SEC Company Response from AMERICAN FUNDS INSURANCE SERIES (CIK 0000729528) — Apr 14, 2020
AMERICAN FUNDS INSURANCE SERIES (CIK 0000729528)
Date: April 14, 2020 · CIK: 0000729528 · Accession: 0000051931-20-000252
AI Filing Summary & Sentiment
File numbers found in text: 811-03857
Letter
Division of Investment Management 100 F Street, N.E. Washington, D.C. 20549-3628 Re: American Funds Insurance Series (the “Registrant” or the “Series”) File Nos. 002-86838 and 811-03857
Dear Mr. Cowan:
This letter is in response to the comments you provided on March 12, 2020 to the Registrant’s Post-Effective Amendment No. 93 to the Registration Statement under the Securities Act of 1933 (the “1933 Act”) and Amendment No. 93 to the Registration Statement under the Investment Company Act of 1940 (the “1940 Act”), which amendment reflected, among other things, changes to certain fund names, certain revisions to the funds’ investment strategies and the addition of management fee waivers. We appreciate your prompt response to the filing.
Our responses to your comments are set forth below. We will incorporate any changes to the Registration Statement in a subsequent filing pursuant to Rule 485(b) under the 1933 Act to be automatically effective on May 1, 2020 (the “Amendment”). We understand that, unless otherwise stated, when a comment is made with respect to disclosure in one portion of the Registration Statement, that comment is applicable to all similar disclosure appearing elsewhere in the Registration Statement. Accordingly, where applicable, responses to your comments below with respect to any individual class of shares apply equally to each of the Registrant’s other classes of shares with similar disclosure.
Summary Prospectus
A. General
In the “Annual fund operating expenses” table for each fund, please update the footnote to specify the amount of the management fee waiver.
Response: We have updated the disclosure to address this comment as set forth below. The bracketed text will be completed for each individual fund and share class in the Amendment as appropriate.
The investment adviser is currently waiving a portion of its investment management fee equal to [XX]% of the fund’s net assets. This waiver will be in effect through at least May 1, 2021. The waiver may only be modified or terminated with the approval of the fund’s board.
Please add the following sentence to the beginning of the lead-in to the expense example for each fund: “This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.” In addition, please add the words “or hold” after the word “redeem” in the second sentence.
Response: We note that in accordance with Item 3 of Form N-1A, the lead-in to the expense example for each fund already includes a sentence that is substantially similar to the sentence that the Staff asked us to add.
With respect to the Staff’s request that we indicate that the hypothetical expenses will not change if the investor holds (instead of redeems) his or her shares at the end of the stated period, we have updated the disclosure to address this comment, as follows:
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund’s operating expenses remain the same. The example does not reflect insurance contract expenses. If insurance contract expenses were reflected, expenses shown would be higher. No sales charge (load) or other fees are charged by the fund upon redemption, so you would incur these hypothetical costs whether or not you were to redeem your shares at the end of the given period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
B. New World Fund
In the section captioned “Principal investment strategies,” you state that the fund invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets (i.e., emerging markets). However, the remaining disclosure in this section appears inconsistent with this statement. We would expect a fund primarily investing in emerging markets to have substantially more of its investments economically tied to emerging market countries.
Response: New World Fund’s investment strategy was devised as a means of providing shareholders with a flexible exposure to developing markets by blending investments in securities of issuers based in qualified developing countries, on the one hand, with investments in securities of issuers based in the developed world with significant assets or revenues attributable to developing countries, on the other. This distinctive investment approach offers long-term investors who want to access the return potential of developing markets many potential benefits, including a possible reduction in some of the volatility typically associated with emerging markets investing.
Notwithstanding New World Fund’s express intent to invest in securities of issuers based in both developing and developed countries, the fund discloses in its prospectus, under “Principal investment strategies,” that it “invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets.” This exposure is obtained two ways—on the one hand, through investments in companies that are primarily based in countries with developing economies and/or markets, and on the other hand, though investments in companies that have been deemed to have “significant exposure” to developing countries. In practice, fund shareholders are substantially exposed to emerging markets by way of investments in both developing and developed country issuers.
We have revised the disclosure to clarify this approach and to address the Staff’s comment, as follows:
Principal investment strategies The fund invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets. The securities markets of these countries may be referred to as emerging markets. The fund may invest in equity securities of any company, regardless of where it is based (including developed countries), if the fund’s investment adviser determines that a significant portion of the company’s assets or revenues (generally 20% or more) is attributable to developing countries. The fund may also invest in debt securities of issuers, including issuers of lower rated bonds (rated Ba1 or below and BB+ or below by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser or unrated but determined to be of equivalent quality by the fund’s investment adviser), with exposure to these countries. Bonds rated Ba1 or BB+ or below are sometimes referred to as “junk bonds.”
