Federal Register, Volume 64 Issue 178 (Wednesday, September 15, 1999)

[Federal Register Volume 64, Number 178 (Wednesday, September 15, 1999)]
[Notices]
[Pages 50121-50126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23992]

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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23997; File No. 812-11730]

Transamerica Occidental Life Insurance Company, et al.

AGENCY: Securities and Exchange Commission (the ``Commission'' or
``SEC'').

ACTION: Notice of application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'') approving certain
substitutions of securities.

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Summary of Application: Applicants request an order to permit a
registered unit investment trust to substitute securities issued by two
portfolios of Transamerica Variable Insurance Fund, Inc., a registered
open-end investment company, and two portfolios of EQ Advisors Trust, a
registered open-end investment company, for securities issued by four
portfolios of The Hudson River Trust, a registered open-end investment
company, currently held by the unit investment trust.

Applicants: Transamerica Occidental Life Insurance Company and Separate
Account VL of Transamerica Occidental Life Insurance Company
(collectively, the ``Applicants'').

Filing Date: The application was filed on July 29, 1999, and amended
and restated on September 7, 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 by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on September 29, 1999, 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 by writing to the Secretary of the
Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street,

[[Page 50122]]

NW, Washington, D.C. 20549-0609. Applicants: Transamerica Occidental
Life Insurance Company, 1150 South Olive Street, Los Angeles,
California 90015, Attn: Regina M. Fink, Esq.

FOR FURTHER INFORMATION CONTACT: Kevin P. McEnery, Senior Counsel, or
Susan M. Olson, 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.
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

