As Of                Filer                Filing    For·On·As Docs:Size

 3/15/19  Voya Retirement Ins & Annuity Co  40-OIP/A               2:1.8M
          Separate Account U of Voya Insurance & Annuity Co
          Separate Account Eq of Voya Insurance & Annuity Co
          Separate Account B of Voya Insurance & Annuity Co
          Variable Annuity Account I of Voya Retirement Ins & Annuity Co
          Variable Annuity Account B of Voya Retirement Ins & Annuity Co
          Separate Account NY B of Reliastar Life Insurance Co of NY

Document/Exhibit                   Description                      Pages   Size 

 1: 40-OIP/A    40-OIP/A -- HTML                                    HTML    650K 
 2: 40-OIP/A    40-OIP/A -- Unofficial PDF --                        PDF    611K 
                          secondapplicationforpdf                                

File No. 812-14856

 

SECURITIES AND EXCHANGE COMMISSION

 

 

RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK

RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK SEPARATE ACCOUNT NY-B

 

VOYA INSURANCE AND ANNUITY COMPANY

SEPARATE ACCOUNT B OF VOYA INSURANCE AND ANNUITY COMPANY

SEPARATE ACCOUNT EQ OF VOYA INSURANCE AND ANNUITY COMPANY

SEPARATE ACCOUNT U OF VOYA INSURANCE AND ANNUITY COMPANY

 

VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY

        VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT B

        VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT I

 

 

 

 

Communications, Notice, and Order to:

 

J. Neil McMurdie

Senior Counsel

Voya Insurance and Annuity Company

1475 Dunwoody Drive

West Chester, PA 19380

1-860-944-4114

neil.mcmurdie@venerableannuity.com

 

Peter Scavongelli

Senior Counsel

Voya Financial Legal Services

One Orange Way, C2N

Windsor, CT 06095

1-860-580-1631

peter.scavongelli@voya.com

 

 

March 15, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit Index on Page:  95

UNITED STATES OF AMERICA

BEFORE THE

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

I - THE APPLICATION

 

ReliaStar Life Insurance Company of New York (“ReliaStar New York”), Voya Insurance and Annuity Company (“Voya Insurance”), and Voya Retirement Insurance and Annuity Company (“Voya Retirement”), (each a “Company” and together, the “Companies”), ReliaStar New York Separate Account NY-B, Voya Insurance Separate Account B, Separate Account EQ and Separate Account U, and Voya Retirement Variable Annuity Account B and Variable Annuity Account I (each, an “Account” and together, the “Accounts”) hereby submit this Application for an order of the Securities and Exchange Commission (the “Commission”), pursuant to Section 26(c) of the Investment Company Act of 1940, as amended (the “1940 Act”). The Companies and the Accounts are collectively referred to herein as the “Applicants.”

 

The Applicants seek an order from the Commission permitting the substitution of securities issued by certain registered investment companies held by the Accounts, which securities support certain in force variable annuity contracts (collectively, the “Contracts”) issued by the Companies (the “Substitutions”). More particularly, the Applicants propose to substitute shares of certain series of Voya Investors Trust and Voya Variable Portfolios, Inc. (the “Replacement Funds”) for shares of certain series of Voya Investors Trust and Voya Partners, Inc., registered investment companies currently held by subaccounts of the Accounts (the “Existing Funds”) as follows:

 

 

 

 

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II - GENERAL DESCRIPTION OF THE APPLICANTS, THE FUNDS

AND THE CONTRACTS

 

A.                The Companies. ReliaStar New York and Voya Retirement are each an indirect, wholly-owned subsidiary of Voya Financial, Inc. (“Voya^®”), which is publicly traded on the New York Stock Exchange under the symbol “VOYA.” Voya Insurance is an indirect wholly-owned subsidiary of VA Capital Company LLC, (“VA Capital”) and a direct wholly-owned subsidiary of Venerable Holdings, Inc., which effective June 1, 2018, acquired Voya Insurance from Voya. VA Capital is an insurance holding company formed by affiliates of Apollo Global Management LLC and Athene Holding Ltd. Reverence Capital Partners, L.P., Crestview Advisors, L.L.C. and Voya are also investors in VA Capital.

 

1.                  ReliaStar Life Insurance Company of New York (“ReliaStar NY”). ReliaStar NY is a stock life insurance company which was incorporated under the laws of the State of New York in 1917. Through an April 1, 2002 merger, ReliaStar NY’s operations include the business of First Golden American Life Insurance Company of New York (“First Golden”). ReliaStar NY is principally engaged in the business of issuing life insurance and annuities.

 

ReliaStar NY is the depositor of Separate Account NY-B, a separate account that is registered with the Commission as a unit investment trust.

 

 

 

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2.                  Voya Insurance and Annuity Company (“Voya Insurance”). Voya Insurance is an Iowa stock life insurance company which was originally organized in 1973 under the insurance laws of Minnesota. Prior to September 1, 2014, Voya Insurance was known as ING USA Annuity and Life Insurance Company. Prior to January 1, 2004, Voya Insurance was known as Golden American Life Insurance Company (“Golden”). Through January 1, 2004 mergers, Voya Insurance’s operations include the business of Equitable Life Insurance Company of Iowa (“Equitable Life”), United Life and Annuity Insurance Company (“United Life and Annuity”), and USG Annuity and Life Company. Voya Insurance is principally engaged in the business of issuing annuities.

 

Voya Insurance is the depositor of Separate Account B, Separate Account EQ, and Separate Account U, separate accounts that are registered with the Commission as unit investment trusts.

 

3.                  Voya Retirement Insurance and Annuity Company (“Voya Retirement”). Voya Retirement is a stock life insurance company organized under the laws of the State of Connecticut in 1976 as Forward Life Insurance Company. Prior to September 1, 2014, Voya Retirement was known as ING Life Insurance and Annuity Company. Through a December 31, 1976 merger, Voya Retirement’s operations include the business of Aetna Variable Annuity Life Insurance Company (formerly known as Participating Annuity Life Insurance Company). Prior to May 1, 2002, Voya Retirement was known as Aetna Life Insurance and Annuity Company (“Aetna”). Through a December 31, 2005 merger, Voya Retirement’s operations include the business of ING Insurance Company of America (“ING America”). Voya Retirement is principally engaged in the business of issuing annuities.

 

Voya Retirement is the depositor of Variable Annuity Account B and Variable Annuity Account I, separate accounts that are registered with the Commission as unit investment trusts.