Under normal market conditions, the fund will invest at least 35% of its assets in equity and debt securities of issuers primarily based in qualified countries that have developing economies and/or markets. The fund may also, to a limited extent, invest in securities of issuers based in nonqualified developing countries.
In determining whether a country is qualified, the fund’s investment adviser will consider such factors as the country’s per capita gross domestic product, the percentage of the country’s economy that is industrialized, market capital as a percentage of gross domestic product, the overall regulatory environment, the presence of government regulation limiting or banning foreign ownership, and restrictions on repatriation of initial capital, dividends, interest and/or capital gains. The fund’s investment adviser will maintain a list of qualified countries and securities in which the fund may invest.
The fund may also invest in debt securities of issuers, including issuers of lower rated bonds (rated Ba1 or below and BB+ or below by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser or unrated but determined to be of equivalent quality by the fund’s investment adviser), with exposure to these countries. Bonds rated Ba1 or BB+ or below are sometimes referred to as “junk bonds.”
The fund may invest in equity securities of any company, regardless of where it is based, if the fund’s investment adviser determines that a significant portion of the company’s assets or revenues (generally 20% or more) is attributable to developing countries. In addition, the fund may invest in nonconvertible debt securities of issuers, including issuers of lower rated bonds and government bonds, that are primarily based in qualified countries or that have a significant portion of their assets or revenues attributable to developing countries. The fund may also, to a limited extent, invest in securities of issuers based in nonqualified developing countries.
In the section captioned “Principal investment strategies,” please revise the disclosure to clarify the extent to which the fund may invest in nonqualified developing countries if the fund is only required to invest 35% of its assets in qualified developing countries.
Response: Please see our response to Comment No. 3 above. The statement that the fund invests at least 35% of its assets in securities of issuers based in qualified countries does not mean that the remainder of the fund’s assets will be held in nonqualified developing countries, and the disclosure that the fund will invest in nonqualified developing countries “to a limited extent” should be read consistent with the plain meaning of such term. Historically, the fund has not invested materially in such countries: as of December 31, 2019 and 2018, for example, the fund did not hold the securities of any issuers based in nonqualified developing countries.
In the section captioned “Principal investment strategies,” please revise the disclosure to clarify that the term “significant portion,” as it pertains to the scope of a company’s assets or revenues that are attributable to developing countries, generally means “50% or more” (rather than 20% or more, as is currently disclosed).
Response: We respectfully decline to revise the disclosure to clarify that the term “significant portion,” as it pertains to the scope of a company’s assets or revenues that are attributable to developing countries, generally means more than 50%. We respectfully submit that the imposition of investment policies or restrictions of this nature, which are not mandated by the 1940 Act or existing rules or regulations thereunder, are appropriately administered through a formal notice and comment process whereby interested members of the industry and observers have the ability to provide meaningful input into the rulemaking process. Absent applicable rules or regulations, defining what is meant by subjective terms such as “significant portion” is wholly within the purview of a fund’s investment adviser, so long as any such definition is accurately disclosed. As noted, the fund currently defines a “significant portion” of a company’s assets to mean “generally, 20% or more.” Such definition is clearly disclosed in the fund’s prospectus and effectively eliminates shareholder uncertainty or confusion as to the meaning of a subjective term.
In the section captioned “Principal investment strategies,” please identify the countries included on the list of “qualified countries” maintained by the investment adviser.
Response: The list of qualified countries is included in the section captioned “Investment objectives, strategies and risks” in the fund’s statutory prospectus. Such list is only included in the statutory prospectus in accordance with the Staff’s guidance that disclosure in response to Item 4 of Form N-1A should summarize the more fulsome disclosure in Item 9 of Form N-1A. Accordingly, we respectfully decline to supplement the disclosure as proposed.
We note in the section captioned “Principal risks” that the fund may invest in convertible securities. If the fund invests or expects to invest in contingent convertible securities, the fund should consider what, if any, disclosure is appropriate.
Response: Although New World Fund may invest in contingent convertible securities as a non-principal investment strategy, as of December 31, 2019, the fund did not hold any positions in such securities. Nevertheless, the Registrant has included disclosure regarding contingent convertible securities and the risks associated with investing therein in its statement of additional information under “Description of certain securities, investment techniques and risks — Hybrid securities.”
In the section captioned “Principal investment strategies,” please consider describing the developing market securities in which the fund invests as “securities of issuers domiciled outside the United States or with significant operations outside the United States,” as described in the paragraph captioned “Investing outside the United States” in the section captioned “Principal risks.”