1. Transamerica Occidental Life Insurance Company (``Transamerica
Occidental'') is a California stock life insurance company. It
principally engages in the sale of life insurance and annuity policies,
and is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (``Advisers Act''). Transamerica
Occidental serves as depositor for Separate Account VL of Transamerica
Occidental Life Insurance Company (``Separate Account VL'').
2. Transamerica Occidental is an indirect wholly-owned subsidiary
of Transamerica Corporation. On February 18, 1999, Transamerica
Corporation announced that it had signed a merger agreement with AEGON
N.V. (``AEGON'')`, an international insurance group, providing for
AEGON's acquisition of all of Transamerica Corporation's outstanding
common stock. The transaction closed in July 1999.
3. Separate Account VL is a segregated asset account of
Transamerica Occidental and is registered with the Commission as a unit
investment trust under the 1940 Act. Separate Account VL is divided
into four sub-accounts. Separate Account VL funds certain variable life
insurance policies issued by Transamerica Occidental (the
``Policies''). The Policies consist of flexible premium individual
variable life insurance policies. Transamerica Occidental no longer
offers the Policies, but the Policies are still outstanding and net
premiums are still accepted.\1\
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\1\ Applicants represent that, in reliance on a no-action letter
that they received in 1990 (Transamerica Life Insurance Company
Separate Account VL, pub. avail. March 16, 1990), they provide
certain information to Policy owners about their Policies, Separate
Account VL, and the underlying fund in lieu of filing post-effective
amendments to the registration statement relating to the Policies
and delivering updated prospectuses to Policy owners. Applicants
further represent that their no-action letter is a predecessor to,
and substantially the same as, Great-West Life Insurance Company
(pub. avail. Oct. 23, 1990).
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4. The Hudson River Trust (``HRT'') is organized as a Massachusetts
business trust. It is registered as an open-end management investment
company under the 1940 Act, and its shares are registered under the
Securities Act of 1933 (the ``1933 Act''). HRT is a series investment
company, as defined by Rule 18f-2 under the 1940 Act, and currently
offers shares of 14 separate portfolios. HRT sells shares to Separate
Account VL to serve as an investment medium for the Policies.\2\ The
shares of four of the HRT portfolios are currently held by Separate
Account VL and would be involved in the proposed substitutions
(collectively referred to as the ``Current Funds''). The HRT shares
held by Separate Account VL currently account for less than 1% of HRT's
total assets. HRT currently offers two classes of shares, Class 1A and
Class 1B shares, which differ only in that the Class 1B shares are
subject to a distribution plan adopted and administered pursuant to
Rule 12b-1 under the 1940 Act. Separate Account VL holds only Class 1A
shares. Each Current Fund is advised by Alliance Capital Management
L.P. (``Alliance''), an investment adviser registered under the
Advisers Act. As HRT's investment adviser, Alliance is responsible for
managing the day-to-day investment operations of HRT and exercises
responsibility for the investment and reinvestment of HRT's assets.
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\2\ The Commission issued an exemptive order granting exemptions
from the 1940 Act to permit shares of HRT to be offered to separate
accounts of affiliated and unaffiliated insurance companies that
offer either variable life insurance policies or variable annuity
contracts. See Equitable Variable Life Insurance Company, Investment
Company Act Rel. Nos. 14899 (Jan. 14, 1986) (order) and 14860 (Dec.
18, 1985) (notice).
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5. Transamerica Variable Insurance Fund, Inc. (``TVIF'') is
organized as a Delaware business trust. It is registered as an open-end
management investment company under the 1940 Act, and its shares are
registered under the 1933 Act on Form N-1A. TVIF is a series investment
company, as defined by Rule 18f-2 under the 1940 Act, and currently has
nine separate portfolios of shares registered with the Commission. TVIF
currently sells shares to certain registered separate accounts
(``Transamerica Separate Accounts'') used as the underlying investment
options for certain variable annuity contracts and/or variable life
insurance policies issued by Transamerica Occidental and two of its
affiliates. Two of the TVIF portfolios (the ``TVIF Funds'') would be
involved in the proposed substitutions. Transamerica Occidental serves
as the investment adviser for each of the TVIF Funds, and it has
engaged Transamerica Investment Services, Inc. to act as the sub-
adviser providing day-to-day portfolio management services to the TVIF
Funds. TVIF is not a ``multi-manager'' company and has not applied for
or received any exemptive order from the Commission that would permit a
change of an investment adviser or sub-adviser, or a change in the
terms of any advisory agreement, without the approval of shareholders.
6. EQ Advisors Trust (``EQAT'') is organized as a Delaware business
trust. It is registered as an open-end management investment company
under the 1940 Act, and its shares are registered under the 1933 Act on
Form N-1A. EQAT is a series investment company, as defined by rule 18f-
2 under the 1940 Act, and currently offers 25 separate portfolios of
shares. EQAT currently sells shares to certain registered and
unregistered separate accounts (``Equitable Separate Accounts'') used
as the underlying investment options for certain variable annuity
contracts and/or variable life insurance policies issued by The
Equitable Life Assurance Society of the United States (``Equitable'').
EQAT currently offers two classes of shares, Class IA and Class IB
shares, which differ only in that the Class IB shares are subject to a
distribution plan adopted and administered pursuant to Rule 12b-1 under
the 1940 Act. EQ Financial Consultants, Inc. (``EQ Financial''), an
indirect wholly-owned subsidiary of Equitable, serves as investment
manager of each of the current 25 portfolios of EQAT under an
investment management agreement with EQAT.\3\ EQ Financial is an
investment adviser registered under the Advisers Act and a broker-
dealer registered under the Securities Exchange Act of 1934, as
amended. Pursuant to the investment management agreement, the
investment manager (``Manager'') is responsible for the general
management and administration of EQAT, including selecting the
investment advisers for each of EQAT's portfolios (``Advisers''),
monitoring their investment programs and results, reviewing brokerage
matters, overseeing compliance issues, and carrying out the directives
of the

[[Page 50123]]

