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U.S. Securities and Exchange Commission

Investment Company Act of 1940 - Section 17(a) and Rule 17a-8
Mutual of America Investment Corporation

June 2, 2006

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 2006361550
Mutual of America
Investment Corporation
File No. 811-05084

Your letter dated May 26, 2006 requests our assurance that we would not recommend enforcement action to the Commission under section 17(a) of the Investment Company Act of 1940 ("1940 Act") against the Aggressive Equity Fund, the Small Cap Growth Fund and the Small Cap Value Fund, three portfolios of the Mutual of America Investment Corporation (the "Fund"), if the Fund transfers all of the assets of the Aggressive Equity Fund to the Small Cap Growth Fund and the Small Cap Value Fund (together with the Small Cap Growth Fund, the "Surviving Funds") under the circumstances described below.

BACKGROUND

You state that the Fund is registered with the Commission as an open-end management investment company and serves as an underlying fund to certain insurance company separate accounts. You state that the Fund's investment adviser is Mutual of America Capital Management Corporation (the "Adviser"). You state that the Aggressive Equity Fund, the Small Cap Growth Fund, and the Small Cap Value Fund each pay the same advisory fees, have the same board of directors ("Board"), and share the same investment objective of seeking capital appreciation.

You state that the Aggressive Equity Fund attempts to achieve its investment objective of capital appreciation by investing in small cap growth stocks (the "small cap growth segment") and small cap value stocks (the "small cap value segment") in a ratio determined from time to time by the Adviser. You represent that the small cap growth segment, the small cap value segment, and certain cash and short-term positions within each separate segment are the only assets of the Aggressive Equity Fund.1 You represent that each of these segments has been treated by the Board and the Adviser for internal purposes as a separate, identifiable portfolio with its own investments, its own performance measurement criteria and separate performance figures, and that recently each segment has been handled by separate portfolio managers.

You represent that the Small Cap Growth Fund has the same portfolio manager as the small cap growth segment and that the Small Cap Value Fund has the same portfolio manager as the small cap value segment. You represent that the investment practices and policies of the Small Cap Growth Fund are identical to the investment practices and policies of the small cap growth segment, and that the investment practices and policies of the Small Cap Value Fund are identical to the investment practices and policies of the small cap value segment.

You state that the Fund proposes to transfer all of the assets and liabilities attributable to the small cap growth segment to the Small Cap Growth Fund in exchange for shares of the Small Cap Growth Fund, and all of the assets and liabilities attributable to the small cap value segment to the Small Cap Value Fund in exchange for shares of the Small Cap Value Fund ("Proposed Reorganization").2 You represent that the closing of the Proposed Reorganization will be contingent on receiving the affirmative vote of a majority of the Board, including a majority of those directors who are not "interested persons" of the Fund within the meaning of section 2(a)(19) of the 1940 Act (the "independent directors"), and of the majority of shares of the Aggressive Equity Fund (i.e., the affirmative vote of a majority of shares of the Aggressive Equity Fund voted pursuant to instructions received from the variable contract owners who, in effect, are the beneficial owners of the shares of the Aggressive Equity Fund).3 You also represent that the Proposed Reorganization will be conducted in accordance with rule 17a-8 under the 1940 Act, other than paragraph (b)(1) of the rule.

You state that, immediately following the Proposed Reorganization, the Aggressive Equity Fund will distribute to its shareholders (the insurance company separate accounts) the shares of the Surviving Funds in exchange for their shares of the Aggressive Equity Fund. The insurance company separate accounts will hold the Surviving Fund shares on behalf of the variable contract owners who have separate account allocations in the Aggressive Equity Fund. You state that, after the Proposed Reorganization, the Aggressive Equity Fund will then be dissolved.4 You also state that, after the Proposed Reorganization, each variable contract owner will be able to determine for himself or herself the portion of his or her assets that are invested in small cap growth and small cap value stocks. You assert that each variable contract owner will remain in substantially the same economic position immediately after the Proposed Reorganization that he or she was in immediately prior thereto.5

As discussed in more detail below, you are concerned that the Fund could be viewed as violating section 17(a) of the 1940 Act as a result of the Proposed Reorganization. You also are concerned that the Proposed Reorganization is not the type of transaction specifically contemplated by rule 17a-8 under the 1940 Act. Nonetheless, you believe that the Proposed Reorganization does not raise the concerns underlying the prohibitions of section 17(a) of the 1940 Act.

LEGAL ANALYSIS

Section 17(a)(1) of the 1940 Act, as relevant here, prohibits any affiliated person of a registered investment company (or any affiliated person of an affiliated person) (collectively, "an affiliate"), acting as principal, from knowingly selling any security or other property to the registered investment company.6 Section 17(a)(2) of the 1940 Act, in relevant part, prohibits any affiliate, acting as principal, from knowingly purchasing from such registered investment company, any security or other property.7 The Proposed Reorganization may violate sections 17(a)(1) and (2) because the Aggressive Equity Fund and the Surviving Funds may be considered to be affiliates of each other,8 and the Aggressive Equity Fund will sell its portfolio securities to its affiliates (the Surviving Funds) and each Surviving Fund will purchase portfolio securities from an affiliate (the Aggressive Equity Fund).

Rule 17a-8 under the 1940 Act, among other things, provides conditional relief from the prohibitions of section 17(a) for mergers of affiliated funds (or series thereof). For instance, rule 17a-8(a)(2)(i) conditions relief on the board of directors of each fund that is involved in the merger, including a majority of the independent directors, determining that the merger would be in the best interests of the fund, and that the merger would not dilute the interests of existing fund shareholders. Under rule 17a-8(a)(2)(ii), the directors must request and evaluate such information as may be reasonably necessary to make those determinations. Implicitly, the rule acknowledges that all of the concerns underlying section 17(a) that are raised in connection with a merger of affiliated funds may be adequately addressed by the boards of the merging funds.9

You state that, on its face, rule 17a-8 under the 1940 Act does not apply to the Proposed Reorganization because it does not meet the definition of "merger" in paragraph (b)(1) of the rule. Rule 17a-8(b)(1) defines merger as: "the merger, consolidation, or sale of substantially all of the assets between a registered investment company (or series thereof) and another company," while the Proposed Reorganization entails more than one surviving company (not just "another company"). You also acknowledge that, unlike a merger as defined in the rule, a transaction (like the Proposed Reorganization) whereby a fund sells all of its assets to two surviving and affiliated funds presents the possibility that one surviving fund would be favored over another, for instance, with respect to selection of the securities of the liquidating fund to be transferred.10

You contend that the Proposed Reorganization is substantially similar to a merger that may be covered by the rule. You contend that the Proposed Reorganization is substantially similar to a merger as defined in the rule because it entails the transfer of all of the assets and liabilities of the Aggressive Equity Fund, in dissolution of the Aggressive Equity Fund, pursuant to a plan of reorganization and liquidation that will be approved by the Board on behalf of the Aggressive Equity Fund (and the Surviving Funds) and the shareholders of the Aggressive Equity Fund prior to its occurrence.

You also contend that compliance with all of the conditions of rule 17a-8, as if it applied, will address all of the concerns underlying section 17(a) that are raised by the Proposed Reorganization. Specifically, you represent that, consistent with rule 17a-8, the Board has determined that participation in the Proposed Reorganization is in the best interest of each Surviving Fund and the Aggressive Equity Fund, and that the interests of the existing shareholders of each Surviving Fund and the Aggressive Equity Fund will not be diluted as a result of the Proposed Reorganization. You argue that, in making those determinations, the Board, pursuant to rule 17a-8(a)(2)(ii), requested and evaluated information that is necessary to those determinations, including information that assisted the Board in assessing whether one Surviving Fund would be favored over another, such as information concerning the selection of portfolio securities of the Aggressive Equity Fund that are to be transferred to them.11

Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission under section 17(a) of the 1940 Act against the Aggressive Equity Fund, the Small Cap Growth Fund and the Small Cap Value Fund if the Fund transfers all of the assets of the Aggressive Equity Fund to the Surviving Funds under the circumstances described above.12 In particular, our conclusion is based on your representations that: (i) the Proposed Reorganization will be conducted in accordance with rule 17a-8 under the 1940 Act, other than paragraph (b)(1) of the rule; and (ii) the Proposed Reorganization entails the transfer of all of the assets and liabilities of the Aggressive Equity Fund, in dissolution of the Aggressive Equity Fund, pursuant to a plan of reorganization and liquidation that will be approved by the Board on behalf of the Aggressive Equity Fund (and the Surviving Funds) and the shareholders of the Aggressive Equity Fund prior to its occurrence.

This response expresses our views on enforcement action only and does not express any legal conclusions on the issues presented. Because our position is based on the facts and representations in your letter, you should note that any different facts or representations may require a different conclusion.

Kenneth C. Fang
Senior Counsel


Endnotes


Incoming Letter

The Incoming Letter is in Acrobat format.


http://www.sec.gov/divisions/investment/noaction/2006/moa060206.htm


Modified: 06/06/2006