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Securities Act of 1933 - Section 5 and Rule 145
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RESPONSE OF THE OFFICE OF INSURANCE PRODUCTS |
Sun Life Assurance Company of Canada (U.S.) and Keyport |
DIVISION OF INVESTMENT MANAGEMENT |
Life Insurance Company |
Based on the facts and representations in your letter dated December 19, 2003, and without necessarily agreeing with your legal analysis, we would not recommend enforcement action to the Commission against Sun Life Assurance Company of Canada (U.S.) ("Sun Life") or Keyport Life Insurance Company ("Keyport") under Section 5 of the Securities Act of 1933 (the "1933 Act") and Rule 145 thereunder, or Sections 8 and 11 of the Investment Company Act of 1940 (the "1940 Act"), if Keyport transfers its separate accounts ("Keyport Accounts") to Sun Life in connection with the proposed merger of Sun Life and Keyport (the "Merger"). In addition, we would not recommend enforcement action to the Commission if: (1) the change in depositor for the transferred Keyport Accounts as a result of the Merger is effected through the filing of amendments to the registration statements for the Keyport Accounts under the 1940 Act; and (2) new registration statements under the 1933 Act for the transferred Keyport Accounts are filed by Sun Life and the Keyport Accounts to cover any securities issued in connection with the Keyport contracts after the Merger is effected.
Similarly, we would not recommend enforcement action to the Commission under Section 5 of the 1933 Act and Rule 145 thereunder, if, with respect to certain market value adjustment contracts ("MVA Contracts"), Keyport transfers to Sun Life assets equal to its reserves and other liabilities under the relevant MVA Contracts, and Sun Life assumes all the obligations and responsibilities of Keyport under such contracts.
Because our position is based on the facts and representations in your letter, you should note that different facts or representations may require a different conclusion. Further, this response expresses the position of the Division on enforcement only, and does not purport to express any legal conclusion on the issues presented.
Rebecca A. Marquigny
Senior Counsel
William Kotapish, Esq.
Assistant Director
Office of Insurance Products
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company
Dear Mr. Kotapish:
We are writing on behalf of Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)") and Keyport Life Insurance Company ("Keyport") to request that the staff advise us that it would not recommend that the Securities and Exchange Commission (the "Commission") take any enforcement action against Sun Life (U.S.) and Keyport:
In the past, the Commission's staff has granted requests for similar relief. For the reasons set forth below, we believe that the relief requested here also should be granted.
Sun Life (U.S.) is a stock life insurance company incorporated under the laws of Delaware on January 12, 1970.1 Its executive office is located at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. Sun Life (U.S.) issues individual and group life insurance policies and annuity contracts and is authorized to do business in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. As of December 31, 2002, Sun Life (U.S.) had assets of approximately $20 billion.
Sun Life (U.S.) is a wholly owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc. ("Sun Life (U.S.) Holdings"). The ultimate parent of Sun Life (U.S.) and Sun Life (U.S.) Holdings is Sun Life Financial Inc. (formerly known as Sun Life Financial Services of Canada, Inc.), a Canadian corporation with common shares listed on the Toronto, New York, and Philippines stock exchanges.
Keyport is a stock life insurance company incorporated under the laws of the State of Rhode Island in 1957. Its executive office is located at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. Keyport issues individual and group annuity contracts and formerly issued individual life insurance policies. Keyport is authorized to do business in 49 states, the District of Columbia and the Virgin Islands. As of December 31, 2002, Keyport had assets of approximately $19.6 billion. Keyport is a wholly owned subsidiary Sun Life (U.S.) Holdings, and is therefore under common control with Sun Life (U.S.).
Sun Life (U.S.) has 20 registered separate accounts (the "Sun Life (U.S.) Accounts"), which fund variable life insurance contracts or variable annuity contracts (collectively, the "Sun Life (U.S.) Contracts"). The Sun Life (U.S.) Accounts are separate accounts created pursuant to Delaware insurance law, and each is registered with the Commission under the 1940 Act2 as a unit investment trust or as an open-end, diversified management investment company. The Sun Life (U.S.) Contracts supported by the Sun Life (U.S.) Accounts are registered as securities with the Commission under the 1933 Act. The Sun Life (U.S.) Accounts which are registered as unit investment trusts consist of sub-accounts, each of which invests in a series of either an affiliated or unaffiliated open-end, diversified management investment company registered under the 1940 Act.