 

B.                 The Accounts. Each of the Accounts is a segregated asset account of the Company that is the depositor of such Account and is registered under the 1940 Act as a unit investment trust. Each of the respective Accounts is used by the Company of which it is a part to support the Contracts that it issues. The following Accounts support Contracts that will be affected by the Substitutions.⁴ 

 

1.                  ReliaStar Life Insurance Company of New York Separate Account NY-B (“ReliaStar NY NY-B”). ReliaStar NY NY-B (File No. 811-07935) was established by First Golden in 1996 in accordance with the laws of the State of New York to support certain Contracts. Contracts described in the following registration statements will be affected by the Substitutions (File Nos. 333-85326, 333-85618, 333-115515, 333-139695 and 333-145826).

 

 

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2.                  Separate Account B of Voya Insurance and Annuity Company (“Voya Insurance B”). Voya Insurance B (File No. 811-05626) was established by Golden in 1988 in accordance with the laws of the State of Minnesota to support certain Contracts. Contracts described in the following registration statements will be affected by the Substitutions (File Nos. 033-23351, 033-59261, 333-28679, 333-28755, 333-28769, 333-30180, 333-33914, 333-57218, 333-63692, 333-66757, 333-70600, 333-90516, 333-101481 and 333-133944).

 

3.                  Separate Account EQ of Voya Insurance and Annuity Company (“Voya Insurance EQ”). Voya Insurance EQ (formerly Equitable Life Insurance Company of Iowa Separate Account A) (File No. 811-08524) was established by Equitable Life in 1988 in accordance with the laws of the State of Iowa to support certain Contracts. Contracts described in the following registration statement will be affected by the Substitutions (File No. 333-111686).

 

4.                  Separate Account U of Voya Insurance and Annuity Company (“Voya Insurance U”). Voya Insurance U (formerly United Life and Annuity Separate Account One) (File No. 811-9026) was originally established by United Life and Annuity in 1994 in accordance with the laws of the State of Louisiana to support certain Contracts. Contracts described in the following registration statements will be affected by the Substitutions (File Nos. 333-111684 and 333-111685).

 

5.                  Voya Retirement Insurance and Annuity Company Variable Annuity Account B (“Voya Retirement B”). Voya Retirement B (File No. 811-02512) was established by Aetna in 1976 as a continuation of the separate account established in 1974 in accordance with the laws of the State of Arkansas by Aetna Variable Annuity Life Insurance Company to support certain Contracts. Contracts described in the following registration statements will be affected by the Substitutions (File Nos. 033-34370, 333-09515 and 333-56297).

 

6.                   Voya Retirement Insurance and Annuity Company Variable Annuity Account I (“Voya Retirement I”). Voya Retirement I (File No. 811-08582) was established by Aetna Insurance Company of America, a subsidiary of Aetna, in 1994 in accordance with the laws of the State of Connecticut to support certain Contracts. Contracts described in the following registration statement will be affected by the Substitutions (File No. 333-130825).

 

Applicants, as authorized by Rule 0‑4 under the 1940 Act, incorporate by reference each of the above referenced files to the extent necessary to support and supplement the descriptions and representations set out in this Application.

 

Each Account is administered and accounted for as part of the general business of the Company of which it is a part. The assets of each Account attributable to the Contracts issued through it are owned by each Company but are held separately from all other assets of that Company for the benefit of the owners of, and persons entitled to benefits under such Contracts. Pursuant to applicable state insurance law and to the extent provided in the Contracts, such assets equal to the reserves and other Contract liabilities with respect to an Account are not chargeable with liabilities arising out of any other business of the Company that is the depositor of the Account. Income, if any, gains and losses, realized or unrealized, from each Account are credited to or charged against the assets of that Account without regard to other income, gains or losses of its Company or any of its other segregated asset accounts. Each Account is a “separate account” as defined by Rule 0-1(e) under the 1940 Act.

 

 

 

Each Account is divided into subaccounts, each of which invests exclusively in shares of an Existing Fund or another registered open-end management investment company. Each registered open-end management investment company has its own distinct investment objective(s) and policies.

 

Each of the prospectuses for the Contracts discloses that the issuing Company reserves the right, subject to Commission approval and compliance with applicable law, to substitute shares of another registered open-end management investment company for shares of a registered open-end management investment company held by a subaccount of an Account whenever the Company, in its judgment, determines that investment in the registered open-end management investment company no longer suits the purpose of the Contract.

 

C.                The Existing Funds. The funds listed below are designated as Existing Funds to be replaced with a Replacement Fund as Part of the Substitutions described in this Application. More information about the Existing Funds’ fees and expenses, investment objective and policies and historical performance can be found in the Section IV B. below.

 

1.                  VY^® Baron Growth Portfolio. The VY^® Baron Growth Portfolio is a series of the Voya Partners, Inc. (“Voya Partners”), a Maryland corporation registered under the 1940 Act as a registered open-end management investment company (File No. 811-08319) and registered under the 1933 Act on Form N-1A (File No. 333-32575), which was last updated in an effective amendment to the registration statement filed on April 25, 2018.⁵ The VY^® Baron Growth Portfolio is currently offered by prospectus dated May 1, 2018.

 

Voya Investments, LLC (“Voya Investments”), an Arizona limited liability company and an SEC registered investment adviser, serves as the investment adviser for the VY^® Baron Growth Portfolio. Voya Investments maintains its offices at 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. Effective May 1, 2014, Voya Investments changed its name from ING Investments, LLC in relation to the overall rebranding of Voya and its subsidiaries. Voya Investments delegates to a subadviser, BAMCO, Inc., a registered investment adviser and a subsidiary of Baron Capital Group, Inc., the responsibility for day-to-day management of the investments of the VY^® Baron Growth Portfolio, subject to the Voya Investment’s oversight.

2.                  VY^® Columbia Contrarian Core Portfolio. The VY^® Columbia Contrarian Core Portfolio is a series of the Voya Partners, a Maryland corporation registered under the 1940 Act as a registered open-end management investment company (File No. 811-08319) and registered under the 1933 Act on Form N-1A (File No. 333-32575), which was last updated in an effective amendment to the registration statement filed on April 25, 2018.5 The VY^® Columbia Contrarian Core Portfolio is currently offered by prospectus dated May 1, 2018.

 

 

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Voya Investments serves as the investment adviser for the VY^® Columbia Contrarian Core Portfolio. Voya Investments delegates to a subadviser, Columbia Management Investment Advisers, LLC, a registered investment adviser and a wholly-owned subsidiary of Ameriprise Financial, Inc., the responsibility for day-to-day management of the investments of the VY^® Columbia Contrarian Core Portfolio, subject to the Voya Investment’s oversight.  

3.                  VY^® Invesco Comstock Portfolio. The VY^® Invesco Comstock Portfolio is a series of the Voya Partners, a Maryland corporation registered under the 1940 Act as a registered open-end management investment company (File No. 811-08319) and registered under the 1933 Act on Form N-1A (File No. 333-32575), which was last updated in an effective amendment to the registration statement filed on April 25, 2018.⁶  The VY^® Invesco Comstock Portfolio is currently offered by prospectus dated May 1, 2018.