Response: We believe the disclosure in the section captioned “Principal investment strategies” adequately describes the developing market issuers and securities in which the fund may invest. Specifically, the disclosure in the “Principal investment strategies” section states that the fund may invest in securities of companies that have a significant portion of their assets or revenues (generally 20% or more) that are attributable to developing countries. This specific test is appropriate for inclusion in the “Principal investment strategies” section because it narrowly describes an investment strategy of the fund. However, the disclosure in the paragraph captioned “Investing outside the United States” describes the risks associated with investing in issuers “with significant operations outside the United States” more generally. We believe this more general wording is appropriate for inclusion in a risk factor, whereas the specific disclosure in the “Principal investment strategies” section is more appropriate when describing a fund’s investment strategy. Accordingly, we respectfully decline to supplement the disclosure as proposed.
Significant market events have occurred since this post-effective amendment was filed as a result of the COVID-19 pandemic. Please consider whether the Registrant’s disclosures, including risk disclosures, should be revised based on how these events are affecting both debt and equity markets. If the Registrant believes that no additional disclosure is warranted, please explain supplementally why not.
Response: We have considered the Registrant’s disclosure, including its risk disclosure, in light of the Staff’s comment and we believe the Registrant’s current disclosure is sufficient. In particular, the “market conditions” risk factor states that that the prices of, and the income generated by, the securities held by a fund may decline – sometimes rapidly or unpredictably – due to various market events. However, recognizing that the COVID-19 pandemic may continue for a significant period of time and that other pandemics may occur in the future, we have supplemented the “Market conditions” risk factor in each fund’s statutory prospectus as follows:
Market conditions — The prices of, and the income generated by, the common stocks, bonds and other securities held by the fund may decline – sometimes rapidly or unpredictably – due to various factors, including events or conditions affecting the general economy or particular industries; overall market changes; local, regional or global political, social or economic instability; governmental, governmental agency or central bank responses to economic conditions; and currency exchange
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CORRESP
1
filename1.htm
Katherine
Z. Solomon
Counsel
Capital
Research and Management Company
333 South
Hope Street
Los Angeles,
California 90071-1406
(213) 615-0956
Tel
(213) 486-9611
Fax
capitalgroup.com
April
14, 2020
Mark A.
Cowen
Senior Counsel
U.S. Securities
and Exchange Commission
Division
of Investment Management
Disclosure
Review Office
100 F Street,
N.E.
Washington,
D.C. 20549-3628
Re:
American
Funds Insurance Series (the “Registrant” or the “Series”)
File Nos. 002-86838
and 811-03857
Dear Mr.
Cowan:
This
letter is in response to the comments you provided on March 12, 2020 to the Registrant’s Post-Effective Amendment No. 93
to the Registration Statement under the Securities Act of 1933 (the “1933 Act”) and Amendment No. 93 to the
Registration Statement under the Investment Company Act of 1940 (the “1940 Act”), which amendment reflected,
among other things, changes to certain fund names, certain revisions to the funds’ investment strategies and the addition
of management fee waivers. We appreciate your prompt response to the filing.
Our
responses to your comments are set forth below. We will incorporate any changes to the Registration Statement in a subsequent
filing pursuant to Rule 485(b) under the 1933 Act to be automatically effective on May 1, 2020 (the “Amendment”).
We understand that, unless otherwise stated, when a comment is made with respect to disclosure in one portion of the Registration
Statement, that comment is applicable to all similar disclosure appearing elsewhere in the Registration Statement. Accordingly,
where applicable, responses to your comments below with respect to any individual class of shares apply equally to each of the
Registrant’s other classes of shares with similar disclosure.
Summary
Prospectus
A. General
In
the “Annual fund operating expenses” table for each fund, please update the footnote to specify the amount of the
management fee waiver.
Response:
We have updated the disclosure to address this comment as set forth below. The bracketed text will be completed for each individual
fund and share class in the Amendment as appropriate.
The
investment adviser is currently waiving a portion of its investment management fee equal to [XX]%
of the fund’s net assets. This waiver will be
in effect through at least May 1, 2021. The waiver may only be modified or terminated with the approval of the fund’s board.
Please
add the following sentence to the beginning of the lead-in to the expense example for each fund: “This Example is intended
to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.” In addition, please
add the words “or hold” after the word “redeem” in the second sentence.
Response:
We note that in accordance with Item 3 of Form N-1A, the lead-in to the expense example for each fund already includes a sentence
that is substantially similar to the sentence that the Staff asked us to add.