Board of Trustees. EQAT has received an exemptive order from the
Commission (``Multi-Manager Order'') that permits EQ Financial, or any
entity controlling, controlled by, or under common control (within the
meaning of Section 2(a)(9) of the 1940 Act) with EQ Financial, subject
to certain conditions, including approval of the Board of Trustees of
EQAT, and without the approval of shareholders, to: (a) employ a new
Adviser or Advisers for any portfolio pursuant to the terms of a new
Investment Advisory Agreement, in each case either as a replacement for
an existing Adviser or as an additional Adviser; (b) change the terms
of any Investment Advisory Agreement; and (c) continue the employment
of an existing Adviser on the same contract terms where a contract has
been assigned because of a change of control of the Adviser.\4\ In such
circumstances, Policy owners would receive notice of any such action,
including information concerning any new Adviser, that normally is
provided in proxy materials.
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\3\ On July 12, 1999, the Board of Trustees of EQAT approved a
transfer of the Investment Management Agreement to Equitable. That
transfer of the Investment Management Agreement is expected to occur
prior to October 1, 1999.
\4\ See EQ Advisors Trust and EQ Financial Consultants, Inc.,
Investment Company Act Rel. Nos. 23128 (April 24, 1998) (order) and
23-093 (March 30, 1998) (notice). Before an Alliance Fund many rely
on the Multi-Manager Order, the operation of that Alliance fund as a
multi-manager fund, as described in the application for the Multi-
Manager Order, will be approved, following the substitutions
proposed in the application, by a majority of that Alliance Fund's
outstanding voting securities in a manner consistent with the EQAT
Shared Funding Order. See note 5.
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7. EQAT has filed a post-effective amendment to its registration
statement on Form N-1A in order to register 14 new portfolios for which
Alliance will provide the day-to-day investment advisory services
(``Alliance Funds''), including the two portfolios (the ``EQAT Funds'')
that the Applicants propose to substitute for two of the Current Funds.
The Applicants represent that the Manager of the 25 current portfolios
of EQAT will also serve as Manager of the EQAT funds and that Alliance
will serve as the portfolio manager (adviser) to each of the EQAT
Funds, just as it serves as portfolio manager to each of the
corresponding Current Funds. EQAT intends to sell shares of the EQAT
Funds to, among others, the Equitable Separate Accounts, as well as the
Separate Account VL and other insurance company separate accounts.\5\
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\5\ The Commission has issued an order granting exemptions for
the 1940 Act to permit EQAT shares to be offered to separate
accounts of affiliated and unaffiliated insurance companies that
offer either variable life insurance policies or annuity contracts
(``EQAT Shared Funding Order''). See EQ Advisors Trust, Investment
Company Act Rel. Nos. 22651 (April 30, 1997) (order) and 22602
(April 4, 1997) (notice).
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8. The prospectus describing the Policies expressly reserves to
Transamerica Occidental the right, subject to compliance with
applicable law, to substitute shares of another portfolio for shares of
the Current Funds held by Separate Account VL.
9. Applicants represent that they are not affiliates of HRT, EQAT
or Equitable.
10. The Applicants propose to substitute the securities issued by
the TVIF Funds (Growth and Money Market) for Class IA shares issued by
two of the Current Funds (Common Stock and Money Market) and to
substitute Class IA shares issued by the EQAT Funds (Aggressive Stock
and Balanced) for Class IA shares issued by the other two Current Funds
(Aggressive Stock and Balanced). The substitutes of the two TVIF Funds
will be cash transactions. Equitable, directly or through the Equitable
Separate Accounts, owns over 99% of the shares of the Current Funds.
Equitable and each Equitable Separate Account that is registered under
the 1940 Act that currently invests in HRT have filed an application
with the Commission (``Equitable Application'') requesting, inter alia,
an order pursuant to Section 26(b) of the 1940 Act, approving the
substitution of securities issued by the Alliance Funds for the
securities issued by the 14 portfolios of HRT.\6\ If approved,
Equitable will redeem more than 99% of HRT's assets in connection with
those substitutions. Applicants state that, given the very small
position that Separate Account VL holds in the Current Funds and
especially considering that the Policies are no longer offered, it is
their belief that it is reasonable to conclude that, following the
proposed substitutions by Equitable: (1) The expense level of the
Current Funds will increase dramatically as a percentage of net assets
due to the smaller asset base, which is highly unlikely to increase;
(2) the Current Funds will be difficult to manage in conformity with
the applicable diversification regulations under the Internal Revenue
Code of 1986, as amended (``Code''); and (3) the asset levels of the
Current Funds will be small enough to raise concerns as to whether the
Current Funds will remain viable investment options Applicants submit
that, therefore, it is imperative (and in the best interest of the
Policy owners) that the shares of other comparable funds be substituted
for shares of HRT held by Separate Account VL.
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\6\ File No. 812-11602 (filed Apr. 30, 1999, amended and
restated August 12, 1999).
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11. The Applicants represent that the TRIF Funds and the EQAT Funds
will have investment objectives, policies and anticipated risks that
are either reasonably comparable (in the case of the TVIF Funds) or
identical in all material respects (in the case of the EQAT Funds) to
the corresponding Current Funds. The Applicants also state that, since
the TVIF funds are Transamerica Occidental advised portfolios, the
quality of reports and service to Policy owners investing in those
portfolios should improve. The investment objectives of the four
Current Funds and the corresponding TVIF Funds and EQAT Funds (together
with the TVIF Funds, the ``New Funds'') are as follows:

