Document ID: SEC-2016-1338-0001
Agency: sec
Document Type: Notice
Title: Applications: New York Life Insurance and Annuity Corp., et al.
Posted Date: 2016-08-01T04:00Z

[Federal Register Volume 81, Number 147 (Monday, August 1, 2016)]
[Notices]
[Pages 50584-50588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18060]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32193; File No. 812-14589]

New York Life Insurance and Annuity Corporation, et al; Notice of 
Application

July 26, 2016.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  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 (``Act'') and an order of exemption 
pursuant to section 17(b) of the Act from section 17(a) of the Act.

-----------------------------------------------------------------------

    Applicants: New York Life Insurance and Annuity Corporation 
(``NYLIAC''); NYLIAC Variable Annuity Separate Account--I (``VA I''), 
NYLIAC Variable Annuity Separate Account--II (``VA-II''), NYLIAC 
Variable Annuity Separate Account--III (``VA-III''), NYLIAC Variable 
Annuity Separate Account--IV (``VA-IV''), NYLIAC Variable Universal 
Life Separate Account--I (``VUL I''), NYLIAC Corporate Sponsored 
Variable Universal Life Separate Account--I (``Corporate VUL I''), 
NYLIAC Private Placement Variable Universal Life Separate Account--I 
(``Private VUL I''), and NYLIAC Private Placement Variable Universal 
Life Separate Account--II (``Private VUL II'') (collectively, the 
``Separate Accounts'' and together with NYLIAC, the ``Section 26 
Applicants''); and MainStay VP Funds Trust (the ``Trust'' and, together 
with NYLIAC and the Separate Accounts, the ``Section 17 Applicants'').
    Summary of Application: The Section 26 Applicants seek an order 
pursuant to section 26(c) of the Act approving the substitution of 
shares of the Replacement Portfolio (defined below) for shares of the 
Existing Portfolio (defined below), held by the Separate Accounts to 
support certain variable annuity contracts and variable universal life 
insurance policies (the ``Contracts'') issued by NYLIAC (the 
``Substitution''). The Section 17 Applicants seek an order pursuant to 
section 17(b) of the Act exempting them from section 17(a) of the Act 
to the extent necessary to permit them to engage in certain in-kind 
transactions (``In-Kind Transactions'') in connection with the 
Substitution.
    Filing Dates: The application was filed on December 11, 2015, and 
amended on May 13, 2016, and July 25, 2016. Applicants have agreed to 
file an amendment during the notice period, the substance of which is 
reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Secretary of 
the Commission and serving applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on August 22, 2016, 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 Act, 
hearing requests should state the nature of the requester'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 
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants, 51 Madison Avenue, 
New York, NY 10010.

FOR FURTHER INFORMATION CONTACT:  Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, or David J. Marcinkus, Branch Chief, at 
(202) 551-6821 (Chief Counsel's Office, Division of Investment 
Management).

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

Applicants' Representations

    1. NYLIAC is a Delaware stock life insurance company licensed to 
sell life, accident and health insurance, and annuities in the District 
of Columbia and all states. NYLIAC is an indirect wholly-owned 
subsidiary of New York Life Insurance Company, a mutual life insurance 
company (``New York Life'').
    2. NYLIAC serves as the depositor of the Separate Accounts, which 
are segregated asset accounts of NYLIAC established under Delaware law 
pursuant to resolutions of NYLIAC's Board of Directors to fund the 
Contracts.

[[Page 50585]]