The Sun Life (U.S.) Contracts permit additional payments and allow transfers among sub-accounts, subject to certain conditions. The Sun Life (U.S.) Contracts offer a general account option, which is not registered with the Commission in reliance on certain exemptive and exclusionary provisions in the federal securities laws. In addition, certain Sun Life (U.S.) Contracts offer a fixed account investment option that is registered under the 1933 Act.
Clarendon Insurance Agency, Inc. ("Clarendon"), an indirect wholly owned subsidiary of Sun Life (U.S.) Holdings, is the principal underwriter for the Sun Life (U.S.) Contracts. Clarendon is an "affiliated person" (as that term is defined in Section 2(a)(3) of the 1940 Act) of Sun Life (U.S.).
Keyport has three registered separate accounts (the "Keyport Accounts"): KMA Variable Account, which funds one variable annuity contract; Variable Account A, which funds 10 variable annuity contracts; and Keyport Variable Account I, which funds one variable life insurance contract. The Keyport Accounts are separate accounts created pursuant to Rhode Island insurance law, and each is registered as a unit investment trust with the Commission under the 1940 Act. The variable contracts supported by the Keyport Accounts (the "Keyport Variable Contracts") are registered as securities with the Commission under the 1933 Act.3 The Keyport Accounts consist of sub-accounts, each of which invests in a series of either an affiliated or unaffiliated open-end, diversified management investment company registered under the 1940 Act.
The Keyport Variable Contracts permit additional payments and allow transfers among sub-accounts, subject to certain conditions.4 Certain Keyport Variable Contracts also offer a general account option, which is not registered with the Commission in reliance on certain exemptive and exclusionary provisions in the federal securities laws.
Keyport Financial Services Corp. ("KFSC"), a wholly owned subsidiary of Keyport, is the principal underwriter for the Keyport Contracts. KFSC is an "affiliated person" (as that term is defined in Section 2(a)(3) of the 1940 Act) of Keyport. Following the Merger, it is planned that Clarendon will act as the principal underwriter for the Keyport Contracts.
The Keyport MVA Contracts are fixed account annuity contacts, comprised of group and individual single premium annuity contracts (the "Single Premium MVA Contracts") and group and individual flexible premium annuity contracts (the "Flexible Premium MVA Contracts"). The Keyport MVA Contracts offer two general account options, one of which is subject to a market value adjustment provision. The Keyport MVA Contracts have no variable investment option.
Keyport holds assets attributable to the reserves it must maintain for, and its other liabilities with respect to, the Single Premium MVA Contracts in a non-unitized separate account which is not registered under the 1940 Act. Keyport no longer offers the Single Premium MVA Contracts, is not accepting additional payments under outstanding Single Premium MVA Contracts, and is not filing post-effective amendments to the 1933 Act registration statement for the Single Premium MVA Contracts.5
Keyport holds assets attributable to the reserves it must maintain for, and its other liabilities with respect to, the Flexible Premium MVA Contracts in a non-unitized separate account which is not registered under the 1940 Act. The Flexible Premium MVA Contracts are registered as securities with the Commission under the 1933 Act.6 The Flexible Premium MVA Contracts permit additional payments and allow transfers among the general account options, subject to certain conditions.
The Keyport MVA Contracts, together with the Keyport Variable Contacts, are hereinafter referred to collectively as the "Keyport Contracts."