----------------------------------------------------------------------------------------------------------------
Current fund Investment objective New fund Investment objective
----------------------------------------------------------------------------------------------------------------
HRT Common Stock Seeks long-term growth TVIF Growth............ Seeks to maximize long-
of its capital and term growth.
increase in income.
HRT Money Market..................... Seeks to obtain a high TVIF Money Market...... Seeks to maximize
level of current current income
income, preserve its consistent with
assets and maintain liquidity and
liquidity. preservation of
principal.
HRT Aggressive Stock................. Seeks to achieve long- EQAT Aggressive Stock.. Seeks to achieve long-
term growth of capital. term growth of
capital.
HRT Balanced......................... Seeks to achieve a high EQAT Balanced.......... Seeks to achieve a high
return through both return through both
appreciation of appreciation of
capital and current capital and current
income. income.
----------------------------------------------------------------------------------------------------------------

12. The Applicants state that, with respect to the EQAT Funds, it
is expected that the management fees (i.e., total paid to the
investment manager and day-to-day investment advisers) will be the same
as the management fees

[[Page 50124]]

currently applicable to the corresponding Current Funds. EQ Financial
currently anticipates that there may be a slight increase in the total
expense ratios of certain of the EQAT Funds as compared to those of the
corresponding Current Funds. The Applicants represents that the chart
below shows: (a) the management fees and total expenses for Class IA
shares of each of the Current Funds for the year ending December 31,
1998, (b) the management fees and total expenses of TVIF Growth and
Money Market Portfolios for the year ended December 31, 1998 (after fee
waivers and/or expense reimbursements); and (c) the anticipated
management fees and other expenses for the Class IA shares of the EQAT
Aggressive Stock and Balanced Portfolios for their first year of
operations. Anticipated management fees and other expenses for the EQAT
Funds are presented on a pro forma basis and are based on the audited
financial statements of HRT for the year ended December 31, 1998.

----------------------------------------------------------------------------------------------------------------
Total expenses
Management Total Management (percentage of
fees expenses fees average daily
Current fund expenses (percentage (percentage New fund expenses (percentage net assets)
of average of average of average (after waivers
daily net daily net daily net and/or
assets) assets) assets) reimbursement*)
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HRT Common Stock.................. 0.36 0.39 TVIF Growth......... 0.64 0.85
HRT Money Market.................. 0.35 0.37 TVIF Money Market... 0.00 0.60
HRT Aggressive Growth............. 0.54 0.56 EQAT Aggressive 0.54 0.57
Stock (pro forma).
HRT Balanced...................... 0.41 0.45 EQAT Balanced (pro 0.41 0.46
forma).
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* Without such waivers/reimbursements, total expenses would have been 0.96% for TVIF Growth, and 3.03% for TVIF
Money Market (consisting of 0.35% for TVIF Money Market management fees and 2.68% of other expenses). TVIF's
investment adviser has agreed to waiver its management fee and/or reimbursement expenses for the two New Funds
so the total fees and expenses do not exceed these total figures for at least one year. Such waivers or
reimbursements are voluntary but are expected to continue beyond one year.