    3. Each Separate Account meets the definition of ``separate 
account'' as defined in section 2(a)(37) of the Act. Each Separate 
Account, except for Private VUL I and Private VUL II, is registered 
under the Act as a unit investment trust. Private VUL I and Private VUL 
II are exempt from registration under the Act pursuant to sections 
3(c)(1) and 3(c)(7) of the Act.
    4. Interests under the Contracts, except for Contracts issued 
through Private VUL I and Private VUL II, are registered under the 
Securities Act of 1933, as amended (the ``1933 Act''). Contracts issued 
through Private VUL I and Private VUL II are sold without registration 
under the 1933 Act in reliance on the private offering exemption of 
section 4(2) of the 1933 Act and Regulation D thereunder.
    5. Each Separate Account is divided into subaccounts (each a 
``Subaccount,'' collectively, the ``Subaccounts''). Each Subaccount 
invests in the securities of a single portfolio of an underlying mutual 
fund (``Portfolio''). Contract owners and participants in group 
Contracts (each a ``Contract Owner'' and collectively, the ``Contract 
Owners'') may allocate some or all of their Contract value to one or 
more Subaccounts that are available as investment options under the 
Contracts.
    6. Under the Contracts, NYLIAC reserves the right to substitute, 
for the shares of a Portfolio held in any Subaccount, the shares of 
another Portfolio. The prospectuses or offering documents, as 
applicable, for the Contracts include appropriate disclosure of this 
reservation of right.
    7. The Trust is organized as a Delaware statutory trust and is 
registered with the Commission as an open-end management investment 
company under the Act. The Trust currently consists of 31 series 
(``Series''). Each Series may offer three classes of shares, namely the 
Initial Class, Service Class and Service 2 Class. For each Series 
offering Service Class and Service 2 Class shares, the Trust has 
adopted a Distribution and Service Plan for the Service Class and 
Service 2 Class shares pursuant to Rule 12b-1 under the Act. The 
Replacement Portfolio (defined below) is a Series of the Trust.
    8. New York Life Investment Management LLC (the ``Manager''), an 
indirect wholly-owned subsidiary of New York Life, serves as the 
investment manager of each of the Series of the Trust. The Manager is a 
Delaware limited liability company registered as an investment adviser 
under the Investment Advisers Act of 1940.
    9. The Trust and the Manager may rely on an order from the 
Commission that permits the Manager, subject to certain conditions, 
including approval of the Trust's board of trustees (``Board''), 
including a majority of trustees who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act, and without the approval of 
shareholders, to: (i) Select certain wholly-owned and non-affiliated 
investment sub-advisers (each, a ``Subadvisor'' and collectively, the 
``Subadvisors'') to manage all or a portion of the assets of each 
Series pursuant to an investment sub-advisory agreement with each 
Subadvisor; and (ii) materially amend sub-advisory agreements with the 
Subadvisors.\1\
---------------------------------------------------------------------------

    \1\ See The MainStay Funds, et al., Investment Company Act Rel. 
Nos. 31597 (May 11, 2015) (notice) and 31663 (Jun. 8, 2015) (order) 
(``Manager of Managers Order'').
---------------------------------------------------------------------------

    10. NYLIAC, on behalf of itself and its Separate Accounts, proposes 
to exercise its contractual right to substitute shares of one Portfolio 
for that of another by replacing the shares of the Royce Micro-Cap 
Portfolio (Investment Class) (the ``Existing Portfolio'') \2\ that are 
held in Subaccounts of its Separate Accounts with shares of the 
MainStay VP Small Cap Core Portfolio (Initial Class or Service Class) 
(the ``Replacement Portfolio'').
---------------------------------------------------------------------------

    \2\ The Existing Portfolio is a series of Royce Capital Fund, a 
Delaware statutory trust registered with the Commission as an open-
end management investment company under the Act and its shares are 
registered under the 1933 Act.
---------------------------------------------------------------------------

    11. Applicants state that the proposed Substitution is part of an 
ongoing effort by NYLIAC to make its Contracts more attractive to 
existing and prospective Contract Owners. The Section 26 Applicants 
believe the proposed Substitution will help to accomplish these goals 
for several reasons. The Section 26 Applicants believe, based on its 
estimates for the current year, the total annual operating expenses for 
the Replacement Portfolio will be lower than those of the Existing 
Portfolio, which the Section 26 Applicants believe will appeal to both 
existing and prospective Contract Owners. In addition, subject to 
shareholder approval of the manager of managers arrangement, Applicants 
state that the Proposed Substitution will result in more investment 
options under the Contracts having the improved portfolio manager 
selection afforded by the Manager of Managers Order, which the Section 
26 Applicants believe will appeal to both existing and prospective 
Contract Owners. Finally, Applicants state that the proposed 
Substitution is designed to provide Contract Owners with the ability to 
continue their investment in a similar investment option without 
interruptions and at no additional cost to them. In this regard, NYLIAC 
or an affiliate will bear all expenses and transaction costs incurred 
in connection with the proposed Substitution and related filings and 
notices, including legal, accounting, brokerage, and other fees and 
expenses.
    12. The proposed Substitution will be described in supplements to 
the applicable prospectuses for the Contracts filed with the Commission 
or in other supplemental disclosure documents (collectively, 
``Supplements'') and delivered to all affected Contract Owners at least 
30 days before the date the proposed Substitution is effected (the 
``Effective Date''). The Supplements will give Contract Owners notice 
of NYLIAC's intent to substitute shares of the Existing Portfolio as 
described in the application on the Effective Date. The Supplements 
also will advise Contract Owners that for at least thirty (30) days 
before the Effective Date, Contract Owners are permitted to transfer 
all of or a portion of their Contract value out of any Subaccount 
investing in the Existing Portfolio (``Existing Portfolio Subaccount'') 
to any other available Subaccounts offered under their Contracts 
without the transfer being counted as a transfer for purposes of 
transfer limitations and fees that would otherwise be applicable under 
the terms of the Contracts.
    13. In addition, each Supplement will (a) instruct Contract Owners 
how to submit transfer requests in light of the proposed Substitution; 
(b) advise Contract Owners that any Contract value remaining in the 
Existing Portfolio Subaccount on the Effective Date will be transferred 
to the Subaccount investing in the Replacement Portfolio (``Replacement 
Portfolio Subaccount''), and that the proposed Substitution will take 
place at relative net asset value; (c) inform Contract Owners that for 
at least thirty (30) days following the Effective Date, NYLIAC will 
permit Contract Owners to make transfers of Contract value out of the 
Replacement Portfolio Subaccount to any other available Subaccounts 
offered under their Contracts without the transfer being counted as a 
transfer for purposes of transfer limitations and fees that would 
otherwise be applicable under the terms of the Contracts; and (d) 
inform Contract Owners that, except as described in the market timing 
limitations section of the relevant prospectus, NYLIAC will not 
exercise any rights reserved by it under the Contracts to impose 
additional restrictions on transfers out of the Replacement Portfolio 
Subaccount for at