 

Voya Investments serves as the investment adviser for the VY^® Invesco Comstock Portfolio. Voya Investments delegates to a subadviser, Invesco Advisers, Inc., a registered investment adviser and a direct subsidiary of Invesco Ltd., the responsibility for day-to-day management of the investments of the VY^® Invesco Comstock Portfolio, subject to the Voya Investment’s oversight.  

4.                  VY^® T. Rowe Price Equity Income Portfolio. The VY^® T. Rowe Price Equity Income Portfolio is a series of the Voya Investors Trust, a Massachusetts business trust registered under the 1940 Act as a registered open-end management investment company (File No. 811-05629) and registered under the 1933 Act on Form N-1A (File No. 033-23512), which was last updated in an effective amendment to the registration statement filed on April 24, 2018.5  The VY^® T. Rowe Price Equity Income Portfolio is currently offered by prospectus dated May 1, 2018.

 

Voya Investments serves as the investment adviser for the VY^® T. Rowe Price Equity Income Portfolio. Voya Investments delegates to a subadviser, T. Rowe Price Associates, Inc., a registered investment adviser and a wholly-owned subsidiary of T. Rowe Price Group, Inc., the responsibility for day-to-day management of the investments of the VY^® T. Rowe Price Equity Income Portfolio, subject to the Voya Investment’s oversight.  

5.                  VY^® JPMorgan Small Cap Core Equity Portfolio. The VY^® JPMorgan Small Cap Core Equity Portfolio is a series of the Voya Investors Trust, a Massachusetts business trust registered under the 1940 Act as a registered open-end management investment company (File No. 811-05629) and registered under the 1933 Act on Form N-1A (File No. 033-23512), which was last updated in an effective amendment to the registration statement filed on April 24, 2018.6 The VY^® JPMorgan Small Cap Core Equity Portfolio is currently offered by prospectus dated May 1, 2018.

 

 

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Voya Investments serves as the investment adviser for the VY^® JPMorgan Small Cap Core Equity Portfolio. Voya Investments delegates to a subadviser, J. P. Morgan Investment Management Inc., a registered investment adviser and an indirect wholly-owned subsidiary of JPMorgan Chase & Co., the responsibility for day-to-day management of the investments of the VY^® JPMorgan Small Cap Core Equity Portfolio, subject to the Voya Investment’s oversight.  

6.                  VY^® T. Rowe Price Growth Equity Portfolio. The VY^® T. Rowe Price Growth Equity Portfolio is a series of the Voya Partners, a Maryland corporation registered under the 1940 Act as a registered open-end management investment company (File No. 811-08319) and registered under the 1933 Act on Form N-1A (File No. 333-32575), which was last updated in an effective amendment to the registration statement filed on April 25, 2018.6 The VY^® T. Rowe Price Growth Equity Portfolio is currently offered by prospectus dated May 1, 2018.

 

Voya Investments serves as the investment adviser for the VY^® T. Rowe Price Growth Equity Portfolio. Voya Investments delegates to a subadviser, T. Rowe Price Associates, Inc., a registered investment adviser and a wholly-owned subsidiary of T. Rowe Price Group, Inc., the responsibility for day-to-day management of the investments of the VY^® T. Rowe Price Growth Equity Portfolio, subject to the Voya Investment’s oversight.

 

D.                The Replacement Funds. The Replacement Funds are series of Voya Variable Portfolios, Inc. or Voya Investors Trust. More information about each Replacement Fund’s fees and expenses, investment objective and policies and historical performance can be found in the Section IV B. below.

 

1.                  Voya Variable Portfolios, Inc. (“Voya Variable Portfolios”). Voya Variable Portfolios, formerly known as ING Variable Portfolios, Inc. and before that as Aetna Variable Portfolios, Inc., was organized as a Maryland Corporation in 1996. Voya Variable Portfolios is registered under the 1940 Act as an open-end management investment company (File No. 811-05173). It is a series registered open-end management investment company as defined by Rule 18f-2 under the 1940 Act, and a separate series of shares of beneficial interest is issued in connection with each series. Each series included in this substitution application is currently offered by prospectuses dated May 1, 2018. Voya Variable Portfolios has registered these shares under the Securities Act of 1933 ( the “1933 Act”) on Form N-1A (File No. 333-05173) which was last updated in an effective amendment to the registration statement filed on April 26, 2018.⁷

 

 

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Voya Investments, subject to the direction of Voya Variable Portfolios Board of Directors (the “Board of Directors”), has overall responsibility for the management of each series of the Voya Variable Portfolios that is a Replacement Fund. Voya Investments provides or oversees all investment advisory and portfolio management services for each series that is a Replacement Fund and assists in managing and supervising all aspects of the general day-to-day business activities and operations of each series that is a Replacement Fund, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance and related services. Voya Investments delegates to a subadviser, Voya Investment Management Co. LLC (“Voya Investment Management”), an affiliate, the responsibility for day-to-day management of the investments of each series that is a Replacement Fund, subject to the Voya Investment’s oversight. Voya Investments also recommends the appointment of additional or replacement sub-advisers to the Board of Directors.

 

For its services, Voya Investments receives advisory fees from each series that is a Replacement Fund. This fee is calculated for each series based on a percentage of its average net assets. From this advisory fee Voya Investments pays the fees of all sub-advisers.

 

            The following series of Voya Variable Portfolios will be used as Replacement Funds:

 

a.      Voya Russell Mid Cap Growth Index Portfolio

b.      Voya Russell Large Cap Value Index Portfolio

c.       Voya Russell Small Cap Index Portfolio

d.      Voya Russell Large Cap Growth Index Portfolio

 

2.                  Voya Investors Trust. Voya Investors Trust, formerly known as the ING Investors Trust and before that as GCG Trust, was organized as a Massachusetts business trust on August 3, 1988. Voya Investors Trust is registered under the 1940 Act as an open-end management investment company (File No. 811-05629). It is a series investment company as defined by Rule 18f-2 under the 1940 Act, and a separate series of shares of beneficial interest is issued in connection with each series. Each series included in this substitution application is currently offered by prospectus dated May 1, 2018. ING Investors Trust has registered these shares under the 1933 Act on Form N-1A (File No. 033-23512) which was last updated in an amendment to the registration statement filed on April 24, 2018.⁸

 

Voya Investments, subject to the direction of Voya Investors Trust Board of Trustees (the “Board of Trustees”), has overall responsibility for the management of each series of the Voya Investors Trust that is a Replacement Fund. Voya Investments provides or oversees all investment advisory and portfolio management services for each series that is a Replacement Fund and assists in managing and supervising all aspects of the general day-to-day business activities and operations of each series that is a Replacement Fund, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance and related services. Voya Investments delegates to a subadviser, Voya Investment Management Co. LLC, an affiliate, the responsibility for day-to-day management of the investments of each series that is a Replacement Fund, subject to the Voya Investment’s oversight. Voya Investments also recommends the appointment of additional or replacement sub-advisers to the Board of Trustees.

