[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