Sun Life (U.S.) Holdings conducts insurance and related operations through various direct and indirect, wholly owned insurance companies, including Sun Life (U.S.) and Keyport. It proposes to simplify its corporate and operational structure so that it might operate more efficiently and reduce administrative and compliance costs. To that end, it intends to combine the operations of Sun Life (U.S.) and Keyport through the Merger. In June 2003, Sun Life (U.S.) and Keyport entered into an agreement and plan of merger (the "Merger Agreement") pursuant to which Keyport will merge with and into Sun Life (U.S.) leaving Sun Life (U.S.) as the surviving company. The Merger, including the Transfers, the MVA Transfer, and related transactions, has been approved by the Boards of Directors of Sun Life (U.S.) and Keyport and each party's sole shareholder. The parties have obtained the other necessary formal regulatory approvals and expect to have the Merger become effective on December 31, 2003.7
Upon the effective date of the Merger ("Effective Date"), Sun Life (U.S.) will assume legal ownership of all of the assets of Keyport and will become directly liable for Keyport's liabilities and obligations with respect to the Keyport Contracts then outstanding. Each Keyport Contract owner will become a contract owner of Sun Life (U.S.) by operation of law. The Merger will not affect the provisions of, or the rights and obligations under, the Keyport Contracts. Moreover, the Merger will not dilute or otherwise adversely affect the economic interests of the owners of the Keyport Contracts, nor will the Merger affect the values determined under the Keyport Contracts. The net unit value of the Keyport Accounts in effect immediately after the transfers will be identical to the net asset value per unit of interest in effect immediately before the transfers. The Merger Agreement will not affect the current owners of Sun Life (U.S.) Contracts.
The Sun Life (U.S.) Accounts and the Keyport Accounts (collectively, the "Accounts") are not parties to the Merger Agreement, which will be entered into at the insurance company level. As a result of the Merger, the Accounts, which are registered under the 1940 Act, will continue to maintain their separate account status as unit investment trusts under the 1940 Act and as separate accounts under applicable state insurance law. The Accounts will not be merged into one another.
No charges will be imposed on, or other deductions made from, the Keyport Accounts or the Sun Life (U.S.) Accounts in connection with the Merger. In addition, no payments will be required or charges imposed under the Keyport Contracts in connection with, or by virtue of, the Merger that would not otherwise be required or imposed.
No new investment options will be made available to owners of the Keyport Contracts in connection with, or by virtue of, the Merger, nor will any existing investment options be substituted or terminated. Each sub-account of the Keyport Accounts will continue to invest in the same underlying fund as that sub-account invested in prior to the Merger.
The Merger will not directly affect any of the management investment companies underlying either the Keyport Accounts or the Sun Life (U.S.) Accounts (collectively, the "Funds"). The Funds will not be a party to the Merger or any related transaction. The investment objectives, policies, and restrictions of the Funds will not be changed as a result of the Merger or any related transaction. No investment portfolios are proposed to be added to, substituted by, or terminated by the Funds in connection with the Merger or any related transaction. Moreover, the Merger will not result in any change to the investment advisers for the Funds, the Funds' assets, or the charges imposed on the Funds or their shareholders. In addition, although the principal underwriter for Keyport may change after the Merger, the principal underwriter will continue to be a wholly owned subsidiary of Sun Life (U.S.) Holdings.
Sun Life (U.S.) and Keyport have determined that no provision of the Keyport Contracts or state law provides the owners of those Contracts (the "Keyport Contract owners") with any right to opt-out of, or to vote on or otherwise consent to, the Merger. Rather, the only required votes are those of the sole voting stockholders of the merging companies. Moreover, none of the events affecting the Keyport Accounts in connection with the Merger require a vote of Keyport Contract owners under the 1940 Act. In addition, as described above, the investment options and contractual rights and obligations under the Keyport Contracts will not change, except that Sun Life (U.S.) will become the depositor of the Keyport Accounts. Consequently, Keyport Contract owners will have no investment decision to make with respect to the Merger.
All direct and indirect costs of the Merger will be borne by Sun Life (U.S.) or Keyport and not by any owners of Sun Life (U.S.) or Keyport Contracts.
Pursuant to the Merger Agreement, each of the Keyport Accounts will transfer intact to Sun Life (U.S.) and become part of Sun Life (U.S.) on the Effective Date. Each transferred Keyport Account will change its name, and have Sun Life (U.S.) as its depositor rather than Keyport. No other changes to the Keyport Accounts will result from the Merger.
