[Federal Register Volume 64, Number 62 (Thursday, April 1, 1999)]
[Notices]
[Pages 15844-15846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7957]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23764; File No. 812-11412]
PFL Life Insurance Company, et al.
March 26, 1999.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of Application for Approval and Exemption under the
Investment Company Act of 1940 (the ``1940 Act'' or ``Act''). Order
requested pursuant to section 26(b) of the 1940 approving the proposed
substitution of securities and pursuant to section 17(b) of the 1940
Act Act exempting the proposed transaction from section 17(a) of the
1940 Act.
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SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of securities issued by the WRL Fund and held by the
Accounts to support certain policies issued by the Companies (the
``Policies''). Applicants also seek an order exempting them from
Section 17(a) of the 1940 Act to the extent necessary to carry out the
above-referenced substitution by redeeming securities in-kind or partly
in-kind and using the redemption proceeds to purchase securities issued
by the Endeavor Trust.
APPLICANTS: PFL Life Insurance Company (``PLF''), PLF Endeavor VA
Separate Account (the ``Endeavor Account''), AUSA Life Insurance
Company, Inc. (``AUSA'' and together with PLF the ``Companies''), AUSA
Endeavor Variable Annuity Account (the ``AUSA Account'' and together
with the Endeavor Account the ``Accounts''), Endeavor Series Trust (the
``Endeavor Trust'') and WRL Series Fund, Inc. (the ``WRL Fund'') (all
collectively, the ``Applicants'').
FILING DATE: The application was filed on November 20, 1998, and
amended and restated on February 16, 1999.
HEARING OR NOTIFICATION OF HEARING: An Order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing to the
Secretary of the Commission and serving the Applicants with a copy of
the request, personally or by mail. Hearing requests must be received
by the Commission by 5:30 p.m. on April 20, 1999, and should be
accompanied by proof of service on the 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 may request notification of
a hearing by writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, Frank A. Camp,
Esquire, PFL Life Insurance Company, 4333 Edgewood Road, NE, Cedar
Rapids, Iowa 52499, Vincent J. McGuinnes, Jr., Endeavor Series Trust,
2101 East Coast Highway, Suite 300, Corona del Mar, California 92625,
Thomas E. Pierpan, Esquire, WRL Series Fund, Inc., 570 Carillon
Parkway, St. Petersburg, Florida 33716. Copies to Frederick R. Bellamy,
Esquire, Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW,
Washington, DC 20004-2415, Robert N. Hickey, Esquire, Sullivan &
Worcester LLP, 1025 Connecticut Avenue, NW, Washington, DC 20036-5480.
For further Information Contact: Lorna MacLeod, Attorney, or Susan
Olson, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
Supplementary Information: Following is a summary of the application.
The complete application is available for a fee from the Commission's
Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549
(tel. 202-942-8090).
Applicants' Representations
1. PFL, a stock life insurance company incorporated under the laws
of Iowa, is the depositor and sponsor of the Endeavor Account. PFL is a
wholly-owned indirect subsidiary of AEGON USA, Inc., which is a wholly-
owned subsidiary of AEGON n.v. of the Netherlands. AEGON n.v. is a
holding company whose subsidiaries engage primarily in the insurance
business.
2. AUSA, a stock life insurance company incorporated under the laws
of New York, is the depositor and sponsor of AUSA Account. AUSA is a
wholly-owned indirect subsidiary of AEGON USA, Inc.
3.The Endeavor Account is registered under the Act as a unit
investment trust (File No. 811-6032). The assets of the Endeavor
Account support certain flexible premium variable annuity policies, and
interests in the Endeavor Account offered through such policies have
been registered under the Securities Act of 1933 (``1933 Act'') on Form
N-4 (File Nos. 33-33085 and 33-56908). Thirteen sub-accounts are
available under the policies that invest exclusively in corresponding
portfolios of two management investment companies.
4. The AUSA Account is registered under the Act as a unit
investment trust (File No. 811-8750). The assets of the AUSA Account
support certain flexible premium variable annuity policies, and
interests in the AUSA Account offered through such policies have been
registered under 1933 Act on Form N-4 (File No. 33-83560). Eleven sub-
accounts are available under the policies. The sub-accounts invest in
eleven of the thirteen portfolios in which the Endeavor Account
policies invest.
5. The Endeavor Trust is a diversified open-end management
investment company, registered on Form N-1A, that offers a selection of
managed investment portfolios. The following ten portfolios are current
available to both Accounts: Endeavor Asset Allocation
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Portfolio, Endeavor Money Market Portfolio, T. Rowe Price International
Stock Portfolio, T. Rowe Price Equity Income Portfolio, T. Rowe Price
Growth Stock Portfolio, Dreyfus Small Cap Value Portfolio, Dreyfus U.S.
Government Securities Portfolio, Endeavor Value Equity Portfolio,
Endeavor Opportunity Value Portfolio, and Endeavor Enhanced Index
Portfolio. Two additional portfolios--Endeavor Select 50 Portfolio and
Endeavor High Yield Portfolio--are available only to the Endeavor
Account.
