applicants. The will not adversely affect any riders Contracts with assets allocated to the
Substitution will be effected without under the Contracts. BlackRock Total Market Fund on the
change in the amount or value of any 6. Affected Contract Owners will be Substitution Date, for a period of one
Contract held by the Affected Contract permitted to make at least one transfer year following the Substitution Date, the
Owners. The Substitution will in no of Contract value from the subaccount Insurance Company or an affiliate
way alter the tax treatment of Affected investing in the respective Existing thereof will reimburse, at least as
Contract Owners in connection with Fund (before the Substitution Date) or frequently as the last business day of
their Contracts, and no tax liability will the corresponding Replacement Fund each fiscal quarter, the Contract Owners
arise for Affected Contract Owners as a (after the Substitution Date) to any other whose subaccounts invest in the
result of the Substitution. The available investment option under the Dreyfus Small Cap Fund to the extent
Substitution will not result in an Contract without charge for a period that the Dreyfus Small Cap Fund’s net
increase in Contract fees and expenses, beginning at least 30 days before the annual operating expenses (taking into
including mortality and expense risk Substitution Date through at least 30 account fee waivers and expense
fees and administration and distribution days following the Substitution Date. reimbursements) for such period
fees charged by the Separate Accounts. Except as described in any market exceed, on an annualized basis, the net
timing/short-term trading provisions of annual operating expenses of the
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Applicants’ Conditions the relevant prospectus, the Applicants BlackRock Total Market Fund for the
Applicants agree that any order will not exercise any right they may most recent fiscal year preceding the
granting the requested relief will be have under the Contracts to impose date of the most recently filed
subject to the following conditions: restrictions on transfers between the application. The Insurance Company
1. The Substitution will not be subaccounts under the Contracts, will not increase the Contract fees and
effected unless the Insurance Company including limitations on the future charges that would otherwise be
determines that: (a) The Contracts allow number of transfers, for a period assessed under the terms of the

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62928 Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices

Contracts for a period of at least one Exchange has prepared summaries, set obligations.4 Put another way, the
year following the Substitution Date. forth in sections A, B, and C below, of Exchange believes that a DPM that is
For the Commission, by the Division of the most significant aspects of such preferred on an order should not be
Investment Management, under delegated statements. subject to a potentially lesser
authority. entitlement just because that DPM
A. Self-Regulatory Organization’s
Eduardo A. Aleman, happened to also be preferred.5
Statement of the Purpose of, and Moreover, the Exchange believes that it
Assistant Secretary. Statutory Basis for, the Proposed Rule
[FR Doc. 2018–26384 Filed 12–4–18; 8:45 am]
is appropriate to provide the DPM
Change entitlements when the DPM is also
BILLING CODE 8011–01–P
1. Purpose designated as a PMM as the obligations
that the DPM has to the market are not
The Exchange proposes to amend its
SECURITIES AND EXCHANGE diminished when it receives a Preferred
rules related to Directed Market Makers
COMMISSION Order.
and Primary Market Makers. The Exchange lastly proposes to
[Release No. 34–84697; File No. SR– Particularly, the Exchange proposes to amend the definition of a small size
CboeEDGX–2018–057] (1) rename ‘‘Directed Market Makers’’ order. More specifically, Rule 21.8(g)(2)
and ‘‘Primary Market Makers’’, (2) provides that small size orders are
Self-Regulatory Organizations; Cboe clarify the applicable participation allocated in full to the DPM if the DPM
EDGX Exchange, Inc.; Notice of Filing entitlements when a market has a priority quote at the NBBO. The
and Immediate Effectiveness of a participation is both a Directed Market rule also provides that small size orders
Proposed Rule Change Relating to Maker and Primary Market Maker, and are defined as five (5) or fewer contracts.
Directed Market Makers and Primary (3) amend the definition of small size The Exchange proposes to provide that
Market Makers orders. in order to qualify as a small size order,
November 30, 2018.
The Exchange first proposes to update the incoming order must be a size of five
Pursuant to Section 19(b)(1) of the the names of ‘‘Directed Market Makers’’ or fewer contracts (i.e., the size of the
Securities Exchange Act of 1934 and ‘‘Primary Market Makers’’. original order determines whether the
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 Specifically, the Exchange proposes to definition is met, not the number of
notice is hereby given that on November replace all references to ‘‘Directed contracts remaining after customer
27, 2018, Cboe EDGX Exchange, Inc. Market Makers’’ to ‘‘Preferred Market orders have been satisfied). The
(‘‘Exchange’’ or ‘‘EDGX’’) filed with the Makers’’ (or ‘‘PMMs’’) and make a Exchange notes that a similar preference
Securities and Exchange Commission corresponding change to replace is given for small orders on Cboe
(‘‘Commission’’) the proposed rule references to ‘‘Directed Orders’’ to Options as well as other exchanges and
change as described in Items I and II ‘‘Preferred Orders.’’ The Exchange also that such preference is based on the
below, which Items have been prepared proposes to replace all references to original size of the order.6
by the Exchange. The Commission is ‘‘Primary Market Makers’’ to
‘‘Designated Primary Market Makers’’ 2. Statutory Basis
publishing this notice to solicit
comments on the proposed rule change (or ‘‘DPMs’’). The Exchange notes the The Exchange believes the proposed
from interested persons. proposed name changes conforms its rule change is consistent with the
terminology with respect to these types Securities Exchange Act of 1934 (the
I. Self-Regulatory Organization’s of Market Makers to the terminology ‘‘Act’’) and the rules and regulations
Statement of the Terms of Substance of used by its affiliated exchange, Cboe thereunder applicable to the Exchange
the Proposed Rule Change Options, for similar market and, in particular, the requirements of
The Exchange proposes to amend its participants.3 The Exchange notes that Section 6(b) of the Act.7 Specifically,
rules relating to Directed Market Makers Directed Market Makers and Primary the Exchange believes the proposed rule
and Primary Market Makers. Market Makers will be referred to herein change is consistent with the Section
The text of the proposed rule change as ‘‘PMMs’’ and ‘‘DPMs’’, respectively. 6(b)(5) 8 requirements that the rules of
is also available on the Exchange’s Next, the Exchange proposes to an exchange be designed to prevent
website (http://www.cboe.com/ provide in the rules which participation fraudulent and manipulative acts and
AboutCBOE/CBOELegal entitlement applies in the event an practices, to promote just and equitable
RegulatoryHome.aspx), at the order is preferred to a DPM (i.e., the principles of trade, to foster cooperation
Exchange’s Office of the Secretary, and DPM is also the PMM) and both PMM and coordination with persons engaged
at the Commission’s Public Reference and DPM participation entitlements are in regulating, clearing, settling,
Room. in effect. Although not explicitly processing information with respect to,
specified in the rules, currently, if a
II. Self-Regulatory Organization’s DPM is also the PMM, the PMM 4 See EDGX Options Rule 22.2.
Statement of the Purpose of, and entitlements apply. The Exchange
5 For example, if a DPM is preferred on a small
Statutory Basis for, the Proposed Rule proposes to expressly provide under
size order (i.e., 5 or less contracts), that DPM should
Change receive the small size order entitlement, which is
Rule 21.18(h)(1) that, going forward, if a 100% allocation, notwithstanding the fact that
In its filing with the Commission, the the DPM is also a PMM with respect to DPM was also preferred on that order (i.e., it would
Exchange included statements an incoming order, that PMM/DPM will otherwise receive 60% or 40% allocation under
Rule 21.8(f)(1)). The Exchange notes that its affiliate
concerning the purpose of and basis for be treated as a DPM and the DPM exchange, Cboe Options, as well as other exchanges
khammond on DSK30JT082PROD with NOTICES

the proposed rule change and discussed participation entitlements under similarly apply the small order preference
any comments it received on the paragraph (g) of Rule 21.8 will apply to allocation where a DPM is also preferred on an
proposed rule change. The text of these that order. The Exchange believes that order. See Cboe Options Regulatory Circular RG15–
011. See also, Nasdaq ISE Rule 713, Supplementary
statements may be examined at the the proposed rule change is appropriate Material to Rule 713 .03(c)(iii).
places specified in Item IV below. The given a DPM’s heightened quoting 6 See Cboe Options Rule 6.45(a)(ii)(C). See also,

NYSE Arca Rule 6.76A–O(a)(B).
1 15 U.S.C. 78s(b)(1). 3 See e.g., Cboe Exchange, Inc.’s (‘‘Cboe Options’’) 7 15 U.S.C. 78f(b).
2 17 CFR 240.19b–4. Rules 8.13 and 8.80. 8 15 U.S.C. 78f(b)(5).

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Document Created: 2018-12-05 02:36:03
Document Modified: 2018-12-05 02:36:03
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		The application was filed on September 26, 2017, and amended on January 31, 2018, March 8, 2018, August 10, 2018 and November 7, 2018.
Contact		Asen Parachkevov, Senior Counsel, or Andrea Ottomanelli Magovern, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		83 FR 62924