The assets and liabilities that comprise the Keyport Accounts immediately prior to the Merger will remain intact and legally separate from any other business of Sun Life (U.S.), as the surviving company, after the Merger. In addition, the Keyport Accounts will continue to fund the same Keyport Contracts they did immediately prior to the Merger.
After the Merger, Sun Life (U.S.) intends to accept additional payments under the transferred Keyport Variable Contracts outstanding at the time the Merger is effected, and to continue offering new contracts that are identical to the Contracts currently being offered, but for the change in depositor.8 Sun Life (U.S.) will administer the Keyport Variable Contracts in the same manner as Keyport did immediately prior to the Merger.
Pursuant to the Merger Agreement, Keyport will transfer assets equal to its reserves and other liabilities under the Keyport MVA Contracts to Sun Life (U.S.), and Sun Life (U.S.) will assume Keyport's obligations under such Contracts, on the Effective Date. As a result of the Merger, each non-unitized separate account of Keyport that funds the Keyport MVA Contracts will become a non-unitized separate account of Sun Life (U.S.). At the same time, Sun Life (U.S.) will assume legal ownership of the fixed account assets of Keyport and become responsible for all the liabilities and obligations of Keyport under the Keyport MVA Contracts issued prior to the Merger.
The MVA Transfer will not change the terms of the Keyport MVA Contracts, except for the succession of Sun Life (U.S.) as the insurer under the Keyport MVA Contracts, and it will not adversely affect the values determined under, or the economic interests of the owners of, those Contracts.
After the Merger, Sun Life (U.S.) intends to accept additional payments under the transferred Flex Premium MVA Contracts outstanding at the time the Merger is effected, and to continue offering new contracts that are identical to the Contracts currently being offered. Sun Life (U.S.) will administer the Flex Premium MVA Contracts in the same manner as Keyport did immediately prior to the Merger.
Sun Life (U.S.) does not intend to offer additional Single Premium MVA Contracts or accept additional payments under outstanding Single Premium MVA Contracts or file post-effective amendments to the 1933 Act registration statement for the Single Premium MVA Contracts.
Sun Life (U.S.) will file new registration statements on Form N-4 or Form N-6, as applicable, under the 1933 Act to reflect the change in depositor of the Keyport Accounts and Sun Life (U.S.)'s assumption, pursuant to the Merger, of the contractual obligations and liabilities of Keyport under the Keyport Variable Contracts. The registration statements will include financial statements reflecting consummation of the Merger and reflect Sun Life (U.S.)'s sponsorship of the Keyport Accounts as a result of the Merger, but will retain the historical financial information of the Keyport Accounts. Sun Life (U.S.) will seek to have the new registration statements declared effective on or immediately following the Effective Date. The prospectuses included in the new registration statements will be sent to all Keyport Contract owners.
Sun Life (U.S.) also will file a new registration statement on Form S-3 under the 1933 Act for the Flexible Premium MVA Contracts. Sun Life (U.S.) will seek to have the registration statement declared effective on or immediately following the Effective Date. The new registration statement will reflect Sun Life (U.S.)'s assumption of the contractual obligations and liabilities of Keyport with respect to the Flexible Premium MVA Contracts pursuant to the Merger. Each person who owns a Keyport MVA Contract at the time of the MVA Transfer will receive a revised prospectus reflecting the change in insurer.
Following the Effective Date, Sun Life (U.S.) will not make offers or accept payments under the Keyport Contracts until the new registration statements filed with the Commission are effective.