 

 

 

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For its services, Voya Investments receives advisory fees from each series that is a Replacement Fund. This fee is calculated for each series based on a percentage of its average net assets. From this advisory fee Voya Investments pays the fees of all sub-advisers.

 

The following series of Voya Investors Trust will be used as a Replacement Fund:

 

a.      Voya U.S. Stock Index Portfolio

 

E.                    The Contracts. The terms and conditions, including charges and expenses, applicable to each Contract are described in the registration statements filed with the SEC for each.⁹ The Contracts are issued as individual variable annuity contracts. As each Contract is structured, owners of the Contract (each a “Contract Owner”) may select one or more of the investment options available under the Contract by allocating premiums and transferring account value to that subaccount of the relevant Account that corresponds to the investment option desired. Thereafter, the account value of the Contract Owner will vary based on the investment experience of the selected subaccount(s). Generally, a Contract Owner may, during the life of each Contract, make unlimited transfers of account values among the subaccounts available under the Contract, subject to any administrative and/or transfer fees applicable under the Contracts and any limits related to frequent or disruptive transfers.

 

 

III - DESCRIPTION OF THE PROPOSED SUBSTITUTIONS

AND THE RELIEF REQUESTED

 

A.                Summary of the Proposed Substitutions. Subject to the approval of the Commission under Section 26(c) of the 1940 Act, Applicants propose, as set forth in the following chart, to substitute shares of the Replacement Funds for those of the Existing Funds and transfer cash to the Replacement Funds.

 

 

 

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No brokerage commissions, fees or other remuneration will be paid by any Existing Fund, Replacement Fund or any Contract Owner in connection with the Substitutions.

 

 

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With respect to the Existing Funds, the Applicants have determined that the investment objectives and the investment policies of the Replacement Funds are similar to those of the corresponding Existing Funds, or each Replacement Fund’s underlying portfolio construction and investment results are similar to those of the Existing Fund, and therefore the fundamental investment objectives of those Contract Owners with interests in subaccounts of the Existing Funds (individually, an “Affected Contract Owner” and, collectively, “Affected Contract Owners”) will continue to be met after the Substitutions.

 

Additionally, as is detailed below, the overall expenses of the Replacement Funds are less than those of the corresponding Existing Funds. Applicants believe that, because the Replacement Funds will generally be offered over a substantially larger asset base than the Existing Funds, there is a potential that Affected Contract Owners will, over time, realize the benefits from additional economies of scale with respect to the advisory fees.

 

B.                 Purposes of the Proposed Substitutions. The principal purposes of the Substitutions are as follows: 

 

1.                  Implement Business Plan. The Substitutions are another step in the Companies’ overall business plan to make the Contracts more efficient to administer and oversee. This plan involves providing funds available through the Contracts that meet certain pricing, performance, and risk guidelines. Regarding pricing and performance, each Replacement Fund has lower fees and expenses than the corresponding Existing Fund with generally comparable performance. Regarding risk, by increasing the number and percentage of index funds available through the Contracts (all of the Replacement Funds are index funds), and consequently the Contract value in those index funds, the Companies’ ability to manage the business and hedge for the risks associated with the guarantees provided through the Contracts is improved.

 

            The Contracts are not only a means for Contract Owners to invest in the available underlying investment portfolios, or mutual funds, but they also offer certain death benefit and/or living benefit guarantees. To better support those Contract guarantees the Companies engage in a hedging program, and one of the goals of our hedging program is to reduce the impact that fluctuation in mutual fund performance has on our ability to support the Contract guarantees. As part of our hedging program we analyze the performance of each available mutual fund and invest in a combination of derivatives to replicate the mutual fund’s performance. Tracking errors arise when the actual performance of the replicated portfolio of derivatives deviates from the actual performance of the mutual fund. The main driver of the deviation is active management of the underlying mutual fund because performance of actively managed mutual funds can be difficult to replicate accurately. On the other hand, the performance of passively managed index mutual funds, like the Replacement Funds, is inherently easier to replicate given their clearly defined benchmarks and therefore result in less tracking errors and less risk to the Companies’ ability to support the Contract guarantees. It is primarily on this basis that the Existing Funds, which are actively managed mutual funds, were determined to be inappropriate for the overall purposes of the Contracts, and therefore appropriate for inclusion in this Substitution Application. This determination was also influenced by the opportunity provide affected Contract Owners with Replacement Funds that have significantly lower overall fees and expenses than the corresponding Existing Funds.

 

 

2.                  Reduction of Costs. The replacement of the Existing Funds, which are actively managed by unaffiliated investment subadvisers, with the Replacement Funds which are each directly managed by an affiliated investment adviser using a passive management approach will allow the Companies to reduce costs by consolidating administration of the Replacement Funds with its other funds. Changes to an Existing Fund by the unaffiliated subadviser now come unexpectedly and may require significant attention by the Existing Fund’s Board of Directors or Board of Trustees, as applicable, and corresponding product amendments, regulatory filings and/or immediate notification to Contract Owners. Such changes can be reduced and better planned or anticipated for the Replacement Funds so that costs are reduced by including any changes with other routine regulatory filings and mailings regularly sent to Contract Owners.

 

3.                  Due Diligence. The Companies have an on-going fund due diligence process through which they select, evaluate and monitor the funds available through the Contracts. This process contributes to the Companies’ ability to have competitive products and services and assist their customers in meeting their financial goals. The Substitutions will allow the Companies to respond to expense, performance and management matters that they have identified in their due diligence review of the funds available through the Contracts.

C.                Implementation. Applicants will affect the Substitutions as soon as practicable following the issuance of the requested order. As of the effective date of the Substitutions (“Effective Date”), shares of the Existing Funds will be redeemed for cash. The Companies, on behalf of each Existing Fund subaccount of each relevant Account, will simultaneously place a redemption request with each Existing Fund and a purchase order with the corresponding Replacement Fund so that the purchase of Replacement Fund shares will be for the exact amount of the redemption proceeds. Thus, Contract values will remain fully invested at all times. The proceeds of such redemptions will then be used to purchase the appropriate number of shares of the applicable Replacement Fund.

 

The Substitutions will take place at relative net asset value (in accordance with Rule 22c-1 under the 1940 Act) with no change in the amount of any Affected Contract Owner’s contract value, cash value, accumulation value, account value or death benefit or in dollar value of his or her investment in the applicable Accounts. No brokerage commissions, fees or other remuneration will be paid by either the Existing Funds or the Replacement Funds or by Affected Contract Owners in connection with the Substitutions. The transaction comprising the Substitutions will be consistent with the policies of each registered open-end management investment company involved and with the general purposes of the 1940 Act.

