[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Notices]
[Pages 63993-63996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31622]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22906; File No. 812-10752]
Fortis Benefits Insurance Company, et al.; Notice of Application
November 24, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'').
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SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the Limited Maturity Bond Portfolio of the
Neuberger & Berman Advisers Management Trust (``N & B Bond Portfolio'')
for shares of the Strong Advantage Fund II series (``Strong Advantage
Portfolio'') of the Strong Variable Insurance Funds, Inc. (``Strong
Funds'') and the substitution of shares of the Federated Fund for U.S.
Government Securities II portfolio of Federated Insurance Series
(``Federated Government Portfolio'') for shares of the Strong
Government Securities Fund II series of the Strong Funds (``Strong
Government Portfolio'').
Applicants: Fortis Benefits Insurance Company (``Fortis Benefits'')
and Variable Account D of Fortis Benefits Insurance Company (the
``Variable Account'').
Filing Date: The application was filed on August 11, 1997, and
amended on October 31, 1997 .
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 on this application by writing
to the Secretary of the SEC and serving Applicants with a copy of the
request, in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on December 19, 1997, and accompanied by proof
of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the requester's interest, 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 Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 500 Bielenberg Drive, Woodbury, Minnesota 55125.
FOR FURTHER INFORMATION CONTACT: Susan M. Olson, Attorney, or Kevin M.
Kirchoff, Branch 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 SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. (202) 942-8090).
Applicants' Representations
1. Fortis Benefits, a stock life insurance company organized under
the laws of Minnesota, is qualified to sell life insurance contracts in
the District of Columbia and all states except New York. Fortis
Benefits is an indirect wholly-owned subsidiary of Fortis, Inc., which
is owned, indirectly, 50% by Fortis AMEV and 50% by Fortis AG. Fortis
AMEV is a diversified financial
[[Page 63994]]
services company headquartered in Utrecht, the Netherlands. Fortis AG
is a diversified financial services company headquartered in Brussels,
Belgium. Fortis AMEV and Fortis AG have merged their operating
companies under the trade name of Fortis. Fortis Benefits is the
depositor and sponsor of the Variable Account.
2. The Variable Account is a segregated investment account of
Fortis Benefits and was established under the insurance laws of
Minnesota. The Variable Account is registered with the Commission as a
unit investment trust under the 1940 Act. The Variable Account issues
flexible premium deferred combination variable and fixed annuity
contracts on either a group basis or as individual contracts
(``Contracts'', and owners of which are referred to as ``Holders'').
Interests in the Variable Account are offered through the sale of the
Contracts and are registered under the Securities Act of 1933 (``1933
Act''). The Contracts are structured to allow Holders to elect an
interest accumulation option through a fixed account (the ``Fixed
Account'') or a variable return accumulation option through the
Variable Account, or a combination of these two options.
3. The Variable Account is divided into subaccounts
(``Subaccounts''). Assets held in each Subaccount pursuant to the
Contracts are invested exclusively in one of the funds or portfolios
available for investment. The portfolios are registered investment
companies available for purchase only as a funding vehicle for variable
life insurance and variable annuities issued by Fortis Benefits and
other insurance companies (the ``Portfolios''). For Holders who were
issued Contracts on or after December 1, 1996, there are 22 Subaccounts
available for investment. The Strong Advantage Portfolio and the Strong
Government Portfolio are not available for investment to Holders issued
Contracts on or after December 1, 1996. For Holders issued Contracts
before December 1, 1996, there are 30 Subaccounts available for
investment, including the Strong Advantage Portfolio and the Strong
Government Portfolio.
4. Strong Funds is registered under the 1940 Act as a diversified,
open-end management investment company and currently issues seven
series of shares, each of which is a separate open-end diversified
investment management company. Each series of the Strong Funds is
managed by Strong Capital Management.
5. Neuberger & Berman Advisers Management Trust is registered under
the 1940 Act as a diversified, open-end management investment company
and currently is comprised of seven portfolios, each of which is a
separate open-end diversified management investment company. Each
portfolio invests all of its net assets in its corresponding series of
Advisers Managers Trust, an open end management investment company, in
each case receiving a beneficial interest in that series. The
corresponding series for the N & B Bond Portfolio is AMT Limited
Maturity Bond Investment. AMT Limited Maturity Bond Investments invests
in securities in accordance with an investment objective, policies and
limitations identical to those of the N & B Bond Portfolio. The
investment performance of the N & B Bond Portfolio will directly
correspond with the investment performance of AMT Limited Maturity Bond
Investments. This master/feeder fund structure is different from that
of many investment companies which directly acquire and manage their
own portfolio of securities. AMT Limited Maturity Bond Investment is
managed by Neuberger & Berman Management Incorporated.
6. Federated Insurance Series is registered under the 1940 Act as a
diversified management investment company. The Federated Government
Portfolio is a diversified investment portfolio of the Federated
Insurance Series.