6. Since January 1, 1999, Endeavor Management Company has been the
manager of the Endeavor Trust. Previously, the manager of the trust had
been Endeavor Investment Advisers, which was a general partnership
between Endeavor Management Company and AUSA Financial Markets, Inc.
(an affiliate of PFL and AUSA). The manager contracts with sub-advisers
to provide investment services to the portfolios of the trust.
7. The WRL Fund is a diversified open-end management investment
company that is registered on Form N-1A. Of eighteen investment
portfolios currently offered by the fund, only one--the WRL Growth
Portfolio--is available to policies issued from the Accounts.
8. The investment adviser of the WRL Fund is WRL Investment
Management, Inc., a subsidiary of Western Reserve. Western Reserve is a
wholly-owned indirect subsidiary of AEGON USA and, therefore, an
affiliate of PFL and AUSA. WRL Investment Management, Inc. has
contracted with Janus Capital Corporation to provide investment
services to the WRL Growth Portfolio.
9. The Policies reserve to PFL and AUSA, as applicable, the right,
subject to Commission approval, to substitute shares of another open-
end management investment company or portfolio for shares of an open-
end management investment company held by a sub-account of the relevant
Account. The Statement of Additional Information for the Endeavor
Account policies and the Prospectus for the AUSA Account policies
disclose this right.
10. Currently, an unlimited amount of transfers of cash value can
be made among and between the sub-accounts available as investment
options under the Policies without the imposition of a transfer charge.
Transfers are subject to a minimum amount of the lesser of $500 or the
entire sub-account value. All the Policies reserve to PFL or AUSA, as
applicable, the right to restrict transfers, or to charge up to $10 for
any transfer in excess of twelve per Policy year.
11. PFL and AUSA propose to substitute shares of the Endeavor Janus
Growth Portfolio of the Endeavor Trust for shares of the WRL Growth
Portfolio of the WRL Fund held in the Endeavor Account and the AUSA
Account. The proposed substitutions will cause all the investment
options available under the Policies to be consolidated into one series
investment company--the Endeavor Trust.
12. The Endeavor Janus Growth Portfolio of the Endeavor Trust was
created specifically for the proposed substitutions. The Endeavor Janus
Growth Portfolio has identical investment objectives and substantially
similar investment policies to those of the WRL Growth Portfolio. Like
the WRL Growth Portfolio, it is sub-advised by Janus Capital
Corporation and pays an advisory fee of 0.80% of average daily assets.
The WRL Growth Portfolio's total expenses for the year ended December
31, 1997, were 0.87%. Endeavor Management Company has agreed to waive
fees and reimburse expenses that exceed 0.87% of the Endeavor Janus
Growth Portfolio's assets for at least one year.
13. By supplements to the prospectuses for the Policies, all owners
and prospective owners of the Policies will be notified of PFL's and
AUSA's intention to take the necessary actions, including seeking the
order requested by this application, to substitute portfolios as
described. The supplements will advise owners and prospective owners
that after the date of the proposed substitution, the Endeavor Janus
Growth Portfolio will replace the WRL Growth Portfolio as the
underlying investment for such sub-accounts. In addition, the
supplements will inform owners and prospective owners that neither PFL
nor AUSA will exercise any right reserved by it under any of the
Policies to impose restrictions or fees on transfers until at least
thirty days after the proposed substitutions.
14. Before the date of the proposed substitutions, affected owners
will be provided with a prospectus (or preliminary prospectus) for the
Endeavor Janus Growth Portfolio. Thus, any owner affected by either
substitution will have received prospectus disclosure for the Endeavor
Janus Growth Portfolio in advance of the proposed substitutions.
15. On the date of the substitution, PFL and AUSA, on behalf of the
Endeavor Account and the AUSA Account, respectively, will redeem shares
of the WRL Growth Portfolio held by the Accounts. To the extent
practical, redemptions will be effected substantially in-kind. The WRL
Fund will transfer the redemption proceeds (securities and cash) to the
Endeavor Trust, and shares of the Endeavor Janus Growth Portfolio of
equal value will be issued to the Endeavor and AUSA Accounts. The
purpose of transferring assets in-kind is to avoid commission expenses.
16. Applicants assert that the proposed in-kind transfers,
including the consideration to be paid and received, are reasonable and
fair and do not involve overreaching on the part of any person
involved. The transfers will be based on the independent market price
of the security valued as specified in paragraph (b) of Rule 17a-7 and
the net asset value per share of the Endeavor Janus Growth Portfolio
and the WRL Growth Portfolio valued in accordance with procedures
disclosed in the portfolios' registration statements. Additionally,
Applicants assert that the transfers will be effected in a manner
consistent with the investment objectives and policies of the
substituted portfolio. Endeavor Management Company and Janus Capital
Corporation will examine the portfolio securities being offered to the
Endeavor Janus Growth Portfolio and accept only those securities that
could otherwise have been acquired for the portfolio in a cash
transaction.