 

Affected Contract Owners will not incur any fees or charges as a result of the Substitutions nor will their rights or the Companies’ obligations under the Contracts be altered in any way. The Companies or their affiliates will pay all expenses and transaction costs of the Substitutions, including legal and accounting expenses, any applicable brokerage expenses, and other fees and expenses. In addition, the Substitutions will not impose any tax liability on Affected Contract Owners. The Substitutions will not cause the Contract fees and charges currently being paid by Affected Contract Owners to be greater after the Substitutions than before the Substitutions. Also, as described more fully below, after notification of the Substitutions and for 30 days after the Effective Date, Affected Contract Owners may reallocate the subaccount value of an Existing Fund to any other investment option available under their Contract without incurring any administrative costs or allocation (transfer) charges.

 

 

 

All Affected Contract Owners were notified of this Application by means of supplements to the Contract prospectuses sent after the date the Application was first filed with the Commission. Among other information regarding the Substitutions, the supplements informed Affected Contract Owners that beginning on the date of the supplements the Companies will not exercise any rights reserved by them under the Contracts to impose restrictions or fees on transfers from an Existing Fund (other than restrictions related to frequent or disruptive transfers) during the period beginning at least 30 days before the Effective Date through at least 30 days after the Effective Date. Following the date the order requested by this Application is issued, but at least 30 days before the Effective Date, Affected Contract Owners will be sent a “Pre-Substitution Notice,” consisting of a second supplement to the Contract prospectuses setting forth the intended Substitution of Existing Funds with Replacement Funds, the intended Effective Date and advising Affected Contract Owners of their right, if they so choose, at any time during the period beginning at least 30 days before the Effective Date through at least 30 days following the Effective Date, to reallocate or withdraw accumulated value in the Existing Fund or Replacement Fund subaccounts under their Contracts or otherwise terminate their interest therein in accordance with the terms and conditions of their Contracts. Beginning at least 30 days before the Effective Date through at least 30 days after the Effective Date, the Companies will not exercise any right they may have under the Contracts to impose restrictions or fees on transfers from any Existing Fund or Replacement Fund under the Contracts (other than restrictions related to frequent or disruptive transfers). Additionally, all Affected Contract Owners will be sent prospectuses of the applicable Replacement Funds at least 30 days before the Effective Date.

 

Within five (5) business days after the Effective Date, Affected Contract Owners will be sent a written confirmation (“Post-Substitution Confirmation”) indicating that shares of each applicable Existing Fund have been redeemed and that the shares of the corresponding Replacement Fund have been substituted. The Post-Substitution Confirmation will show how the allocation of the Contract Owner’s account value before and immediately following the Substitutions have changed as a result of the Substitutions and detail the transactions effected on behalf of the respective Affected Contract Owner because of the Substitutions.

 

D.                Relief Requested. Applicants request that the Commission issue an order pursuant to Section 26(c) of the 1940 Act approving the Substitutions.

 

 

IV - APPLICANTS’ ANALYSIS IN SUPPORT OF REQUEST FOR AN ORDER PURSUANT TO SECTION 26(c) OF THE 1940 ACT

 

A.                Relevant Statutory Provisions. Section 26(c) of the 1940 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 fairly intended by the policy and provisions of the 1940 Act.

 

 

Section 26(c) was added to the 1940 Act by the Investment Company Amendments Act of 1970 then as Section 26(b). Prior to enactment of the 1970 amendments, a depositor of a unit investment trust could substitute new securities for those held by the trust by notifying the trust’s security holders of the substitution within five days of the substitution. In 1966, the Commission, concerned with the high sales charges then common to most unit investment trusts and the disadvantageous position in which such charges placed investors who did not want to

remain invested in the substituted fund,¹³ recommended that Section 26 be amended to require that a proposed substitution of the underlying investments of a trust receive prior Commission approval. ¹⁴

 

            Congress responded to the Commission’s concerns by enacting Section 26(b) to require that the Commission approve all substitutions by the depositor of investments held by unit investment trusts. The Senate Report on the bill explained the purpose of the amendment as follows:

 

The proposed amendment recognizes that in case of the unit investment trust holding the securities of a single issuer notification to shareholders does not provide adequate protection since the only relief available to shareholders, if dissatisfied, would be to redeem their shares. A shareholder who redeems and reinvests the proceeds in another unit investment trust or in an open-end company would under most circumstances be subject to a new sales load. The proposed amendment would close this gap in shareholder protection by providing for Commission approval of the substitution. The Commission would be required to issue an order approving the substitution if it finds the substitution consistent with the protection of investors and provisions of the 1940 Act. ¹⁵

 

           

 

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The substitution of shares held by each Account, as described above, appears to involve a substitution of securities within the meaning of Section 26(c) of the 1940 Act. ¹⁶ Applicants assert that the terms and conditions of the Substitutions meet the standards set forth in Section 26(c) and that the replacement of an Existing Fund with the corresponding Replacement Fund is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act. Applicants generally submit that the Substitutions meet the standards that the Commission and its staff have applied to similar substitutions that have been approved in the past. ¹⁷ Applicants therefore request an order from the Commission pursuant to Section 26(c) approving the Substitutions.

 

B.                 Comparison of Fees and Expenses, Investment Objectives, Strategies and Risks, Expense Ratios and Total Return. At the time of the Substitutions the overall fees and expenses of each Replacement Fund will be less than those assessed by the corresponding Existing Fund.¹⁸ For each substitution, the share class of the Replacement Fund will be the same as the share class of the Existing Fund, except for those Contracts that already offer a cheaper share class of the Replacement Fund, the Substitutions will be into the cheaper share class rather than the same share class.

 

            Furthermore, each Replacement Fund has investment objectives and investment strategies that are similar to those of the corresponding Existing Fund, or each Replacement Fund’s underlying portfolio construction and investment results are similar to those of the corresponding Existing Fund. Accordingly, the Applicants believe that the fundamental investment objectives of the Affected Contract Owners will continue to be met after the Substitutions.

 

 

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Comparative information regarding fees and expenses (including management fee breakpoints),¹⁹ investment objectives and strategies, expense ratios and total return for the proposed Substitutions is as follows.

