[Federal Register: November 26, 2002 (Volume 67, Number 228)]
[Notices]
[Page 70785-70788]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no02-94]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-25807; File No. 812-12788]
Kemper Investors Life Insurance Company, et al.; Notice of
Application
November 20, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(c) of
the Investment Company Act of 1940 (``1940 Act'') approving certain
substitutions of securities.
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[[Page 70786]]
SUMMARY OF APPLICATION: Applicants request an order to permit certain
registered unit investment trusts to substitute securities issued by
the Scudder Variable Series II's Scudder Growth Portfolio and Scudder
Blue Chip Portfolio (the ``Scudder Portfolios') for securities issued
by the Janus Aspen Series' Janus Growth Portfolio and Janus Growth and
Income Portfolio, respectively (the ``Janus Portfolios''), currently
held by those unit investment trusts.
APPLICANTS: Kemper Investors Life Insurance Company (``KILICO'') and
KILICO Variable Annuity Separate Account (the ``KILICO Separate
Account''). KILICO is referred to as the ``Insurance Company.'' The
KILICO Separate Account is referred to as the ``Separate Account.''
FILING DATE: The Application was filed on February 27, 2002 and an
amended Application was filed on November 13, 2002.
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 December 20, 2002, 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 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. Applicants: c/o Debra P. Rezabek,
Esq., Zurich Life, 1600 McConnor Parkway, Schaumburg, Illinois 60196.
Copies to: Joseph R. Fleming, Esq., Dechert, Ten Post Office Square,
South, Boston, Massachusetts 02109-4603 and Joan E. Boros, Esq., Jorden
Burt LLP, Suite 400 East, 1025 Thomas Jefferson St. NW, Washington, DC
20007.
FOR FURTHER INFORMATION CONTACT: Alison Toledo, Senior Counsel, or
Lorna MacLeod, Branch Chief, at (202) 942-0670, Office of Insurance
Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application may be obtained for a fee from
the Public Reference Branch of the Commission, 450 5th Street, NW,
Washington, DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. KILICO is an Illinois stock life insurance company. KILICO is
the depositor and sponsor of the KILICO Separate Account, a separate
investment account established under Illinois law.
2. KILICO is a wholly-owned subsidiary of Kemper Corporation, a
non-operating holding company. Kemper Corporation is a wholly-owned
subsidiary of Zurich Group Holding, which is a wholly-owned subsidiary
of Zurich Financial Services.
3. The KILICO Separate Account is registered with the Commission
under the 1940 Act as a unit investment trust. The assets of the KILICO
Separate Account support certain variable annuity contracts
(collectively, ``Contracts''). The variable annuity contracts issued by
KILICO consist of flexible premium deferred variable annuity contracts
and certificates. Two sub-accounts of the KILICO Separate Account each
invests exclusively in shares representing an interest in a separate
corresponding portfolio (each, a ``Portfolio'') of Janus Aspen Series
(the ``Janus Trust'').
4. The variable annuity contracts issued by the Insurance Company
are collectively referred to as the ``Contracts.'' All of the Contracts
expressly reserve the right of the Insurance Company, subject to
compliance with applicable law, to substitute shares of another open-
end management investment company for shares of an open-end management
investment company held by a sub-account. The prospectuses describing
the Contracts contain appropriate disclosure of this right.
5. Applicants propose to substitute Shares of each Scudder
Portfolio for Shares of the corresponding Janus Portfolio (the
``Substitution''). Applicants assert that the Substitution will benefit
Contract owners by: (a) Consolidating the assets attributable to the
Scudder Portfolio and the Janus Portfolio in a single portfolio, which
may simplify the Contracts and allow the Insurance Company to more
efficiently oversee the functioning of the underlying Portfolios; and
(b) providing Contract owners who have their Contract values currently
allocated to the Janus Portfolios with a similar Portfolio that has a
lower total expense ratio than the Janus Portfolio. The Insurance
Company ceased offering the Janus Portfolios as investment options for
the Contracts issued after April 30, 2000.
6. As demonstrated in the chart below, each Scudder Portfolio has,
and will continue to have, investment objectives, investment strategies
and anticipated risks that are similar in all material respects to
those of the corresponding Janus Portfolio:
----------------------------------------------------------------------------------------------------------------
Current portfolio Investment objective New portfolio Investment objective
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Janus Growth Portfolio............... Seeks long-term growth Scudder Growth Seeks maximum
of capital in a manner Portfolio. appreciation of
consistent with the capital.
preservation of
capital.