17. The proposed substitutions will take place at relative net
asset value with no change in the amount of any Policy owner's cash
value or death benefit or in the dollar value of his or her investment
in any of the Accounts. Policy owners will not incur any additional
fees or charges as a result of the proposed substitutions nor will
their rights or PFL's and AUSA's obligations under the Policies be
altered in any way. All expenses incurred in connection with the
proposed substitutions, including legal, accounting and other fees and
expenses, will be paid by PFL and/or Endeavor Management Company. In
addition, the proposed substitutions will not impose any tax liability
on Policy owners. The proposed substitutions will not cause the Policy
fees and charges currently paid by existing Policy owners to be greater
after the proposed substitutions than before the proposed
substitutions. Neither PFL nor AUSA currently impose any restriction or
fee on transfers under the Policies, and neither will exercise any
right it may have under the Policies to impose restrictions on
transfers under the Policies for a period of at least thirty days
following the substitution.
18. Within five business days after the proposed substitutions any
owner who was affected by the substitutions will be
[[Page 15846]]
sent a written notice stating that the substitutions were carried out
and that they may transfer all cash value under a Policy invested in
each of the affected sub-accounts to other available sub-account(s).
The notice will reiterate that neither PFL nor AUSA will exercise any
right reserved by it under any of the Policies to impose restrictions
or fees on transfers until at least thirty days after the proposed
substitutions.
Legal Analysis
1. Section 26(b) of the Act requires the depositor of a registered
unit investment trust holding the securities of a single issuer to
obtain Commission approval before substituting the securities held by
the trust. Specifically, the section provides that ``(i)t shall be
unlawful for any depositor or trustee of a registered until investment
trust holding the security of a single issuer to substitute another
security for such security unless the Commission shall have approved
such substitution.'' The section further provides that the Commission
shall issue an order approving such substitution of 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.
2. Applicants request an order pursuant to section 26(b) of the
1940 Act approving the substitution. Applicants assert that the
proposed substitutions meet the standards that the Commission and its
staff have applied to substitutions that have been approved in the past
and are consistent with the protection of investors and the purposes
fairly intended by the policy and provisions of the Act.
3. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling any
security or other property to that company. Section 17(a)(2) of the Act
generally prohibits any of such affiliated persons, acting as
principals, from knowingly purchasing any security or other property
from the registered investment company. The transfer of proceeds
emanating out of the redemption in-kind of shares of the WRL Growth
Portfolio and the purchase of shares of the Endeavor Janus Growth
Portfolio may be deemed to involve the purchase and sale of securities
between the WRL Fund and the Endeavor Trust or more indirectly between
the WRL Fund and the Accounts and between the Accounts and the Endeavor
Trust. PFL, AUSA, the Accounts, the WRL Fund and the Endeavor Trust may
all be considered affiliates or affiliates of affiliates of each other
subject to the restrictions of section 17(a). PFl and AUSA, through
various separate accounts, own of record a majority of shares of the
Endeavor Trust and, along with Western Reserve, all of the shares of
the WRL Fund. In addition, the Endeavor Trust and the WRL Fund may be
under the control of (or under common control with) PFL and AUSA.
4. Section 17(b) provides that the Commission may grant an order
exempting a proposed transaction provided: (i) The terms of the
proposed transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned; (ii) the proposed transaction is
consistent with the policy of each registered investment company
concerned, as recited in its registration statement and reports filed
under the Act; and (iii) the proposed transaction is consistent with
the general purposes of the Act.
5. Applicants request an order pursuant to section 17(b) of the Act
exempting them from section 17(a) of the Act to the extent necessary to
carry out the substitution by redeeming securities in-kind or partly
in-kind. Applicants assert that the terms of the proposed substitutions
as set forth herein, including the consideration to be paid and
received, are reasonable and fair to: (1) The Endeavor Trust and the
Endeavor Janus Growth Portfolio, (2) the WRL Fund and the WRL Growth
Portfolio, and (3) policy owners invested in the WRL Growth Portfolio;
and do not involve overreaching on the part of any person concerned.
Applicants assert that the proposed substitution will conform to all
the conditions of Rule 17a-7 and each fund's procedures thereunder,
except that the consideration paid for securities being purchased or
sold may not be entirely cash. To the extent that in-kind transactions
do not comply with the requirements of Rule 17a-7, applicants assert
that the proposed transactions provide the same degree of protection as
provided by the conditions of the rule. Applicants further assert that
the proposed transaction is consistent with the policy of: (1) the
Endeavor Trust and the Endeavor Janus Growth Portfolio, and (2) the WRL
Fund and the WRL Growth Portfolio, as recited in its current
registration statement and are consistent with the general purposes of
the 1940 Act.
6. Applicants assert that consolidating all investment options for
the Policies under the Endeavor Trust will result in overall benefits
to Policy owners, by simplifying the disclosure required in each
Policy's prospectus and by making the Accounts less cumbersome to
administer.
Conclusion
Applicants submit that, for all the reasons stated above, the
proposed substitutions 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. 99-7957 Filed 3-31-99; 8:45 am]
BILLING CODE 8010-01-M