 

                     1.         Voya Russell Mid Cap Growth Index Portfolio for the VY^® Baron Growth Portfolio.

 

a.      Fees and Expenses. The comparative fees and expenses for each fund in this proposed substitution as of the most recently published prospectus dated May 1, 2018, are as follows:

 

 

 

b.      Breakpoint Information. The comparative management fee breakpoint information for each fund in this proposed substitution is as follows:

 

 

 

 

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c.       Investment Objectives, Strategies and Risks. A comparison of the investment objectives, strategies and risks from the prospectus of each fund in this proposed substitution is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

d.      Comparison.  The Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their objective, principal investment strategies, benchmarks and risks, fundamentally each is primarily a mid-cap growth equity portfolio which on a trailing five year monthly return basis exhibit a high correlation to each other with similar risks and weighted average holdings from a Morningstar style box perspective. Each falls within the Morningstar Mid-Cap Growth style box and as defined by Morningstar, a majority of the Existing and Replacement Funds’ equity holdings are classified as mid-cap stocks, and neither fund has any exposure to giant cap (the largest companies in the equity universe) or micro-cap (the smallest). Additionally, on a trailing five-year basis using monthly returns ending June 30, 2018, the Existing Fund’s absolute returns correlate more closely to the Russell Mid Cap Growth Index (mid cap) than the Russell 1000 Growth Index (large cap) or the Russell 2000 Growth Index (small cap). This indicates that from a return perspective the Existing Fund behaves more like a mid-cap growth portfolio than a large cap or small cap growth portfolio. The differences between the Existing Fund and the Replacement Fund are not necessarily larger than one would expect to be exhibited by two portfolios with similar benchmarks and principal investment strategies as there is significant investment flexibility within those constraints.

The Existing Fund’s investment objective is capital appreciation, and the Replacement Fund seeks to track the Russell Midcap Growth Index (the “Index”). Under normal circumstances, the Existing Fund invests for the long term primarily in equity securities in the form of common stock of small-sized companies. The manager(s) of the Existing Fund purchase stocks that they believe are undervalued relative to their businesses’ long-term growth perspective, future cash flows, and asset values. The Replacement Fund seeks investment results (before fees and expenses) that correspond to the total return (which includes capital appreciation and income) of the Index. Under normal market conditions, the Replacement Fund invests at least 80% of its net assets in equity securities of companies, which are at the time of purchase, included in the Index. The Index is an unmanaged index that measures the performance of the mid-cap growth segment of the U.S. equities universe represented by those Russell MidCap Index companies with higher price-to-book ratios and higher forecasted growth values. The manager(s) of the Replacement Fund employ a “passive management” approach (replication method) designed to track the performance and holding characteristics of the Index.

 

With respect to the Existing Fund’s and Replacement Fund’s investment objectives, each seeks to achieve some form of capital appreciation. The Replacement Fund, as an index fund, focuses on an index replication due to its passive nature.

 

As shown in the performance tables below, during the five-year and since inception periods the Replacement Portfolio has exhibited better performance to the Existing Portfolio at a meaningfully lower expense ratio.

 

To summarize, the Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their objective, principal investment strategies, benchmarks and risks, fundamentally both are primarily a mid-cap growth equity portfolios that exhibit a high correlation to the other such that each Affected Contract Owner’s fundamental investment objectives will continue to be met after the Substitution.

 

 

e.       Expense Ratios and Total Return. As of May 1, 2018, the net expense ratios and as of June 30, 2018, the total return figures for each fund in this proposed substitution are as follows:

 

 

 

The Replacement Fund has outperformed the Existing Fund over the five-year and since inception periods. The Replacement Fund will also allow shareholders to benefit from a significantly lower net expense ratio. Although differences in risks and investment objectives and strategies exist, the Applicants believe that these differences do not introduce Affected Contract Owners to materially greater risks than before the Substitution.

 

f.     Post Substitution Net Assets. The estimated net assets of the Voya Russell Mid Cap Growth Index Portfolio – Class I and Class S immediately following the proposed substitution will be approximately $17,034,108 and $605,957,091, respectively. This is based on estimated net assets of the Replacement Fund immediately before the substitution ($16,924,988 for Class I and $290,074,381 for Class S) plus the corresponding Existing Fund’s actual net assets invested in the Accounts as of June 30, 2018 ($109,120 for Class I and $315,882,710 for Class S). It is estimated that approximately 40% of the entire Existing Fund’s net assets will be allocated to the Replacement Fund as a consequent of the Substitution.

 

 

                     2.                     Voya U.S. Stock Index Portfolio for the VY^® Columbia Contrarian Core Portfolio.

 

a.      Fees and Expenses. The comparative fees and expenses for each fund in this proposed substitution as of the most recently published prospectus dated May 1, 2018, are as follows:

 

 

b.      Breakpoint Information. The comparative management fee breakpoint information for each fund in this proposed substitution is as follows:

 

 

c.       Investment Objectives, Strategies and Risks. A comparison of the investment objectives, strategies and risks from the prospectus of each fund in this proposed substitution is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

d.      Comparison.  The Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their objective, principal investment strategies, benchmarks, and risks, fundamentally each is primarily a large-cap equity portfolio that has exhibited a high correlation to the other from a risk and Morningstar style box perspectives. Each falls within the Morningstar Large Blend style box. The Applicants note that the Existing Fund has been managed by Columbia under the current strategy since May 1, 2013 but that the Columbia Contrarian Core Fund (which is advised by Columbia in the same strategy as the Existing Fund) and the Replacement Fund have resided within the Morningstar Large Blend fund category, without exception, for at least the past 10 years. As of September 30, 2017, 71 of the Existing Fund’s 76 stock holdings were constituents of the Replacement Fund. The differences between the Existing Fund and the Replacement Fund are not necessarily larger than one would expect to be exhibited by two portfolios with substantially similar benchmarks and principal investment strategies, as there is significant investment flexibility within those constraints.

 

Both the Existing Fund’s and Replacement Fund’s investment objective is to seek total return. Under normal market conditions, the Existing Fund invests at least 80% of its net assets in equity securities of U.S. companies with large (generally over $2 billion) market capitalizations that the investment team believes are undervalued and have the potential for long-term growth and current income. The managers of the Existing Fund combine fundamental and quantitative analysis with risk management in identifying investment opportunities and constructing a portfolio. Under normal market conditions, the Replacement Fund invests at least 80% of its net assets in equity securities of companies included in the S&P 500 Index (the “Index”). The Index is an unmanaged index that measures the performance of the large-cap segment of the U.S. equity universe. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. The manager(s) of the Replacement Fund use a “passive management” approach (replication method) designed to track the performance and holding characteristics of the Index.

 

 

With respect to the Existing Fund’s and Replacement Fund’s investment objective, each seeks total return. The Replacement Fund, as an index fund, focuses on an index replication due to its passive nature.

 

Furthermore, while the listed principal investment strategies of the Existing Fund and the Replacement Fund differ in language and breadth, at their core each is required to invest in more than 80% equity securities of a large cap companies. Although the Replacement Fund seeks to replicate the Index, as noted above, the Index it replicates consists of equity securities of large capitalization U.S. companies.