[[Page 50586]]

least thirty (30) days after the Effective Date.
    14. NYLIAC will send Contract Owners the prospectus for the 
Replacement Portfolio in accordance with applicable legal requirements 
and at least 30 days prior to the Effective Date. The prospectus for 
the Replacement Portfolio will disclose the existence, substance and 
effect of the Manager of Managers Order, and will disclose that the 
Replacement Portfolio may not rely on the Manager of Managers Order 
without first obtaining shareholder approval. The Replacement Portfolio 
will not rely on the Manager of Managers Order unless such action is 
approved by a majority of the Replacement Portfolio's outstanding 
voting securities, as defined in the Act, at a meeting whose record 
date is after the proposed Substitution has been effected.
    15. In addition to the Supplement distributed to Contract Owners, 
within five (5) business days after the Effective Date, Contract Owners 
will be sent a written confirmation of the completed proposed 
Substitution in accordance with rule 10b-10 under the Securities 
Exchange Act of 1934, as amended. The confirmation statement will 
include or be accompanied by a statement that reiterates the free 
transfer rights disclosed in the Supplement.
    16. The proposed Substitution will take place at the Existing and 
Replacement Portfolios' relative per share net asset values determined 
on the Effective Date in accordance with section 22 of the Act and rule 
22c-1 under the Act. Accordingly, applicants state that the proposed 
Substitution will have no negative financial impact on any Contract 
Owner. The proposed Substitution will be effected by having the 
Existing Portfolio Subaccount redeem its Existing Portfolio shares in 
cash and/or in-kind on the Effective Date at net asset value per share 
and purchase shares of the Replacement Portfolio at net asset value per 
share calculated on the same date.
    17. NYLIAC or an affiliate will pay all expenses and transaction 
costs incurred in connection with the proposed Substitution and related 
filings and notices, including legal, accounting, brokerage, and other 
fees and expenses. Applicants state that no costs of the proposed 
Substitution will be borne directly or indirectly by Contract Owners. 
Applicants state that Contract Owners will not incur any fees or 
charges as a result of the proposed Substitution, nor will their rights 
or the obligations of NYLIAC under the Contracts be altered in any way. 
Applicants state that the proposed Substitution will not cause the fees 
and charges under the Contracts currently being paid by Contract Owners 
to be greater after the proposed Substitution than before the proposed 
Substitution.
    18. The Section 26 Applicants further agree that the Manager will 
enter into a written contract with the Replacement Portfolio whereby 
during the two years following the Effective Date the annual net 
operating expenses of the Replacement Portfolio will not exceed the 
annual net operating expenses of the Existing Portfolio for the fiscal 
year ended December 31, 2015. The Section 26 Applicants further agree 
that separate account charges for any Contract owner on the Effective 
Date will not be increased at any time during the two year period 
following the Effective Date.
Legal Analysis:
    1. The Section 26 Applicants request that the Commission issue an 
order pursuant to section 26(c) of the Act approving the proposed 
Substitution. Section 26(c) of the Act prohibits any depositor or 
trustee of a 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 of the Commission 
if the evidence establishes that the substitution is consistent with 
the protection of investors and the purposes of the Act.
    2. Applicants submit that the proposed Substitution meets the 
standards set forth in section 26(c) and that, if implemented, the 
Substitution would not raise any of the concerns underlying that 
provision. Applicants state that the investment objectives of the 
Existing Portfolio and the Replacement Portfolio are identical, and the 
principal investment strategies and principal risks of the Existing 
Portfolio and the Replacement Portfolio are substantially similar. The 
Applicants also state that the total annual operating expenses and the 
aggregate management fees and 12b-1 fees, if any, of each class of the 
Replacement Portfolio are expected to be lower than the respective 
total annual operating expenses and management fees of the Existing 
Portfolio.
    3. Applicants also assert that the proposed Substitution is 
consistent with the principles and purposes of section 26(c) and does 
not entail any of the abuses that section 26(c) is designed to prevent. 
Applicants state that the proposed Substitution will not result in the 
type of costly forced redemptions that section 26(c) was intended to 
guard against and is consistent with the protection of investors and 
the purposes fairly intended by the Act.
    4. The Section 17 Applicants request that the Commission issue an 
order pursuant to section 17(b) of the Act exempting them from section 
17(a) of the Act to the extent necessary to permit them to carry out 
the In-Kind Transactions.
    5. Section 17(a)(1) of the Act prohibits any affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, acting as principal, from knowingly selling any security or 
other property to such registered investment company. Section 17(a)(2) 
of the Act prohibits any of the persons described above, acting as 
principal, from knowingly purchasing any security or other property 
from such registered investment company.
    6. Section 17(b) of the Act provides that the Commission may, upon 
application, issue an order exempting any proposed transaction from the 
provisions of section 17(a) if evidence establishes that: (1) 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; (2) the proposed transaction is 
consistent with the policy of each registered investment company 
concerned, as recited in its registration statement and reports filed 
under the Act; and (3) the proposed transaction is consistent with the 
general purposes of the Act.
    7. The Existing Portfolio and the Replacement Portfolio may be 
deemed to be affiliated persons of one another, or affiliated persons 
of an affiliated person. Shares held by a separate account of an 
insurance company are legally owned by the insurance company. 
Currently, NYLIAC, through its Separate Accounts, owns more than 25% of 
the shares of the Existing Portfolio, and therefore may be deemed to be 
a control person of the Existing Portfolio. In addition, the Manager, 
as investment adviser to the Replacement Portfolio, may be deemed to be 
a control person thereof. Because NYLIAC and the Manager are under 
common control, entities that they control likewise may be deemed to be 
under common control, and thus affiliated persons of each other, 
notwithstanding the fact that the Contract Owners may be considered the 
beneficial owners of those shares held in the Separate Accounts.
    8. The Existing Portfolio and the Replacement Portfolio also may be 
deemed to be affiliated persons of affiliated persons. Regardless of 
whether NYLIAC can be considered to control the Existing and 
Replacement Portfolios,