As discussed more fully below, it is our view, with regard to the proposed Merger (including the Transfers and the MVA Transfer), that: (1) Section 5 of the 1933 Act and Rule 145 thereunder are inapplicable to the Merger, and no registration statements on Form N-14 are required; (2) Section 8 of the 1940 Act is inapplicable to the Merger; and (3) Section 11 of the 1940 Act is inapplicable to the Merger, but if Section 11 is viewed as applicable to the Merger transactions, the transactions will comply with the conditions of Section 11(a) of the 1940 Act, and Rule 11a-2 thereunder. Neither Sun Life (U.S.) nor Keyport seeks no-action reassurance under Section 17(a) or Section 17(d) of the 1940 Act with respect to the Transfers.9
In support of our views, we note that the proposed Merger is analytically the same as numerous reorganizations that have been the subject of previous no-action requests, seeking substantially identical relief from the provisions of the 1933 Act and 1940 Act noted above, to which the staff responded favorably and which deal with stock and mutual life insurance companies involved in mergers where one or both of such companies issued variable insurance products.10 In connection with the relief sought in this request, the proposed Merger poses no different issues than those present in these previous transactions.
In our view, the succession of Sun Life (U.S.) to the position of depositor for the Keyport Accounts and co-issuer of the Keyport Variable Contracts, pursuant to the Transfers and any related transactions, will not result in the offer or sale of any new or different security or in the creation of a new or different investment company issuer for purposes of Section 5 of the 1933 Act or Rule 145 thereunder. Rule 145, an interpretive rule adopted by the Commission, provides guidance on when certain corporate reorganizations may entail the offer or sale of a new security in exchange for outstanding securities of a corporation involved in the reorganization.11
Similar to the facts in previously issued no-action letters,12 the terms of the Merger Agreement will not result in any material change to the Keyport Variable Contracts, except that, by operation of law, the identity of the sponsor/depositor will be different. These previously issued no-action letters involve circumstances virtually identical to those presented above: two insurance companies merging where one or both of the companies have variable contracts outstanding. Each of the previously issued no-action letters indicates that, just as in this case, the assets and liabilities that comprised the separate account remained intact after the merger and were legally segregated from the other business of the surviving life insurance company.
In this case, the Keyport Accounts will remain intact after the Merger and the assets of each of the transferred Keyport Accounts will be legally segregated from all other assets of the depositor and will not be combined with those of any other separate account or other entity. The transferred Keyport Variable Contracts will continue to provide Contract owners with the same rights and benefits after the proposed Merger as before, including surrender rights, loan privileges, annuity options and death benefits. In addition, the Keyport Variable Contracts will continue to be funded by the transferred Keyport Accounts (albeit under a new name) investing in the same underlying investment vehicles as are currently available under the Keyport Contracts. The financial history of the transferred Keyport Accounts will be carried forward, and, with the exception of the assumption of liabilities by Sun Life (U.S.) (which will be reflected by filing an amendment to each registration statement of a Keyport Account under the 1940 Act), will not change. Furthermore, the assumption of the insurance guarantees under the Keyport Variable Contracts by Sun Life (U.S.) by operation of state law will not affect those aspects of the Contracts that cause them to be treated as securities (i.e., the variable nature of the benefits under the Keyport Variable Contracts, which benefits will continue to be based on the same pool of assets).13
As discussed above, the Merger is not subject, by either state law or federal securities law, to the vote or consent of the Contract owners of either Sun Life (U.S.) or Keyport. There is no material change to the security aspect of the Keyport Variable Contracts issued by Keyport and no new or different investment options will be made available to the Contract owners as a result of the Merger. The only changes involved are the change in the depositor of the transferred Keyport Accounts and the assumption of existing Keyport Variable Contracts by Sun Life (U.S.). Since there will be no vote of the Contact owners relating to a new investment decision, or otherwise, Rule 145 does not apply for the same reasons set forth in the aforementioned no-action letters.14 Based on the foregoing, we have concluded that neither Section 5 of the 1933 Act nor Rule 145 thereunder is applicable to the proposed Transfers and any related transactions.
Moreover, with respect to registration statements under the 1933 Act, we believe that no registration statement on Form N-14 will be required to be filed in connection with the Merger.15 Nonetheless, we believe that the registration statements for the transferred Keyport Variable Contracts issued through each Keyport Account, as separate accounts of Sun Life (U.S.), need to be in effect under the 1933 Act to cover any securities issued after the Merger, which may include any additional payments accepted on the transferred Keyport Variable Contracts outstanding at the time the Merger is effected and any new Keyport Variable Contracts issued thereafter. As noted above, in connection with effecting the Merger, Sun Life (U.S.) and the Keyport Accounts will file new registration statements with the Commission under the 1933 Act for the transferred Keyport Variable Contracts, which registration statements will be requested to be declared effective in conjunction with the Merger.