 

The Existing Fund’s prospectus benchmark is the Russell 1000 Index, an unmanaged stock market index that represents the 1,000 largest publicly-held companies incorporated in America as measured by total market capitalization, and represents approximately 90% of the total market capitalization of all listed U.S. stocks. The Replacement Fund’s prospectus benchmark is the S&P 500 Index. While the Existing Fund and the Replacing Fund are benchmarked to different indices, holdings overlap between the two indices is typically around 90%, and their total returns for the trailing 10-year period ending September 30, 2017 were 99% correlated. The effective start date of the Existing Fund’s current investment team and process is May 1, 2013. As shown in the performance table below, during the one, three, five, ten and since inception periods, the Replacement Fund has exhibited better performance than the Existing Fund at a meaningfully lower expense ratio.

 

To summarize, the Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their investment objectives, principal investment strategies, and principal risks, fundamentally both are large cap core equity portfolios that have equivalent volatility such that each Affected Contract Owner’s fundamental investment objectives will continue to be met after the Substitution.

 

e.       Expense Ratios and Total Return. As of May 1, 2018, the net expense ratios and as of June 30, 2018, the total return figures for each fund in this proposed substitution are as follows:

 

 

(1)     Performance prior to May 1, 2013 is attributable to Davis Selected Advisers, the then subadviser to the Existing Fund.

 

The Replacement Fund has outperformed the Existing Fund over the one-year, three-year, five-year, ten-year and since inception periods. The Replacement Fund will also allow shareholders to benefit from a significantly lower net expense ratio. Although differences in risks and investment objectives and strategies exist, the Applicants believe that these differences do not introduce Affected Contract Owners to materially greater risks than before the Substitution.

 

 

 

f.        Post Substitution Net Assets. The estimated net assets of the Voya U.S. Stock Index Portfolio – Class S immediately following the proposed substitution will be approximately $299,477,098. This is based on estimated net assets of the Replacement Fund immediately before the substitution ($57,852,974 for Class S) plus the corresponding Existing Fund’s actual net assets invested in the Accounts as of June 30, 2018 ($241,624,124 for Class S). It is estimated that approximately 82% of the entire Existing Fund’s net assets will be allocated to the Replacement Fund as a consequent of the Substitution.

 

                     3.                     Voya Russell Large Cap Value Index Portfolio for the VY^® Invesco Comstock Portfolio.

 

a.      Fees and Expenses. The comparative fees and expenses for each fund in this proposed substitution as of the most recently published prospectus dated May 1, 2018, are as follows:

 

 

 

 

 

 

(1)    For ReliaStar New York File No. 333-85326, Class S shares of the Existing Fund will be replaced with Class I shares of the Replacement Fund, which are already available through the product.

 

Breakpoint Information. The comparative management fee breakpoint information for each fund in this proposed substitution is as follows:

 

 

c.       Investment Objectives, Strategies and Risks. A comparison of the investment objectives, strategies and risks from the prospectus of each fund in this proposed substitution is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

d.      Comparison.  The Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their objective, principal investment strategies, benchmarks and risks, fundamentally each is primarily a large-cap equity fund that has exhibited a high correlation to the other from a Morningstar style box perspective. Each currently reside within the Morningstar Large Value equity style box. Furthermore, they each have resided within the Morningstar Large Value fund category, without exception, for at least the past 8 years since the Replacement Fund’s inception. The differences between the Existing Fund and the Replacement Fund are not necessarily larger than one would expect to be exhibited by two portfolios with the same benchmarks and principal investment strategies, as there is significant investment flexibility within those constraints.

 

 

 

The Existing Fund’s investment objective is capital growth and income, and the Replacement Fund’s investment objective is to seek investment results that correspond to the total return (which includes capital appreciation and income) of the Russell Top 200^® Value Index (the “Index”). Under normal circumstances, the Existing Fund invests primarily in equity securities of well-established U.S. companies, of any market capitalization, that the portfolio managers believe are undervalued but have identifiable factors that might lead to improved valuations. The Replacement Fund invests at least 80% of its net assets in equity securities of companies that are included in the Russell Top 200 Value Index – an unmanaged index that measures the performance of stocks within the Index (200 largest U.S. publicly-held companies by market cap) that exhibit value characteristics. The manager(s) of the Replacement Fund use a “passive management” approach (replication method) designed to track the performance and holding characteristics of the Index.

 

With respect to the Existing Fund’s and Replacement Fund’s primary investment objectives, each shares some combination of capital appreciation/growth and current/reasonable income language. The Replacement Fund, as an index fund, focuses on an index replication due to its passive nature.

 

            The Existing Fund’s prospectus benchmark is the Russell 1000 Value Index, an unmanaged stock market index that measures the performance of stocks within the Russell 1000 Index (1,000 largest publicly-held companies by market cap) that exhibit value characteristics; the Replacement Fund’s prospectus benchmark is the Russell Top 200 Value Index – an unmanaged index that measures the performance of stocks within the Russell Top 200 Index (200 largest U.S. publicly-held companies by market cap) that exhibit value characteristics. While the Existing Fund and the Replacement Fund are benchmarked to different indices, holdings overlap between the two indices – as measured by the sum of the minimum percentages of each fund’s common holding – was approximately 70% as of September 30, 2017, and their total returns for the trailing 10-year period ending September 30, 2017, were 99% correlated. As of September 30, 2017, 41 of the Existing Fund’s 76 stock holdings were constituents of the Replacement Fund.

 

To summarize, the Applicants believe that while the Existing Fund and the Replacement Fund have differences in the way they characterize their investment objectives, principal investment strategies, and principal risks, fundamentally both are large-cap value equity portfolios that have tended to exhibit a moderately high level of holdings overlap with slightly lower volatility exhibited by the Replacement Fund such that each Affected Contract Owner’s fundamental investment objectives will continue to be met after the Substitution.

 

 

e.       Expense Ratios and Total Return. As of May 1, 2018, the net expense ratios and as of June 30, 2018, the total return figures for each fund in this proposed substitution are as follows:

 

 

 

 

(1)     This table applies only to the ReliaStar New York File No. 333-85326 product where Class S shares of the Existing Fund will be replaced with Class I shares of the Replacement Fund.

 

Although the Replacement Fund has outperformed the Existing Fund only since the inception periods, the Replacement Fund will also allow shareholders to benefit from a significantly lower net expense ratio. Although differences in risks and investment objectives and strategies exist, the Applicants believe that these differences do not introduce Affected Contract Owners to materially greater risks than before the Substitution.

 

 

f.     Post Substitution Net Assets. Without taking into account the net assets associated with proposed Substitution #4 involving the VY^® T. Rowe Price Equity Income Portfolio, the estimated net assets of the Voya Russell Large Cap Value Index Portfolio – Class I and S immediately following the proposed substitution will be approximately $97,005,509 and $475,944,366, respectively. This is based on estimated net assets of the Replacement Fund immediately before the substitution ($96,504,688 for Class I and $289,732,382 for Class S) plus the corresponding Existing Fund’s actual net assets invested in the Accounts as of June 30, 2018 (taking into account the amounts that will be allocated from Class S of the Existing Fund to Class I of the Replacement Fund), ($500,821 for Class I and $186,211,984 for Class S).  It is estimated that approximately 34% of the entire Existing Fund’s net assets will be allocated to the Replacement Fund as a consequent of the Substitution.