[[Page 50587]]

NYLIAC may be deemed to be an affiliated person thereof because it, 
through its Separate Accounts, owns of record 5% or more of the 
outstanding shares of such Portfolios. In addition, NYLIAC may be 
deemed an affiliated person of the Replacement Portfolio because its 
affiliate, the Manager, may be deemed to control the Replacement 
Portfolio by virtue of serving as its investment adviser. As a result 
of these relationships, the Existing Portfolio may be deemed to be an 
affiliated person of an affiliated person (NYLIAC or the Separate 
Accounts) of the Replacement Portfolio, and vice versa.
    9. The proposed In-Kind Transactions, therefore, could be seen as 
the indirect purchase of shares of the Replacement Portfolio with 
portfolio securities of the Existing Portfolio and conversely the 
indirect sale of portfolio securities of the Existing Portfolio for 
shares of the Replacement Portfolio. The proposed In-Kind Transactions 
also could be categorized as a purchase of shares of the Replacement 
Portfolio by the Existing Portfolio, acting as principal, and a sale of 
portfolio securities by the Existing Portfolio, acting as principal, to 
the Replacement Portfolio. In addition, the proposed In-Kind 
Transactions could be viewed as a purchase of securities from the 
Existing Portfolio and a sale of securities to the Replacement 
Portfolio by NYLIAC (or the Separate Accounts), acting as principal. If 
characterized in this manner, the proposed In-Kind Transactions may be 
deemed to contravene Section 17(a) due to the affiliated status of 
these entities.
    10. The Section 17 Applicants submit that the terms of the proposed 
In-Kind Transactions, including the consideration to be paid and 
received, are reasonable, fair, and do not involve overreaching 
because: (1) The proposed In-Kind Transactions will not adversely 
affect or dilute the interests of Contract Owners; and (2) the proposed 
In-Kind Transactions will comply with the conditions set forth in rule 
17a-7 and the Act, other than the requirement relating to cash 
consideration. Even though the proposed In-Kind Transactions will not 
comply with the cash consideration requirement of paragraph (a) of Rule 
17a-7, the terms of the proposed In-Kind Transactions will offer to the 
Existing and Replacement Portfolios the same degree of protection from 
overreaching that Rule 17a-7 generally provides in connection with the 
purchase and sale of securities under that Rule in the ordinary course 
of business. In particular, the Section 17 Applicants cannot effect the 
proposed In-Kind Transactions at a price that is disadvantageous to 
either the Existing Portfolio or the Replacement Portfolio, and the 
proposed In-Kind Transactions will not occur absent an exemptive order 
from the Commission.
    11. The Section 17 Applicants also submit that the proposed In-Kind 
Transactions are, or will be, consistent with the policies of the 
Existing Portfolio and the Replacement Portfolio as stated in their 
respective registration statements and reports filed with the 
Commission. Finally, the Section 17 Applicants submit that the proposed 
In-Kind Transactions are consistent with the general purposes of the 
Act.

