[Federal Register Volume 63, Number 153 (Monday, August 10, 1998)]
[Notices]
[Pages 42646-42649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21276]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23371; File No. 812-11170]
Janus Aspen Series, et al.; Notice of Application
July 31, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under Section 26(b) of the
Investment Company Act of 1940 (``Act'') approving the proposed
substitution of securities.
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SUMMARY OF APPLICATION: Applicants request an order approving the
proposed substitution of shares of certain money market funds organized
as portfolios of open-end management investment companies (``Money
Market Funds'') for the shares of Short-Term Bond Portfolio of Janus
Aspen Series (``Short-Term Bond Portfolio'') held by the Separate
Accounts in connection with certain variable annuity contacts and
variable life insurance policies (the ``Contracts'') issued by the
Insurance Companies.
APPLICANTS: (1) Janus Aspen Series, (2) Annuity Investors Life
Insurance Company, Kemper Investors Life Insurance Company, Southland
Life Insurance Company, and Western Reserve Life Assurance Co. of Ohio
(each an ``Insurance Company,'' and collectively, the ``Insurance
Companies''), and (3) Annuity Investors Variable Account A, KILICO
Variable Annuity Separate Account, Southland Separate Account L1,
Southland Separate Account A1, and WRL Series Annuity Account B (each a
``Separate Account,'' and collectively, the ``Separate Accounts'').
FILING DATES: The application was filed on June 11, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, in person or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 25, 1998,
and should be accompanied by proof of service on Applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification of a hearing by writing
to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, Bonnie M. Howe, Esq., 100 Fillmore Street, Denver, Colorado
80206-4928.
FOR FURTHER INFORMATION CONTACT:
Michael Koffler, Attorney, or Mark Amorosi, Branch Chief, Office of
Insurance Products (Division of Investment Management), at (202) 942-
0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth St., NW., Washington, DC 20549
(tel. (202) 942-8090).
Applicant's Representations
1. Janus Aspen Series (``JAS''), a Delaware business trust, is
registered under the Act as an open-end management investment company
(File No. 811-07736). JAS currently issues shares in twelve investment
portfolios, including Short-Term Bond Portfolio. Each portfolio,
including Short-Term Bond Portfolio, consists of two classes of shares.
Both classes of shares of each portfolio are registered under the
Securities Act of 1933 (``1933 Act'') (File No. 33-63212).
Institutional Shares are currently sold only to insurance company
separate accounts as investment vehicles for variable life insurance
policies and variable annuity contracts. Retirement Shares are offered
to certain participant directed qualified retirement plans. The
Separate Accounts of the Insurance Companies all invest in
Institutional Shares of Short-Term Bond Portfolio.
2. Janus Capital Corporation (``Janus Capital'') serves as
investment adviser to each portfolio of JAS. The investment
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objective of Short-Term Bond Portfolio is to seek as high a level of
current income as is consistent with preservation of capital. The
portfolio pursues its objective by investing primarily in short and
intermediate term fixed-income securities. Under normal circumstances,
it is expected that the portfolio's dollar-weighted portfolio effective
maturity will not exceed three years.
3. Annuity Investors Life Insurance Company (``Annuity Investors'')
is a stock life insurance company and is principally engaged in the
sale of fixed and variable annuity policies. Annuity Investors is a
wholly-owned subsidiary of Great American Life Insurance Company which
is a wholly-owned subsidiary of American Annuity Group, Inc., a
publicly-traded insurance holding company. That company is, in turn,
indirectly controlled by American Financial Group, Inc., a publicly-
traded holding company.
4. Kemper Investors Life Insurance Company (``Kemper Investors'')
is a stock life insurance company that offers life insurance and
annuity products. Kemper Investors is a wholly-owned subsidiary of
Kemper Corporation, a non-operating holding company. Kemper Corporation
is a wholly-owned subsidiary of Zurich Holding Company of America,
which is a wholly-owned subsidiary of Zurich Insurance Company.
5. Southland Life Insurance Company (``Southland Life'') is a stock
life insurance company that offers variable life insurance policies and
variable annuity contracts. Southland Life is a wholly-owned indirect
subsidiary of ING Group, a publicly traded Netherlands corporation.
6. Western Reserve Life Assurance Co. of Ohio (``Western Reserve'')
is a stock life insurance company and is engaged in the business of
writing life insurance policies and unity contracts. Western Reserve is
wholly-owned by First AUSA Life Insurance Company, a stock life
insurance company which is wholly-owned by AEGON USA, Inc. (``AEGON
USA''), a financial services holding company. AEGON USA is a wholly-
owned indirect subsidiary of AEGON nv, a Netherlands corporation, which
is a publicly traded international insurance group.
7. Annuity Investors Variable Account A is a separate account
established by Annuity Investors to support individual and group
variable annuity contracts including certain Contracts (``Annuity
Investors Contracts''). The Annuity Investors Contracts currently
permit allocations of purchase payments and transfers of Contract
values between and among 17 sub-accounts corresponding to different
investment companies or portfolios thereof (excluding Short-Term Bond
Portfolio). Short-Term Bond Portfolio was eliminated as an option for
new Contract owners and new allocations under existing Contracts on May
1, 1997. Annuity Investors Variable Account A is registered as a unit
investment trust under the Act (File No. 811-07299) and the Annuity
Investors Contracts are registered as securities under the 1933 Act
(File Dos. 33-59861 and 33-65409).
8. KILICO Variable Annuity Separate Account is a separate account
established by Kemper Investors to support variable annuity contracts,
including certain Contracts (``Kemper VA Contracts''). The Kemper VA
Contracts currently permit allocations of purchase payments and
transfers of Contract values between and among 25 sub-accounts
corresponding to different investment companies or portfolios thereof
(excluding Short-Term Bond Portfolio). Short-Term Bond Portfolio is no
longer an allocation option under Kemper VA Contracts issued after May
1, 1998. KILICO Variable Annuity Separate Account is registered as a
unit investment trust under the Act (File No. 811-3199) and interests
in KILICO Variable Annuity Separate Account are registered as
securities under the 1933 Act (File No. 2-72671).
9. Southland Separate Account L1 is a separate account established
by Southland Life to support variable life insurance policies,
including certain Contracts (``Southland VLI Contracts''). The
Southland VLI Contracts currently permit allocations of purchase
payments and transfers of Contract values between and among 20 sub-
accounts corresponding to different investment companies or portfolios
thereof (excluding Short-Term Bond Portfolio). Short-Term Bond
Portfolio is no longer an allocation option under Southland VLI
Contracts issued after May 1, 1998. Southland Separate Account L1 is
registered as a unit investment trust under the Act (File No. 811-9106)
and interests in the Southland Separate Account L1 are registered as
securities under the 1933 Act (File No. 33-97852.
10. Southland Separate Account A1 is a separate account established
by Southland Life to support variable annuity contracts, including
certain Contracts (``Southland VA Contracts''). Southland VA Contracts
currently permit allocations of purchase payments and transfers of
Contract values between and among 20 sub-accounts corresponding to
different investment companies or portfolios thereof (excluding Short-
Term Bond Portfolio). Short-Term Bond Portfolio is no longer an
allocation option under Southland VA Contracts issued after May 1,
1998. Southland Separate Account A1 is registered as a unit investment
trust under the Act (File No. 811-8976) and interests in the Southland
Separate Account A1 are registered as securities under the 1933 Act
(File No. 33-89574).
11. WRL Series Annuity Account B is a separate account established
by Western Reserve to support variable annuity contracts, including
certain Contracts (``Western Reserve VA Contracts''). The Western
Reserve VA Contracts currently permit allocation of purchase payments
and transfers of Contract values among and between 11 sub-accounts
corresponding to different portfolios of JAS (excluding Short-Term Bond
Portfolio). Short-Term Bond Portfolio is no longer an allocation option
under Western Reserve VA Contracts issued after May 1, 1998. WRL Series
Annuity Account B is registered as a unit investment trust under the
Act (File No. 811-7754) and interests in the WRL Series Annuity Account
B are registered as securities under the 1933 Act (File No. 33-63246).
12. Janus Capital states that Short-Term Bond Portfolio has not
grown to a size to allow it to operate efficiently and that the Short-
Term Portfolio has not been a success with Contract owners.
Furthermore, Janus Capital maintains that the introduction of Janus
Aspen Money Market Portfolio on May 1, 1995, has eliminated the need
for Short-Term Portfolio, which was originally designed as a short-term
investment option for variable annuity contracts and variable life
insurance policies using JAS as an investment vehicle.
13. On March 23, 1998, Janus Capital and JAS notified each
Insurance Company by letter that Janus Capital and JAS intended to
cease offering shares of Short-Term Bond Portfolio for inclusion as
allocation options under the Contracts effective on or about May 1,
1998, and planned a liquidate Short-Term Portfolio as soon as possible
thereafter. Applicants state that it was agreed that the most
appropriate method of liquidating Short-Term Bond Portfolio would be to
have Insurance Company substitute shares of another fund for those of
Short-Term Bond Portfolio currently held by their Separate Accounts.
14. If the requested substitution order is granted, the following
substitutions will take place. Western Reserve, on behalf of WRL Series
Annuity Account B, will substitute Institutional Shares of Money Market
Portfolio of JAS (``Janus Aspen Money Market Portfolio'') for
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shares of Short-Term Bond Portfolio. Janus Aspen Money Market Portfolio
is another investment portfolio of JAS. The portfolio's investment
objective is to seek maximum current income to the extent consistent
with stability of capital. The portfolio seeks to maintain a stable net
asset value of $1.00 per share.
15. Annuity Investors, on behalf of Annuity Investors Variable
Account A, will substitute shares of Class A Common Stock of Domestic
Money Market Fund of Merrill Lynch Variable Series Funds, Inc.
(``Merrill Lynch Domestic Money Market Fund'') for shares of Short-Term
Bond Portfolio. Merrill Lynch Variable Series Funds, Inc. is registered
under the Act as an open-end management investment company and shares
of Merrill Lynch Domestic Money Market Fund are registered as
securities under the 1933 Act (File Nos. 811-03290 and 2-74452). The
portfolio's investment objectives are to preserve capital, maintain
liquidity and achieve the highest possible current income consistent
with the foregoing objectives by investing in short-term domestic money
market securities. The portfolio seeks to maintain a stable net asset
value of $1.00 per share. Merrill Lynch Asset Management, L.P. serves
as the investment adviser to the portfolio.
16. Kemper Life, on behalf of KILICO Variable Annuity Separate
Account, will substitute Kemper Money Market Portfolio of Investors
Fund Series (``Kemper Money Market Portfolio'') for shares of Short-
Term Bond Portfolio. Investors Fund Series is registered under the Act
as an open-end management investment company and shares of Kemper Money
Market Portfolio are registered as securities under the 1933 Act (File
Nos. 811-5002 and 33-11802). The portfolio seeks maximum current income
to the extent consistent with stability of principal from a portfolio
of high quality money market instruments. The portfolio seeks to
maintain a stable net asset value of $1.00 per share. Scudder Kemper
Investments, Inc. serves as investment manager for the portfolio.
17. Southland Life, on behalf of Southland Separate Account L1 and
Southland Separate Account A1, will substitute Institutional Shares of
Money Market Portfolio of Variable Insurance Products Fund (``Fidelity
VIP Money Market Portfolio'') for shares of Short-Term Bond Portfolio.
Variable Insurance Products Fund is registered under the Act as an
open-end management investment company and shares of Fidelity VIP Money
Market Portfolio are registered as securities under the 1933 Act (File
Nos. 811-3329 and 2-75010). The portfolio seeks to obtain as high a
level of current income as is consistent with preserving capital and
providing liquidity. The portfolio seeks to maintain a stable $1.00
share price. Fidelity Management & Research Company serves as
investment manager to the portfolio.
18. Applicants state that each of the Contracts gives the
respective Insurance Company the right to eliminate or add sub-
accounts, combine two or more sub-accounts, or substitute one or more
underlying mutual funds or portfolios for others in which one or more
sub-accounts are invested. Applicants assert that these contractual
provisions also have been disclosed in the prospectuses or statements
of additional information relating to the Contracts.
19. Applicants state that, as of the effective date of the
substitutions, each Insurance Company will redeem shares of Short-Term
Bond Portfolio for cash. Simultaneously, each Insurance Company will
use these proceeds to purchase the appropriate number of shares of the
Money Market Fund proposed to be substituted. The substitutions will
take place at relative net asset values of the portfolios with no
change in the amount of any Contract owner's account values or death
benefit.
20. Applicants represent that Janus Capital and the Insurance
Companies will pay all expenses and transaction costs of the
substitutions, including legal, accounting and other fees and that none
of these costs will be borne by Contract owners. Applicants state that
affected Contract owners will not incur any fees or charges as a result
of the substitutions, nor will the rights or obligations of the
Insurance Companies under the Contracts be altered in any way.
Applicants also represent that the proposed substitutions will not have
any adverse tax consequences to Contract owners and that the proposed
substitutions will not cause Contract fees and charges currently being
paid by existing Contract owners to be greater after the proposed
substitutions than before the proposed substitutions.
21. Applicants state that the proposed substitutions will not be
treated as transfers for the purpose of assessing transfer charges or
for determining the number of remaining transfers that may be made by a
Contract owner in any period without a transfer charge. Applicants
state that no Insurance Company will, with respect to shares
substituted, exercise its right that it may have under its Contracts to
impose additional restrictions on transfers for a period of at least 30
days following the proposed substitutions. Each Contract owner will be
allowed one transfer of Contract value with respect to shares
substituted, for a period of 30 days following the proposed
substitutions, without that transfer counting toward any limit on free
transfers under a Contract.
22. Applicants state that affected Contract owners have been
notified of the proposed elimination of Short-Term Bond Portfolio. In
addition, Applicants further state that each Insurance Company will
send affected Contract owners a prospectus supplement (or notice, in
the case of Annuity Investors) which informs them that the Insurance
Company and other applicants have filed an application for an order
allowing the Insurance Companies to undertake the substitutions
described in the application and that affected Contract owners may
elect at any time prior to the closing date of the substitutions to
transfer their interest in the sub-account corresponding to Short-term
Bond Portfolio to any other sub-account, without such transfer counting
toward any limits on free transfers under a Contract. Applicants also
state that with this supplement, affected Contract owners will also
receive a current prospectus relating to the Money Market Fund proposed
to be substituted (unless such Money Market Fund is already an
allocation option under the particular Contract, in which case the
affected Contract owners would have already received such a
prospectus).
23. Applicants state that once the proposed substitutions are
completed. a confirmation will be mailed to the Contract owners
reflecting the transfer of the Contract values from the sub-accounts
investing in Short-Term Bond Portfolio to the sub-accounts investing in
the substituted Money Market Fund. Applicants state that this
confirmation will be sent within five days of the completion of the
substitution. Applicants also state that, following the proposed
substitutions, Janus Capital, as the sole remaining shareholder of
Short-Term Bond Portfolio, will approve the final liquidation of Short-
Term Bond Portfolio.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order pursuant
to Section 26(b) of the Act approving the substitutions by the
Insurance Companies of shares held by their Separate Accounts in Short-
Term Bond Portfolio as follows: (1) Annuity Investors seeks approval
for the substitution of shares of Merrill Lynch Domestic Money Market
Fund for shares of Short-Term Bond Porfolio; (2) Kemper Life seeks
approval for the
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substitution of shares of Kemper Money Market Portfolio for shares for
shares of Short-Term Bond Portfolio; (3) Southland Life seeks approval
for the substitution of shares of Fidelity VIP Money Market Portfolio
for shares of Short-Term Bond Portfolio; and (4) Western Reserve seeks
approval for the substitution of shares of Janus Aspen Money Market
Portfolio for shares of Short-Term Bond Portfolio.
2. Section 26(b) of the Act requires the depositor of a registered
unit investment trust holding the securities of a single issuer to
receive Commission approval before substituting the securities held by
the trust. Section 26(b) also states that the Commission shall issue an
order approving such substitution if the evidence establishes that it
is consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act.
3. Applicants state that each Insurance Company has reserved the
right to substitute shares of another open-end management investment
company in the Contracts and disclosed this reserved right in the
prospectuses or statements of additional information for the Contracts.
4. Applicants note that, with regard to each of the proposed
substitutions, the corresponding sub-accounts would become invested in
substantially larger funds that those in which each sub-account is
currently invested, and that the expenses of each of the Money Market
Funds are lower than those of Short-Term Bond Portfolio, even with the
current expense limitation in place for Short-Term Bond Portfolio.
Applicants state, moreover, that the current expense limitation for
Short-Term Bond Portfolio may be terminated upon 90 days' notice to the
Trustees of JAS, and there is no assurance this arrangement will
continue in the future.
5. Applicants also maintain that the Money Market Funds are an
appropriate substitute investment vehicle with regard to Contract owner
intersts held in Short-Term Bond Portfolio. Short-Term Bond Portfolio
was designed to serve as a short-term investment option for Contract
owners who desire income and protection of all or portion of Contract
values from risks associated with investments in an equity fund or
longer term bond fund. Applicants represent that the Money Market Funds
are entirely consistent with these objectives as they generally seek to
provide the highest level of income consistent with preservation of
principal. In light of this, Applicants believe Contract owners that
have allocated values to Short-Term Bond Portfolio will find the Money
Market Funds to be a suitable alternative for purposes of short-term
investments.
6. Applicants maintain that the purposes, terms and conditions of
the substitutions are consistent with the principles and purposes of
Section 26(b) and do not entail any of the abuses that Section 26(b) is
designed to prevent. Applicants note that each of the Contracts
provides each Contract owner with the right to exercise his or her own
judgment and transfer account values into other allocation options.
Moreover, each Contract will offer Contract owners the opportunity to
transfer amounts out of the sub-account corresponding to Short-Term
Bond Portfolio into any of the remaining sub-accounts without cost or
other disadvantage.
Conclusion
Applicants submit that, for all of the reasons summarized above,
the proposed substitutions are consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act.
Jonathan Katz,
Secretary.
[FR Doc. 98-21276 Filed 8-7-98; 8:45 am]
BILLING CODE 8010-01-M