These new registration statements, which will be filed on Form N-4 or Form N-6, as applicable, will reflect the change in depositor of the Keyport Accounts and Sun Life (U.S.)'s assumption, pursuant to the Merger, of the contractual obligations and liabilities of Keyport under the Keyport Variable Contracts. Because the Transfers are to be made in connection with the Merger of Keyport into Sun Life (U.S.), the registration statements also will include appropriate financial information reflecting the Merger. The new prospectuses will be sent to all owners of Keyport Variable Contracts outstanding at the time the Transfers are effected, and will retain the historical financial information of the Keyport Accounts and will disclose that new premium payments will be accepted under the Keyport Variable Contracts after the Merger.16 Prior to the Effective Date, owners of outstanding Keyport Variable Contracts would have received disclosure from Keyport informing the owners of the proposed Merger, including the Transfers.
In our view, the MVA Transfer will not result in the offer or sale of any new or different security for purposes of Section 5 of the 1933 Act.
No change will be made to the Keyport MVA Contracts by virtue of the MVA Transfer, except that Sun Life (U.S.) will succeed Keyport as the insurance company responsible for providing the rights and benefits under the Keyport MVA Contracts. These rights and benefits (i.e., surrender rights, annuity options, death benefits, etc.) will remain the same. Keyport will transfer its non-unitized separate accounts that hold assets supporting the reserves and other liabilities under the Keyport MVA Contracts intact to Sun Life (U.S.). Consequently, when the MVA Transfer becomes effective, Sun Life (U.S.) will hold these assets in the same non-unitized separate accounts in which they were held prior to the transfer.
As discussed above, owners of Keyport MVA Contracts will not have the opportunity to opt-out of or to vote on or consent to the Merger (including the MVA Transfer) and will not, by virtue of the Merger, have available any new or different investment options. Consequently, owners of Keyport MVA Contracts will have no new investment decision to make in connection with the MVA Transfer.
We believe, however, that the registration statement for the transferred Flexible Premium MVA Contracts needs to be in effect under the 1933 Act to cover any securities issued after the Merger, which may include any additional payments accepted on the transferred Flexible Premium MVA Contracts outstanding at the time the Merger is effected and any new Flexible Premium MVA Contracts issued thereafter. As noted above, in connection with effecting the Merger, Sun Life (U.S.) and the Keyport Accounts will file a new registration statement with the Commission under the 1933 Act for the transferred Flexible Premium MVA Contracts, which registration statement will be requested to be declared effective in conjunction with the Merger.
The new registration statement, which will be filed on Form S-3, will reflect Sun Life (U.S.)'s assumption of Keyport's contractual obligations and liabilities with respect to the Contracts pursuant to the Merger. Because the Transfers are to be made in connection with the Merger of Keyport into Sun Life (U.S.), the registration statement also will include appropriate financial information reflecting the Merger. The new prospectus will be sent to all owners of Flexible Premium MVA Contracts outstanding at the time the Transfers are effected and will disclose that new premium payments will be accepted under the Flexible Premium MVA Contracts after the Merger. Prior to the Effective Date, owners of outstanding Flexible Premium MVA Contracts will have received disclosure from Keyport informing the owners of the proposed Merger, including the Transfers.
It is our view that the succession of Sun Life (U.S.) to the position of depositor for the transferred Keyport Accounts as a result of the Merger will not result in the organization or creation of any new investment company pursuant to Section 8 of the 1940 Act, and, therefore, can, and should, be effected through the amendment of existing registration statements of the Keyport Accounts under the 1940 Act. The filing of these amendments with the Commission will be made as part of the process of filing new 1933 Act registration statements discussed above for the Keyport Contracts. These amendments will reflect Sun Life (U.S.) as the depositor of the Keyport Accounts and the transfer of contractual obligations and liabilities from Keyport to Sun Life (U.S.) as of the Effective Date. This procedure will not necessitate the filing of new notifications of registration or registration statements for the transferred Keyport Accounts pursuant to Section 8 of the 1940 Act.