Applicants' Conditions

    The Section 26 Applicants agree that any order granting the 
requested relief will be subject to the following conditions:
    1. The proposed Substitution will not be effected unless NYLIAC 
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 proposed 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 proposed Substitution.
    2. NYLIAC or its affiliates will pay all expenses and transaction 
costs of the proposed Substitution, including legal and accounting 
expenses, any applicable brokerage expenses and other fees and 
expenses. No fees or charges will be assessed to the Contract Owners to 
effect the proposed Substitution.
    3. The proposed Substitution will be effected at the relative net 
asset values of the respective shares in conformity with section 22(c) 
of the Act and rule 22c-1 thereunder without the imposition of any 
transfer or similar charges by the Section 26 Applicants. The proposed 
Substitution will be effected without change in the amount or value of 
any Contracts held by affected Contract Owners.
    4. The proposed 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 proposed Substitution.
    5. The rights or obligations of the Section 26 Applicants under the 
Contracts of affected Contract Owners will not be altered in any way. 
The proposed Substitution will not adversely affect any riders under 
the Contracts since the Replacement Portfolio is an allowable 
investment option for use with such riders.
    6. Affected Contract Owners will be permitted to make at least one 
transfer of Contract value from the Subaccount investing in the 
Existing Portfolio (before the Effective Date) or the Replacement 
Portfolio (after the Effective Date) to any other available investment 
option under the Contract without charge for a period beginning at 
least 30 days before the Effective Date through at least 30 days 
following the Effective Date. Except as described in any market timing/
short-term trading provisions of the relevant prospectus, NYLIAC will 
not exercise any right it may have under the Contract 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 Effective Date through at least 
30 days following the Effective Date.
    7. All affected Contract Owners will be notified, at least 30 days 
before the Effective Date about: (a) The intended substitution of the 
Existing Portfolio with the Replacement Portfolio; (b) the intended 
Effective Date; and (c) information with respect to transfers as set 
forth in Condition 6 above. In addition, NYLIAC will deliver to all 
affected Contract Owners, at least 30 days before the Effective Date, a 
prospectus for the Replacement Portfolio.
    8. NYLIAC will deliver to each affected Contract Owner within five 
(5) business days of the Effective Date a written confirmation which 
will include: (a) A confirmation that the Proposed Substitution was 
carried out as previously notified; (b) a restatement of the 
information set forth in the Supplements; and (c) before and after 
account values.
    9. The Section 26 Applicants will cause the Manager to enter into a 
written contract with the Replacement Portfolio, whereby, during the 
two (2) years following the Effective Date, the annual net operating 
expenses of the Replacement Portfolio will not exceed the annual net 
operating expenses of the Existing Portfolio for the fiscal year ended 
December 31, 2015. The Section 26 Applicants further agree that 
separate account charges for any Contract owner on the Effective Date 
will not be increased at any time during the two year period following 
the Effective Date.
    10. The Replacement Portfolio will not rely on the Manager of 
Managers Order unless such action is approved by a majority of the 
Replacement Portfolio's outstanding voting securities,

[[Page 50588]]

as defined in the Act, at a meeting whose record date is after the 
Proposed Substitution has been effected.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
 Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18060 Filed 7-29-16; 8:45 am]
 BILLING CODE 8011-01-P