7. Applicants are seeking to substitute shares of the N & B Bond
Portfolio for shares of the Strong Advantage Portfolio and to
substitute shares of the Federated Government Portfolio for shares of
the Strong Government Portfolio.
8. Applicants represent that as of June 30, 1997, the assets
attributable to Holders of the Subaccounts holding shares of the Strong
Advantage Portfolio and the Strong Government Portfolio were relatively
small, $152,580 and $96,408, respectively.
9. Applicants represent that as of June 30, 1997, the total net
asset value of the Strong Advantage Portfolio and Strong Government
Portfolio were relatively small, $192,723 and $96,453 , respectively.
10. Applicants represent that there has been a decrease in net
asset value during 1997, as of June 30, 1997. From December 31, 1996 to
June 30, 1997, the Strong Advantage Portfolio has decreased in size
from $587,615 to $192,723 and the Strong Government Portfolio has
decreased from $199,328 to $96,453.
11. The investment objective of the Strong Advantage Portfolio is
to seek current income with a very low degree of share price
fluctuation, which is pursued by investing in very short term,
investment grade debt obligations. The investment objective of the
Strong Government Portfolio is to seek total return by investing for a
high level of current income with a moderate degree of share price
fluctuation, which is pursued by normally investing at least 80% of
total assets in U.S. government securities.
12. The investment objective of the N & B Bond Portfolio is to seek
the highest current income consistent with low risk to principal and
liquidity and secondarily, total return. The investment objective of
the N & B Bond Portfolio is pursued by investing in a diversified
portfolio of short to intermediate term U.S. government and agency
securities and debt securities issued by financial institutions,
corporations and others, primarily investment grade. The investment
objective of the Federated Government Portfolio is to seek current
income, which is pursued by normally investing at least 65% of total
assets in securities issued or guaranteed as to payment of principal
and interest by the U.S. government, its agencies or instrumentalities.
13. For several reasons, Applicants believe that it is not in the
best interests of the Holders to continue to utilize the Strong
Advantage Portfolio and Strong Government Portfolio (collectively, the
``Replaced Portfolios'') as investment options and further believe that
the Applicants can better serve the interest of the Holders by
utilizing investment alternative that may be better suited to their
needs and interests.
14. Applicants represent that the proposed substitution of shares
of the N & B Bond Portfolio for shares of the Strong Advantage
Portfolio and the proposed substitution of shares of the Federated
Government Portfolio for shares of the Strong Government Portfolio
involve the substitution of Portfolios whose objectives, policies and
restrictions are sufficiently similar to those of the Replaced
Portfolios so as to continue fulfilling Holders' objectives and risk
expectations.
15. Applicants represent that the performance of each Portfolio in
which Holders will be invested following the proposed substituon is
comparable or superior to the investment performance of the replaced
Portfolios. The following chart sets forth the comparative average
annual total returns for the periods listed below for the Replaced
Portfolios and the N & B Bond Portfolio and the Federated Government
Portfolio.
[[Page 63995]]
Average Annual Total Return for Specified Periods
[In percent]
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Since
For 6 months, For year For five inception**
Portfolios ending 6/30/97 ending 12/30/ years, ending through 12/30/
96 12/30/96 96
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Strong Advantage Portfolio...................... *2.30 4.92 N/A 5.24
N & B Bond Portfolio............................ *2.96 4.31 5.32 N/A
Strong Government Portfolio..................... *2.60 N/A N/A -0.41
Federated Government Portfolio.................. *3.01 4.20 N/A 5.62
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* Not Annualized.
** Strong Advantage Portfolio, inception date 11/30/95. Strong Government Portfolio, inception date 1/31/96.
Federated Government Portfolio, inception date 3/28/94.
16. Applicants represent that the ratio of expenses to net assets
for the Subaccounts in which Holders will be invested after the
substitution will be no greater than the ratio of expenses to net
assets, after reimbursements and waivers, for the Subaccounts proposed
to be eliminated. Therefore Holders will not be exposed to higher
expenses following the substitution. The investment advisers to the
Strong Advantage Portfolio, the Strong Government Portfolio and the
Federated Government Portfolio have arrangements under which each may
voluntarily waive a portion of their fees or reimburse the Portfolios
for certain operating expenses. The investment adviser to the N & B
Bond Portfolio has contractually agreed, subject to termination on 60
days prior written notice, to limit certain of the N & B Bond
Portfolio's operating expenses by reimbursing certain expenses that
exceed 1% of the average daily net asset value of the N & B Bond
Portfolio. The following chart summarizes the ratio of expenses to net
assets for the Portfolios for the year ended December 31, 1996 before
and after reimbursements and waivers.
Ratio of Expenses to Net Assets for the Year Ended December 31, 1996
[In percent]
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Total expenses Total expenses
after before
Portfolio reimbursements reimbursements
and waivers and waivers
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Strong Advantage Portfolio.............. 2.00 2.87
N & B Bond Portfolio.................... 0.78 0.78
Strong Government Portfolio............. *1.70 *3.90
Federated Government Portfolio.......... 0.80 1.81
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* Calculated on an annualized basis (commenced operations on January 31,
1996).