13. The Applicants state that the TVIF Funds (Growth and Money
Market) have enjoyed investment performance that is better than, or
comparable to, that of the Current Funds (Common Stock and Money
Market). The Applicants represent that the tables below show the past
investment performance (after expenses) of the Class IA shares of the
two Current Funds (Common Stock and Money Market), and the past
performance (after expenses) of the TVIF Funds (Growth and Money
Market). In addition to the investment performance information below,
the Applicants represent that the 7-day yield as of July 31, 1999, for
the HRT Money Market Portfolio was 4.33% and 4.60% for the TVIF Money
Market Portfolio.

Current Funds--Average Annual Total Returns (Periods Ended 12/31/98)
------------------------------------------------------------------------
One year Five years Ten years
Current fund (percent) (percent) (percent)
------------------------------------------------------------------------
HRT Common Stock................. 29.39 21.95 18.65
HRT Money Market................. 5.34 5.17 5.58
------------------------------------------------------------------------

TVIF Funds--Average Annual Total Returns (Periods Ended 12/31/98)
------------------------------------------------------------------------
One year Five years Ten years
TVIF fund (percent) (percent) (percent)
------------------------------------------------------------------------
TVIF Growth...................... 43.28 34.37 26.05
TVIF Money Market*............... 4.93 N/A N/A
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* Inception date, January 2, 1998.

14. The Applicants state that, as soon as practicable after the
application is noticed, they will send a notice to all Policy owners.
The notice will describe each of the New Funds, identify each Current
Fund that is being replaced and disclose the anticipated impact of the
substitutions on fees and expenses at the underlying fund level. The
Applicants state that a prospectus for the New Funds will be sent to
all Policy owners before the substitutions are effected. Confirmation
of the substitutions will be sent to affected Policy owners within five
days after the substitutions are effected.
15. The Applicants state that the substitutions will be effected by
redeeming shares of the Current Funds on the effective date of the
substitutions proposed herein and in the Equitable Application
(``Substitution Date'') at net asset value and using the proceeds to
purchase shares of the New Funds at net asset value on the same date.
The transactions involving the TVIF Funds will be cash transactions.
Based on the Equitable Application and information otherwise provided
by Equitable, Applicants expect that the substitutions involving the
EQAT Funds will be effected by redeeming shares of the corresponding
Current Funds in-kind and contributing those assets in-kind to the
corresponding New Fund to purchase shares of the New fund (``in-kind
transactions''). In-kind transactions will be done in a manner
consistent with the investment objectives, policies and diversification
requirements of each corresponding New Fund. The Manager of each New
Fund will review the in-kind transactions to assure that the assets are
suitable for the New Fund. All assets subject to in-kind redemption and
repurchase will be valued based on the normal valuation procedures of
the redeeming and repurchasing funds, as set forth in the HRT and EQAT
registration statements. No transfer or similar charges will be imposed
on Policy owners by the Applicants and, on the Substitution Date, all
Policy values

[[Page 50125]]