With
respect to the Staff’s request that we indicate that the hypothetical expenses will not change if the investor holds (instead
of redeems) his or her shares at the end of the stated period, we have updated the disclosure to address this comment, as follows:
The
example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return each year and that the fund’s operating
expenses remain the same. The example does not reflect insurance contract expenses. If insurance contract expenses were reflected,
expenses shown would be higher. No sales charge (load) or other fees are charged by the fund upon
redemption, so you would incur these hypothetical costs whether or not you were to redeem your shares at the end of the given
period. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
B. New
World Fund
In
the section captioned “Principal investment strategies,” you state that the fund invests primarily in common
stocks of companies with significant exposure to countries with developing economies and/or markets (i.e., emerging markets).
However, the remaining disclosure in this section appears inconsistent with this statement. We would expect a fund primarily investing
in emerging markets to have substantially more of its investments economically tied to emerging market countries.
Response:
New World Fund’s investment strategy was devised as a means of providing shareholders with a flexible exposure to developing
markets by blending investments in securities of issuers based in qualified developing countries, on the one hand, with investments
in securities of issuers based in the developed world with significant assets or revenues attributable to developing countries,
on the other. This distinctive investment approach offers long-term investors who want to access the return potential of developing
markets many potential benefits, including a possible reduction in some of the volatility typically associated with emerging markets
investing.
Notwithstanding
New World Fund’s express intent to invest in securities of issuers based in both developing and developed countries, the
fund discloses in its prospectus, under “Principal investment strategies,” that it “invests primarily in common
stocks of companies with significant exposure to countries with developing economies and/or markets.” This exposure is obtained
two ways—on the one hand, through investments in companies that are primarily based in countries with developing economies
and/or markets, and on the other hand, though investments in companies that have been deemed to have “significant exposure”
to developing countries. In practice, fund shareholders are substantially exposed to emerging markets by way of investments in
both developing and developed country issuers.
We
have revised the disclosure to clarify this approach and to address the Staff’s comment, as follows:
Principal
investment strategies The fund invests primarily in common stocks of companies with significant exposure to countries with
developing economies and/or markets. The securities markets of these countries may be referred to as emerging markets. The
fund may invest in equity securities of any company, regardless of where it is based (including developed countries), if the fund’s
investment adviser determines that a significant portion of the company’s assets or revenues (generally 20% or more) is
attributable to developing countries. The
fund may also invest in debt securities of issuers, including issuers of lower rated bonds (rated Ba1 or below and BB+ or below
by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser or unrated but determined
to be of equivalent quality by the fund’s investment adviser), with exposure to these countries. Bonds rated Ba1 or BB+
or below are sometimes referred to as “junk bonds.”
Under
normal market conditions, the fund will invest at least 35% of its assets in equity and debt securities of issuers primarily based
in qualified countries that have developing economies and/or markets. The fund may also, to a
limited extent, invest in securities of issuers based in nonqualified developing countries.
In
determining whether a country is qualified, the fund’s investment adviser will consider such factors as the country’s
per capita gross domestic product, the percentage of the country’s economy that is industrialized, market capital as a percentage
of gross domestic product, the overall regulatory environment, the presence of government regulation limiting or banning foreign
ownership, and restrictions on repatriation of initial capital, dividends, interest and/or capital gains. The fund’s investment
adviser will maintain a list of qualified countries and securities in which the fund may invest.
The
fund may also invest in debt securities of issuers, including issuers of lower rated bonds (rated Ba1 or below and BB+ or below
by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser or unrated but determined
to be of equivalent quality by the fund’s investment adviser), with exposure to these countries. Bonds rated Ba1 or BB+
or below are sometimes referred to as “junk bonds.”
The
fund may invest in equity securities of any company, regardless of where it is based, if the fund’s investment adviser determines
that a significant portion of the company’s assets or revenues (generally 20% or more) is attributable to developing countries.
In addition, the fund may invest in nonconvertible debt
securities of issuers, including issuers of lower rated bonds and government bonds, that are primarily based in qualified countries
or that have a significant portion of their assets or revenues attributable to developing countries. The
fund may also, to a limited extent, invest in securities of issuers based in nonqualified developing countries.
In
the section captioned “Principal investment strategies,” please revise the disclosure to clarify the extent to which
the fund may invest in nonqualified developing countries if the fund is only required to invest 35% of its assets in qualified
developing countries.
Response:
Please see our response to Comment No. 3 above. The statement that the fund invests at least 35% of its assets in securities
of issuers based in qualified countries does not mean that the remainder of the fund’s assets will be held in nonqualified
developing countries, and the disclosure that the fund will invest in nonqualified developing countries “to a limited extent”
should be read consistent with the plain meaning of such term. Historically, the fund has not invested materially in such countries:
as of December 31, 2019 and 2018, for example, the fund did not hold the securities of any issuers based in nonqualified developing
countries.