17. Applicant states that the small amount of assets attributable
to Holders of the Subaccounts holding shares of the Replaced
Portfolios, the relatively small total net asset values of the Replaced
Portfolios, the relatively small overall size of the Replaced
Portfolios with the decrease in net asset value during the first 6
months of 1997 and the fact that the Replaced Portfolios are not
available as investment options to Holders of Contracts issued after
December 1, 1996, will tend to strain the ability of the Replaced
Portfolios to maintain an acceptable expense ratio compared to the
larger N & B Bond Portfolio and the Federated Government Portfolio
(collectively, the ``Substitute Portfolios''). Accordingly, the
proposed substitution is expected to confer economic benefits to
Holders by virtue of the enhanced asset size and the reduced expense
ratios of the Substitute Portfolios.
18. The comparative total net assets as of June 30, 1997 were
$252,284,067 for the N & B Bond Portfolio, compared to $192,723 for the
Strong Advantage Portfolio, and $44,369,652 for the Federated
Government Portfolio, compared to $96,453 for the Strong Government
Portfolio.
19. Applicants state that since the N & B Bond Portfolio and the
Federated Government Portfolio are available for investment under the
Contracts, all of the affected Holders have received a current
prospectus relating to the N & B Bond Portfolio and the Federated
Government Portfolio.
20. Applicants state that notice will be sent to Holders 30 days
prior to the proposed substitution which informs them that Fortis
Benefits has filed an application for an order allowing Applicants to
undertake the substitution described in their application and that they
may elect at any time prior to the close of business on the closing
date of the transactions to transfer their interest in either or both
of the two current Subaccounts to any other Subaccount or to the Fixed
Account, without charge. The notice will also inform Holders of the
approximate date of the substitution. Once the substitution is
completed, a confirmation will be mailed to the Holders reflecting the
transfer of the Contract value from the Subaccount investing in the
Strong Advantage Portfolio to the Subaccount investing in the N & B
Bond Portfolio and/or the transfer of Contract value from the
Subaccount investing in the Strong Government Portfolio to the
Subaccount investing in the Federated Government Portfolio. The
confirmation will be sent within 5 days of the substitution.
21. Applicants represent that the substitution will be effected by
redeeming all shares held by the Variable Account in the Strong
Advantage Portfolio and the Strong Government Portfolio and an
equivalent purchase of shares in the N & B Bond Portfolio and the
Federated Government Portfolio, respectively, at net asset value on the
same date. The values under each Contract will be identical immediately
before and after the transactions. All administrative and other costs
of the transactions will be borne by Fortis Benefits. There will be no
tax consequences to Holders and no adverse tax consequences to the
Variable Account or Fortis Benefits relating to the transactions. The
proposed substitution will not be counted as a transfer for the purpose
of any restrictions on the number of transfers that may now or in the
future apply to Holders. The proposed substitution will not alter the
insurance benefits or other rights or benefits of Holders or the
contractual obligations of Fortis Benefits.
Applicants' Legal Analysis
1. Section 26(b) 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.'' Section 26(b) of the 1940
[[Page 63996]]
Act also provides that the Commission shall issue an order approving
such substitution if the evidence establishes that the substitution is
consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the 1940 Act.
2. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the substitution of the Replaced Portfolios with the
Substitute Portfolios.
3. The Contracts provide that Fortis Benefits retains the right to
make certain changes, if, in its judgment, they would best serve the
interests of the Holders or would be appropriate in carrying out the
purposes of the Contracts. Examples of the changes Fortis Benefits may
make are to transfer assets in any Subaccount to another Subaccount, or
to one or more separate accounts, or to add, combine or remove
Subaccounts in the Variable Account or to substitute, for the Portfolio
shares held in any Subaccount, the shares of another Portfolio or the
shares of another investment company or any other investment permitted
by law.
4. Applicants submit that the proposed substitution will meet the
requirements of Section 26(b) for the following reasons:
(a) The investment objectives of the Replaced Portfolios are
sufficiently similar to those of the Substitute Portfolios,
respectively, to be appropriate for substitution.
(b) The investment performance of the Substitute Portfolios is
comparable or superior to the investment performance of the Replaced
Funds.
(c) The comparative ratio of expenses to net assets (following
reimbursement) for the Substitute Portfolios will be no greater than
that of the Replaced Portfolios.
(d) The proposed substitution will result in the investment of
assets, currently in Portfolios which have not increased to a level
which would make each investment alternative viable for Holders,
into substantially larger and more stable underlying Portfolios.
Conclusion
For the reasons stated above, Applicants submit that the proposed
substitution is consistent with the protection of investors and the
purposes fairly intended by the policy and the provisions of the 1940
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31622 Filed 12-2-97; 8:45 am]
BILLING CODE 8010-01-M