will remain unchanged and fully invested.
16. The significant terms of the substitutions described above
include:
a. The New Funds have investment objectives, investment policies,
and anticipated risks that are either reasonably comparable or
identical in all material respects to those of the Current Funds, and
have been selected to satisfy the Policy owners' objectives in choosing
their Current Funds. The Applicant note that the EQAT Funds will
continue to employ the same portfolio managers currently employed by
the corresponding Current Funds, and are intended to mirror the
investment options provided by the corresponding Current Funds.
b. The fees and expenses of the EQAT funds will in all cases be
substantially similar to those of the corresponding Current Funds,
assuming that the asset levels of the EQAT Funds do not decrease
significantly from the Current Funds' present asset levels. The
Applicants note in this regard that given the substantial similarity of
the EQAT Funds and the corresponding Current Funds, Applicants do not
expect there to be a reduction in the asset levels of the EQAT Funds as
a result of the substitutions.
c. Policy owners may transfer assets the subaccounts available
under their Policy without the imposition of any fee, charge, or other
penalty that might otherwise be imposed from the date of the initial
notice through a date at least 30 days following the Substitution Date.
d. The substitutions, in all cases, will be effected at the net
asset value of the respective shares of the Current Fund and the
corresponding New Fund in conformity with Section 22(c) of the 1940 Act
and Rule 22c-1 thereunder, without the imposition of any transfer or
similar charge by the Applicants, and with no charge in the amount of
any Policy owner's Policy value.
e. Policy owners will not incur any fees or charges as a result of
the proposed substitutions, nor will their rights or Transamerica
Occidental's obligations under the Policies be altered in any way.
Equitable and/or Transamerica Occidental will bear all expenses
incurred in connection with the proposed substitutions and related
filings and notices, including legal, accounting, brokerage and other
fees and expenses. There will be not tax consequences to Policy owners.
The proposed substitutions will not cause the fees and charges
currently being paid by existing Policy owners to be greater after the
proposed substitutions than before the proposed substitutions.
f. Redemptions in-kind and contributions in-kind will be done in a
manner consistent with the investment objectives, policies and
diversification requirements, of the applicable Current and New Funds,
and the Manger will review the in-kind transactions to assure that the
assets are suitable for the New Fund. Consistent with Rule 17a-7(d)
under the 1940 Act, no brokerage commissions, fees (except customary
transfer fees) or other remuneration will be paid in connection with
the in-kind transactions.
g. The Applicants will not count the substitutions as new
investment selections in determining the limit, if any, on the total
number of funds that Policy owners can select during the life of a
Policy.
h. The substitutions will not alter in any way the life insurance
benefits, tax benefits or any Policy obligations of the Applicants
under the Policies.
i. Policy owners may withdraw amounts under the Policies or
terminate their interest in a Policy, under the conditions that
currently exist, including payment of any applicable withdrawal or
surrender charge.
j. Policy owners affected by the substitutions will be sent written
confirmation of the substitutions that identify each substutition made
on behalf of that Policy owner within five days following the
Substition Date.
k. Before an EQAT Fund may rely on the Multi-Manager Order, the
operation of that EQAT Fund as a multi-manager fund, as described in
the application for the Multi-Manager Order, will be approved,
following the substitutions proposed herein, by a majority of that EQAT
Fund's outstanding voting securities in a manner consistent with the
terms of the EQAT Shared Funding Order.
17. The Applicants state that they will not complete the
substitutions as described in the application unless all of the
following conditions are met:
a. The Commission will have issued an order approving the
substitutions under Section 26(b) of the 1940 Act.
b. The Commission will have issued an order approving the Equitable
Application.
c. Each Policy owner will have been mailed: (1) the disclosure of
the proposed substitutions shortly after notice of the application has
been published; and (2) an effective prospectus for the New Funds and
relevant information about the proposed substitutions prior to the
Substitution Date.
d. The Applicants will have satisfied themselves that the Policies
allow the substitution of portfolios as described in the application,
and that the transactions can be consummated as described herein under
applicable insurance laws and under the Policies.
e. The Applicants will have complied with any regulatory
requirements they believe are necessary to complete the transactions in
each jurisdiction where the Policies have been sold.

Applicants' Legal Analysis

1. Section 26(b) of the 1940 Act provides that it shall be unlawful
for any depositor or trustee of a registered unit investment trust
holding the security of a single issuer to substitute another security
for such security unless the Commission shall have approved such
substitution. Section 26(b) further provides 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 policies and provisions of the 1940 Act.
2. The Applicants submit that the prospectus describing the
Policies expressly reserves to Transamerica Occidental the right,
subject to compliance with applicable law, to substitute shares of
another portfolio for shares of the Current Funds held by Separate
Account VL. Transamerica Occidental asserts that it has reserved this
right of substitution both to protect itself and its Policy owners in
situations where either might be harmed or disadvantaged by events
beyond their control, affecting the issuer of the securities held by a
Separate Account and to preserve the opportunity to replace such shares
in situations where a substitution could benefit itself and its Policy
owners. The Applicants assert that Equitable's decision to close down
HRT has forced Transamerica Occidental to use this reserved right to
protect its Policy owners.
3. The Applicants maintain that the proposed substitutions protect
Policy owners by: (1) providing an underlying investment option for
such subaccounts that is comparable to the current investment option;
and (2) eliminating Current Funds that will not be viable due to the
extremely low level of assets following the proposed substitutions by
Equitable.
4. The Applicants further submit that the proposed substitutions
meet the standards that the Commission and its staff generally have
applied to other substitutions that have been approved. In addition,
the Applicants contend that none of the proposed substitutions is the
type of substitution that Section 26(b) was designed to prevent. Unlike
traditional unit investment trusts, the