The proposed Merger will cause a change in the depositor for the Keyport Accounts, which will involve a change in the co-issuer of the Keyport Contracts. The resulting change in the depositor due to the Transfers of the Keyport Accounts, however, will not change the structure or operations of the Keyport Accounts or the relationship of the Keyport Accounts to their depositor or to the Keyport Contract owners. The Keyport Accounts will continue to be treated as separate entities for all relevant purposes, including financial reporting. Sun Life (U.S.) and the Keyport Accounts, accordingly, will amend the existing registration statements for the transferred Keyport Accounts under the 1940 Act on the Effective Date, as discussed above.
Based on the analysis set forth above relating to Section 5 of the 1933 Act, it also is our view that the Merger, including the Transfers and any related transactions, will not involve an exchange of securities issued by an investment company for any other security of an investment company for purposes of Section 11 of the 1940 Act. Nonetheless, should these transactions be viewed as an offer of an exchange of investment company securities within the meaning of Section 11 of the 1940 Act, we believe that the transactions will comply with the conditions of Section 11(a) of the 1940 Act, and Rule 11a-2 thereunder. Accordingly, Commission approval should not be required under Section 11 of the 1940 Act in connection with effecting the Merger, including the Transfers and any related transactions.
Similar to the facts in previously issued no-action letters,17 the terms of the Merger Agreement will not result in any change to the Keyport Variable Contracts, except that, by operation of law, the identity of the depositor will change. These previously issued no-action letters involved circumstances substantially similar to those presented above: two insurance companies merging with one or both of the companies having variable contracts outstanding. Each of the previously issued no-action letters indicates that, just as in this case, the assets and liabilities which comprised the funding separate account after the merger remained intact, and were legally segregated from the other business of the surviving life insurance company.
In this case, the assets in each of the transferred Keyport Accounts will not be combined with those of any other separate account or other entity. The transferred Keyport Variable Contracts will continue to provide Contract owners with the same rights and benefits after the proposed Merger as before, including surrender rights, loan privileges, annuity options and death benefits. In addition, the Keyport Variable Contracts will continue to be funded by the transferred Keyport Accounts (albeit under a new name). The financial history of the transferred Keyport Accounts will be carried forward, and, with the exception of the assumption of liabilities by Sun Life (U.S.), the Keyport Variable Contracts will not change. Furthermore, the assumption of the insurance guarantees under the Keyport Variable Contracts by Sun Life (U.S.) by operation of state law will not affect those aspects of the Contracts that caused them to be treated as securities (i.e., the variable nature of the benefits under the Keyport Contracts).18
In view of these circumstances, we respectfully request that the staff issue a letter stating that the staff will not recommend that the Commission take any enforcement action against Sun Life (U.S.) or Keyport under Section 5 of the 1933 Act and Rule 145 thereunder in connection with the Transfers and the MVA Transfer or under Sections 8 and 11 of the 1940 Act in connection with the Transfers, if the Merger is effect as described herein. In addition, we request that the staff further indicate in this letter that the staff will not recommend that the Commission take any action if: (1) the change in the depositor for the transferred Keyport Accounts as a result of the Merger is effected through the filing of amendments to the registration statements for the Keyport Accounts under the 1940 Act; and (2) new registration statements for the transferred Keyport Contracts under the 1933 Act are filed by Sun Life (U.S.) and the Keyport Accounts to cover any securities issued in connection with the Keyport Contracts after the Merger is effected.
If you have any question or require further information with respect to this matter, please call me at (202) 965- 8152 or Joan Boros at (202) 965-8150.
Very truly yours,
Christopher S. Petito
JORDEN BURT LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-5208
(202) 965-8100
Telecopier: (202) 965-8104
http://www.sec.gov/divisions/investment/noaction/sunlife121903.htm
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