In
the section captioned “Principal investment strategies,” please revise the disclosure to clarify that the term “significant
portion,” as it pertains to the scope of a company’s assets or revenues that are attributable to developing countries,
generally means “50% or more” (rather than 20% or more, as is currently disclosed).
Response:
We respectfully decline to revise the disclosure to clarify that the term “significant portion,” as it pertains
to the scope of a company’s assets or revenues that are attributable to developing countries, generally means more than
50%. We respectfully submit that the imposition of investment policies or restrictions of this nature, which are not mandated
by the 1940 Act or existing rules or regulations thereunder, are appropriately administered through a formal notice and comment
process whereby interested members of the industry and observers have the ability to provide meaningful input into the rulemaking
process. Absent applicable rules or regulations, defining what is meant by subjective terms such as “significant portion”
is wholly within the purview of a fund’s investment adviser, so long as any such definition is accurately disclosed. As
noted, the fund currently defines a “significant portion” of a company’s assets to mean “generally, 20%
or more.” Such definition is clearly disclosed in the fund’s prospectus and effectively eliminates shareholder uncertainty
or confusion as to the meaning of a subjective term.
In
the section captioned “Principal investment strategies,” please identify the countries included on the list of “qualified
countries” maintained by the investment adviser.
Response:
The list of qualified countries is included in the section captioned “Investment objectives, strategies and risks”
in the fund’s statutory prospectus. Such list is only included in the statutory prospectus in accordance with the Staff’s
guidance that disclosure in response to Item 4 of Form N-1A should summarize the more fulsome disclosure in Item 9 of Form N-1A.
Accordingly, we respectfully decline to supplement the disclosure as proposed.
We
note in the section captioned “Principal risks” that the fund may invest in convertible securities. If the fund invests
or expects to invest in contingent convertible securities, the fund should consider what, if any, disclosure is appropriate.
Response:
Although New World Fund may invest in contingent convertible securities as a non-principal investment strategy, as of December
31, 2019, the fund did not hold any positions in such securities. Nevertheless, the Registrant has included disclosure regarding
contingent convertible securities and the risks associated with investing therein in its statement of additional information under
“Description of certain securities, investment techniques and risks — Hybrid securities.”
In
the section captioned “Principal investment strategies,” please consider describing the developing market securities
in which the fund invests as “securities of issuers domiciled outside the United States or with significant operations outside
the United States,” as described in the paragraph captioned “Investing outside the United States” in the section
captioned “Principal risks.”
Response:
We believe the disclosure in the section captioned “Principal investment strategies” adequately describes the
developing market issuers and securities in which the fund may invest. Specifically, the disclosure in the “Principal investment
strategies” section states that the fund may invest in securities of companies that have a significant portion of their
assets or revenues (generally 20% or more) that are attributable to developing countries. This specific test is appropriate for
inclusion in the “Principal investment strategies” section because it narrowly describes an investment strategy of
the fund. However, the disclosure in the paragraph captioned “Investing outside the United States” describes the risks
associated with investing in issuers “with significant operations outside the United States” more generally. We believe
this more general wording is appropriate for inclusion in a risk factor, whereas the specific disclosure in the “Principal
investment strategies” section is more appropriate when describing a fund’s investment strategy. Accordingly, we respectfully
decline to supplement the disclosure as proposed.
Significant
market events have occurred since this post-effective amendment was filed as a result of the COVID-19 pandemic. Please consider
whether the Registrant’s disclosures, including risk disclosures, should be revised based on how these events are affecting
both debt and equity markets. If the Registrant believes that no additional disclosure is warranted, please explain supplementally
why not.
Response:
We have considered the Registrant’s disclosure, including its risk disclosure, in light of the Staff’s comment
and we believe the Registrant’s current disclosure is sufficient. In particular, the “market conditions” risk
factor states that that the prices of, and the income generated by, the securities held by a fund may decline – sometimes
rapidly or unpredictably – due to various market events. However, recognizing that the COVID-19 pandemic may continue for
a significant period of time and that other pandemics may occur in the future, we have supplemented the “Market conditions”
risk factor in each fund’s statutory prospectus as follows:
Market
conditions — The prices of, and the income generated by, the common stocks, bonds and other securities held by the fund
may decline – sometimes rapidly or unpredictably – due to various factors, including events or conditions affecting
the general economy or particular industries; overall market changes; local, regional or global political, social or economic
instability; governmental, governmental agency or central bank responses to economic conditions; and currency exchange