[[Page 50126]]

Policies provide each Policy owner with the right to exercise his own
judgment and transfer Policy values into any other available variable
and/or fixed investment options. Additionally, the Applicants state
that the proposed substitutions will not, in any material manner,
reduce the number, nature, or quality of the available investment
options. The Applicants assert that the Policy owners will be offered
the opportunity to transfer amounts among the available subaccounts
without any cost or other penalty that may otherwise have been imposed
until thirty days after the Substitution Date. For these reasons, the
Applicants maintain that the proposed substitutions will not result in
the type of costly forced redemptions and sales loads that Section
26(b) was designed to prevent.
5. The Applicants further submit that the proposed substitutions
also are unlike the type of substitution that Section 26(b) was
designed to prevent in that by purchasing a Policy, Policy owners
select much more than a particular underlying fund in which to invest
their Policy values. The Policy owners also select the specific type of
insurance coverage offered by the Applicants under the applicable
Policy, as well as numerous other rights and privileges set forth in
the Policy. The Applicants state that it is likely that, in choosing to
purchase a Policy from Transamerica Occidental, the Policy owner also
may have considered the company's size, financial condition, and
reputation for service in selecting the Policy, and that none of these
considerations and factors will change as a result of the proposed
substitutions.
6. Applicants state that the investment performance of the two
proposed TVIF Funds is better than, or at least comparable to, that of
the relevant HRT Portfolios. The average annual returns of the TVIF
Growth Portfolio for one, five, and ten-year periods are substantially
higher than the returns of the HRT Growth Portfolio. With respect to
the TVIF Money Market Portfolio, Applicants state that its 7-day yield
of 4.60% and effective yield of 4.71% as of July 31, 1999, are
substantially better than the yield figures of the HRT Money Market
Portfolio for the same period (4.33% and 4.42%, respectively). The
average annual total returns for the one-year period ended December 31,
1998, for the HRT Money Market and TVIF Money Market portfolios was
5.34% and 4.93%, respectively.
7. The annual operating expenses of the two TVIF Funds have
historically been higher than the expenses of the comparable HRT
Portfolios. Applicants argue that the superior performance of the TVIF
Growth Portfolio overwhelms the minor differences in operating expenses
and that, as of July 31, 1999, the TVIF Money Market Portfolio's yield
substantially exceeds the yield of the HRT Money Market Portfolio.
8. Applicants submit that past operating expense levels may or may
not be the same in future years, especially for new portfolios like
TVIF Money Market, which commenced operations on January 2, 1998.
Applicants state that as its assets increase (increased from $6.1
million on January 31, 1999, to $10.7 million on July 1, 1999)
operating expenses are likely to decrease.
9. Applicants also submit that Section 26(b) was intended for
situations where the depositor of the unit investment trust initiated
the substitution (and where investors would directly or indirectly, be
forced to bear additional sales charges). Here, Applicants state that
Transamerica Occidental did not initiate or instigate the proposed
substitutions; rather Equitable instigated it. In response to that,
Applicants argue that Transamerica Occidental is taking prudent,
appropriate steps to protect its Policy owners, and to continue to
fulfill the Policy owner's objectives in purchasing their variable life
insurance policies from Transamerica Occidental and making their
original investment selections.
10. Applicants submit that, for all the reasons summarized above,
the proposed substitutions of two portfolios of TVIF and two portfolios
of EQAT are good choices, and consistent with the protection of
investors and the purposes fairly intended by the policy and purposes
of the 1940 Act in general, and Section 26(b) in particular.

Conclusion

Applicants assert that, for the reasons summarized above, the
requested order approving the substitutions should be granted.

For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-23992 Filed 9-14-99; 8:45 am]
BILLING CODE 8010-01-M