 

                     4.         Voya Russell Large Cap Value Index Portfolio for the VY^® T. Rowe Price Equity Income Portfolio.

 

a.      Fees and Expenses. The comparative fees and expenses for each fund in this proposed substitution as of the most recently published prospectus dated May 1, 2018, are as follows:

 

 

 

 

 

(1)      For ReliaStar New York File No. 333-85326 and Voya Retirement File No. 333-56297, Class S shares of the Existing Fund will be replaced with Class I shares of the Replacement Fund, which are already available through the products.

 

b.      Breakpoint Information. The comparative management fee breakpoint information for each fund in this proposed substitution is as follows:

 

 

c.       Investment Objectives, Strategies and Risks. A comparison of the investment objectives, strategies and risks from the prospectus of each fund in this proposed substitution is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

d.                  Comparison. The Applicants believe that while the Existing Fund and the Replacement Fund are slightly different from each other in the way they characterize their objective, principal investment strategies, benchmarks, and risks, fundamentally each is primarily a large-cap equity fund that has exhibited a high correlation to the other from a Morningstar style box perspective. Each falls within the Morningstar Large Value equity style box. Furthermore, they each have resided within the Morningstar Large Value fund category, without exception, for at least the past 8 years since the Replacement Fund’s inception. The differences between the Existing Fund and the Replacement Fund are not necessarily larger than one would expect to be exhibited by two portfolios with the same benchmarks and principal investment strategies, as there is significant investment flexibility within those constraints.

 

The Existing Fund’s investment objective is to seek a high level of dividend income as well as long-term growth of capital primarily through investments in stocks. The Replacement Fund’s investment objective is to seek investment results that correspond to the total return (which includes capital appreciation and income) of the Russell Top 200^® Value Index (the “Index”). Under normal circumstances, the Existing Fund invests at least 80% of its net assets in common stocks with an emphasis on large-capitalization stocks that have a strong track record of paying dividends or that are believed to be undervalued. The managers of the Existing Fund combine fundamental and quantitative analysis with risk management in seeking to identify companies that appear to be undervalued by various measures and may be temporarily out of favor, but have good prospects for capital appreciation and dividend growth. The Replacement Fund invests at least 80% of its net assets in equity securities of companies that are included in the Russell Top 200 Value Index – an unmanaged index that measures the performance of stocks within the Russell Top 200 Index (200 largest U.S. publicly-held companies by market cap) that exhibit value characteristics. The managers of the Replacement Fund use a “passive management” approach (replication method) designed to track the performance and holding characteristics of the Russell Top 200 Value Index.

With respect to the Existing Fund’s and Replacement Fund’s primary investment objectives, each shares some combination of capital appreciation/growth and current/reasonable income language. The Replacement Fund, as an index fund, focuses on an index replication due to its passive nature.

 

 

Furthermore, while the listed principal investment strategies of the Existing Fund and the Replacement Fund differ in language and breadth, at their core each is required to invest more than 80% of its assets in equity securities of large cap companies. Although the Replacement Fund seeks to replicate the Index, as noted above, the Index it replicates consists of equity securities of large capitalization U.S. companies.

 

The Existing Fund’s prospectus benchmark is the Russell 1000 Value Index, an unmanaged stock market index that measures the performance of stocks within the Russell 1000 Index (1,000 largest publicly-held companies by market cap) that exhibit value characteristics. The Replacement Fund’s prospectus benchmark is the Russell Top 200 Value Index – an unmanaged index that measures the performance of stocks within the Russell Top 200 Index (200 largest U.S. publicly-held companies by market cap) that exhibit value characteristics. While the Existing Fund and the Replacement Fund are benchmarked to different indices, holdings overlap between the two indices – as measured by the sum of the minimum percentages of each common holding – was approximately 70% as of September 30, 2017, and their total returns for the trailing 10-year period ending September 30, 2017, were 99% correlated.

 

To summarize, the Applicants believe that while the Existing Fund and the Replacement Fund have differences in the way they characterize their investment objectives, principal investment strategies, and principal risks, fundamentally both are primarily large-cap value equity portfolios that have tended to exhibit a moderate level of holdings overlap with slightly lower volatility exhibited by the Replacement Fund such that each Affected Contract Owner’s fundamental investment objectives will continue to be met after the Substitution.

e.       Expense Ratios and Total Return. As of May 1, 2018, the net expense ratios and as of June 30, 2018, the total return figures for each fund in this proposed substitution are as follows:

 

 

 

 

 

(1)     This table applies only to the ReliaStar New York File No. 333-85326 and the Voya Retirement File No. 333-56297 products where Class S shares of the Existing Fund will be replaced with Class I shares of the Replacement Fund.

 

The Replacement Fund has generally outperformed the Existing Fund over the five-year and since inception periods. The Replacement Fund will allow shareholders to benefit from a significantly lower net expense ratio. Although differences in risks and investment objectives and strategies exist, the Applicants believe that these differences do not introduce Affected Contract Owners to materially greater risks than before the Substitution.

 

f.     Post Substitution Net Assets. Without taking into account the net assets associated with proposed substitution #3 involving the VY^® Invesco Comstock Portfolio, the estimated net assets of the Voya Russell Large Cap Value Index Portfolio – Class I and Class S immediately following the proposed substitution will be approximately $99,102,710 and $773,621,364, respectively. This is based on estimated net assets of the Replacement Fund immediately before the substitution ($96,504,688 for Class I and $289,732,382 for Class S) plus the corresponding Existing Fund’s actual net assets as of June 30, 2018 (taking into account the amounts that will be allocated from Class S of the Existing Fund to Class I of the Replacement Fund), ($457,603,275 for Class S, $2,598,022 for Class I and $26,285,707 for Class S2). It is estimated that approximately 55% of the entire Existing Fund’s net assets will be allocated to the Replacement Fund as a consequent of the Substitution.

 

                     5.                     Voya Russell Small Cap Index Portfolio for the VY^® JPMorgan Small Cap Core Equity Portfolio.

 

a.      Fees and Expenses. The comparative fees and expenses for each fund in this proposed substitution as of the most recently published prospectus dated May 1, 2018, are as follows:

 

 

 

 

 

 

(1)     This table applies only to the Voya Insurance File No. 333-28679 (Opportunities Variable Annuity) and File No. 333-30180 (Legends Variable Annuity) where Class S2 shares of the Existing Fund will be replaced with Class S shares of the Replacement Fund.

 

b.      Breakpoint Information. The comparative management fee breakpoint information for each fund in this proposed substitution is as follows: