[Federal Register Volume 66, Number 167 (Tuesday, August 28, 2001)]
[Notices]
[Pages 45344-45346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21650]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-25119; File No. 812-12512]
Janus Aspen Series, et al.; Notice of Application
August 21, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' of ``Commission'').
ACTION: Notice of application for an order under Section 26(c) of the
Investment Company Act of 1940 (``Act'') approving the proposed
substitution of securities.
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Applicants: (1) Janus Aspen Series (``JAS''), (2) Western Reserve
Life Assurance Co. of Ohio (``WRL''), (3) WRL Series Annuity Account B
(``WRL Separate Account'') (collectively, ``Applicants'').
Summary of Application: Applicants request an order approving the
proposed substitution of shares of Flexible Income Portfolio of Janus
Aspen Series (``Flexible Income Portfolio'') for the shares of High-
Yield Portfolio of Janus Aspen Series (``High-Yield Portfolio'') held
by the WRL Series Annuity Account B (``WRL Separate Account'') in
connection with variable annuity contracts (the ``Contracts'') issued
by Western Reserve Life Assurance Co. of Ohio (``WRL'').
Filing Dates: The application was filed on April 27, 2001, and an
amended and restated application was filed on June 22, 2001.
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
September 24, 2001, and should be accompanied by proof of service on
Applicants, in the form of an affidavit
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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: Patrick Scott, Attorney, or Lorna
MacLeod, 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 Street, N.W., Washington, D.C.
20549 (202) 942-8090).
Applicants' Representations
1. JAS, a Delaware business trust, is registered under the Act as
an open-end management investment company. JAS currently issues shares
in fourteen investment Portfolios, including High-Yield Portfolio. Each
portfolio, including High-Yield Portfolio, consists of two classes of
shares. Both classes of shares of each portfolio are registered under
the Securities Act of 1933 (``1933 Act''). Institutional shares are
offered to insurance company separate accounts as investment vehicles
for variable life insurance policies and variable annuity contracts, as
well as to qualified plans. Service shares are offered to insurance
company separate accounts and qualified plans that require a fee from
portfolio assets to procure distribution and administrative services to
contract owners and plan participants. WRL Separate Account invests in
institutional shares of High-Yield Portfolio.
2. Janus Capital Corporation (``Janus Capital'') serves as
investment adviser to each portfolio of JAS. The investment objective
of High-Yield Portfolio is to seek to obtain high current income.
Capital appreciation is a secondary objective when consistent with its
primary objective.
3. WRL is a stock life insurance company and is engaged in the
business of writing life insurance policies and annuity contracts. WRL
is wholly-owned by First AUSA Life Insurance Company, a stock life
insurance company which is wholly-owned by AEGON USA, Inc. (``AEGON
USA''), which conducts most of its operations through subsidiary
companies engaged in the insurance business or in providing non-
insurance financial services. All of the stock of AEGON USA is
indirectly owned by AEGON N.V. of the Netherlands, the securities of
which are publicly trade. AEGON N.V., a holding company, conducts its
business through subsidiary companies engaged primarily in the
insurance business.
4. WRL Separate Account is a separate account established by WRL to
support variable annuity contracts, including Janus Retirement
Advantage (``JRA Contract''). The JRA Contract currently permits
allocation of purchase payments and transfers of Contracts values among
and between 13 sub-accounts corresponding to different portfolios of
JAS (excluding High-Yield Portfolio). High-Yield Portfolio is no longer
an allocation option under JRA Contract issued after May 1, 2001. WRL
Separate Account is registered as a unit investment trust under the Act
and interests in the WRL Separate Account are registered as securities
under the 1933 Act.
5. Janus Capital states that High-Yield Portfolio has not grown to
a size to allow it to operate efficiently. As of March 31, 2001, High-
Yield Portfolio had net assets of approximately $1.7 million. Janus
Capital believes the prospects of increasing sales and raising assets
to a viable level are low. As a result of its limited assets, High-
Yield Portfolio has had relatively high expenses as a percentage of net
assets. Absent fee waivers and expense reimbursements from Janus
Capital, the Portfolio's total expenses for the year ended December 31,
2000 were 10.38%. To maintain the Portfolio's 1.0% expense limit, Janus
Capital waived 9.38% in fees and expenses in 2000. Moreover, it is
difficult and inefficient for High-Yield Portfolio's portfolio manager
to buy and sell small lots of securities for such a small portfolio.
6. At a meeting on March 13, 2001, the Trustees of JAS authorized
closing High-Yield Portfolio to new investors, effective May 1, 2001,
and authorized the officers of JAS to file an application for a
substitution order with the Commission and to take such other actions
as may be necessary to liquidate High-Yield Portfolio. Janus Capital
contacted WRL and discussed the advisability of liquidating High-Yield
Portfolio and the methods by which this could be accomplished. It was
agreed that the most efficient method of liquidating High-Yield
Portfolio would be to have WRL substitute shares of another fund for
those of High-Yield Portfolio currently held by WRL Separate Account.
7. If the requested substitution order is granted, WRL, on behalf
of WRL Separate Account, will substitute institutional shares of
Flexible Income Portfolio for shares of High-Yield Portfolio. Flexible
Income Portfolio is another investment portfolio of JAS. Flexible
Income Portfolio's investment objective is to seek to obtain maximum
total return, consistent with preservation of capital. It invests
primarily in a wide variety of income-producing securities such as
corporate bonds and notes, government securities and preferred stock
and may own an unlimited amount of high-yield/high risk bonds. As of
March 31, 2001, Flexible Income Portfolio had net assets of 287.2
million. The portfolio's total expenses for the year ended December 31,
2001, were .76%, which did not include any fee waiver or expense
offset.
8. Applicants state that the JRA Contract gives WRL 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
JRA Contract.
9. Applicants state that, as of the effective date of the
substitutions, WRL will redeem shares of High-Yield Portfolio for cash.
Simultaneously, WRL will use these proceeds to purchase the appropriate
number of shares of Flexible Income Portfolio 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 JRA
Contract owner's account values or death benefit.
10. Applicants represent that Janus Capital and WRL 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
JRA Contract owners. Applicants state that affected JRA Contract owners
will not incur any fees or charges as a result of the substitutions,
nor will the rights or obligations of WRL under the JRA Contract be
altered in any way. Applicants also represent that the proposed
substitutions will not have any adverse tax consequences to JRA
Contract owners and that the proposed substitutions will not cause JRA
Contract fees and charges currently being paid by existing JRA Contract
owners to be greater after the proposed
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substitutions than before the proposed substitutions.
11. Applicants state that the proposed substitutions will not be
treated as transfers that may be made by a JRA Contract owner in any
period without a transfer charge. Applicants state that WRL will not,
with respect to shares substituted, exercise its right that it may have
under its JRA Contract to impose additional restrictions on transfers
for a period of at least 30 days following the proposed substitutions.
Each JRA Contract owner will be allowed one transfer of contract value
with respect to shares substituted, for a period of 30 days following
the proposed substitution, without that transfer counting toward any
limit on free transfers under the JRA Contract.
12. Applicants state that affected JRA Contract owners will be
notified of the proposed elimination of High-Yield Portfolio. In
addition, Applicants further state that WRL will send affected JRA
Contract owners a prospectus supplement which informs them that WRL and
other applicants have filed an application for an order allowing WRL to
undertake the substitutions described in the application and that
affected JRA Contract owners may elect any time prior to the closing
date of the substitution to transfer their interest in the sub-account
corresponding to High-Yield Portfolio to any other sub-account, without
such transfer counting toward any limits on free transfers under a JRA
Contract. Applicants also state that with this JRA Contract owners have
already received a current prospectus relating to Flexible Income
Portfolio (which was included in a combined prospectus with High-Yield
Portfolio).
13. Applicants state that once the proposed substitution are
completed, a confirmation will be mailed to the JRA Contract owners
reflecting the transfer of the JRA Contract values from the sub-
accounts investing in High-Yield Portfolio to the sub-accounts
investing in the substituted Flexible Income Portfolio. Applicants
state that this confirmation will be sent within five days of the
completion of the substitution. Applicants also state that, following
the proposed substitution, Janus Capital, as the sole remaining
shareholder of High-Yield Portfolio, will approve the final liquidation
of the High-Yield Portfolio.
Applicants' Legal Analysis:
1. Applicants request that the Commission issue an order pursuant
to Section 26(c) of the Act approving the substitution by WRL of shares
of Flexible Income Portfolio for shares of High-Yield Portfolio held by
WRL Separate Account.
2. Section 26(c) 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(c) also states that the Commission shall issue an
order approving such substitution if the evidence established 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 WRL has reserved the right to substitute
shares of another open-end management investment company in the JRA
Contract and disclosed this reserved right in the prospectuses or
statements of additional information for the JRA Contract.
4. Applicants note that, Flexible Income Portfolio is a
substantially larger fund that High-Yield Portfolio and that the
expense of Flexible Income Portfolio are lower than those of High-Yield
Portfolio, even with the current expense limitation in place for High-
Yield Portfolio. Applicants state, moreover, that the current expenses
limitation for High-Yield Portfolio may be terminated at each annual
renewal of High-Yield Portfolio's investment advisory contract, and
there is no assurance this arrangement will continue in the future.
5. Applicants also maintain that the Flexible Income Portfolio is
an appropriate substitute investment vehicle with regard to JRA
Contract owner interests held in High-Yield Portfolio. WRL believes
that the investment objectives and policies of Flexible Income
Portfolio are sufficiently similar to those of High-Yield Portfolio so
as to be appropriate for substitution. Flexible Income Portfolio
invests primarily in a wide variety of income-producing securities such
as corporate bonds and notes, government securities and preferred stock
and may own an unlimited amount of high-yield/high risk bonds. During
the fiscal year ended December 31, 2000, based upon a weighted monthly
average, Flexible Income Portfolio held 16% of its net assets in
securities rated BB. WRL believes JRA Contract owners that have
allocated values to High-Yield Portfolio will find Flexible Income
Portfolio to be an attractive and highly suitable alternative.
6. Applicants maintain that the purposes, terms and conditions of
the substitution are consistent with the principles and purposes of
Section 26(c) and do not entail any of the abuses that Section 26(c) is
designed to prevent. Applicants note that the JRA Contract provides
each JRA Contract owner with the right to exercise his or her own
judgment and transfer account values into other allocation options.
Moreover, the JRA Contract will offer JRA Contract owners the
opportunity to transfer amounts out of the sub-account corresponding to
High-Yield 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 substitution are consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-21650 Filed 8-27-01; 8:45 am]
BILLING CODE 8010-01-M