Janus Growth and Income Portfolio.... Seeks long-term capital Scudder Blue Chip Seeks growth of capital
growth and current Portfolio. and of income.
income.
----------------------------------------------------------------------------------------------------------------
7. As demonstrated in the chart below, it is also expected that:
(a) The investment management fees with respect to each Scudder
Portfolio will be equal to or less than the investment management fees
with respect to the each corresponding Janus Portfolio; and (b) the
total expense ratio of each Scudder Portfolio will be less than the
total expense ratio of the corresponding Janus Portfolio. The first
chart below shows the investment management fees and total expenses of
Shares of each Janus Portfolio and the corresponding Scudder Portfolio,
on an audited basis, as of December 31, 2001. The second chart below
shows the investment management fees and total expenses of Shares of
each Janus Portfolio and the corresponding Scudder Portfolio, on an
unaudited basis, as of June 30, 2002.
[[Page 70787]]
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Advisory fees Total expenses
(as percentage (as percentage
Portfolio of average Other expenses of average
daily net (in percent) daily net
assets) assets)
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Janus Growth Portfolio.......................................... 0.65 0.01 0.66
Scudder Growth Portfolio........................................ 0.60 0.03 0.63
Janus Growth and Income Portfolio............................... 0.65 0.05 0.70
Scudder Blue Chip Portfolio..................................... 0.65 0.04 0.69
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----------------------------------------------------------------------------------------------------------------
Advisory fees Total expenses
(as percentage (as percentage
Portfolio of average Other expenses of average
daily net (in percent) daily net
assets) assets)
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Janus Growth Portfolio.......................................... 0.65 0.02 0.67
Scudder Growth Portfolio........................................ 0.60 0.05 0.65
Janus Growth and Income Portfolio............................... 0.65 0.09 0.74
Scudder Blue Chip Portfolio..................................... 0.65 0.04 0.69
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8. On or about the date of the initial filing of the Application, a
supplement to the prospectus for each of the Contracts was filed with
the Commission. The supplement describes the Substitution and the
proposed timeframe for its completion as well as advises the Contract
holders that they may transfer assets from each Janus Portfolio to
another investment option available under their Contract without the
imposition of any fee, charge, or other penalty that might otherwise be
imposed through a date at least thirty (30) days following the date the
Substitution is effected (the ``Substitution Date''). The supplement
was forwarded to those Contract owners who became such prior to May 1,
2000 and have either allocated Contract values to a Janus Portfolio or
who maintain the ability to do so (the ``Affected Contract Owners'').
On or about the time the Commission approves of the amended
Application, Affected Contract Owners will be sent a supplement to the
relevant Contract prospectus that discloses to such Contract owners
that the amended Application has been approved. Together with this
disclosure, such Affected Contract Owners who have not previously
received a prospectus for the Scudder Portfolios will be sent a
prospectus for such Portfolios.
9. Affected Contract Owners will be sent a notice of the
Substitution in the form of a Contract prospectus supplement.
Confirmation of the Substitution will be mailed to Affected Contract
Owners within five (5) days after the Substitution Date.
10. The significant terms of the Substitution described above
include:
a. Each Scudder Portfolio will have investment objectives,
investment strategies, and anticipated risks that are similar in all
material respects to those of the corresponding Janus Portfolio.
b. The total expenses of each Scudder Portfolio will be the same as
or less than those of the corresponding Janus Portfolio, assuming that
the assets of each Scudder Portfolio do not decrease significantly from
its present asset level.
c. Contract owners may transfer assets from each Scudder Portfolio
or Janus Portfolio to another investment option available under their
Contract without the imposition of any fee, charge, or other penalty
that might otherwise be imposed from the date the initial prospectus
supplement relating to the Substitution is filed with the Commission
through a date at least thirty (30) days following the Substitution
Date.
d. The Substitution will be effected at the net asset value of the
respective shares of each Janus Portfolio and the corresponding Scudder
Portfolio 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 Applicants, and with no change in the amount of any Contract
owner's Contract value or in the dollar value of his or her investment
in such Contract.
e. Contract owners will not incur any fees or charges as a result
of the Substitution, nor will their rights or KILICO's obligations
under the Contracts be altered in any way. KILICO will pay or cause to
be paid all costs incurred in connection with the Substitution and
related filings and notices, including legal, accounting, brokerage and
other fees and expenses. The Substitution will not cause the Contract
fees and charges currently being paid by existing Contract owners to be
greater after the Substitution than before the Substitution.
f. Because the Contract owners will, before and after the
Substitution transaction, still be invested in the same Separate
Account, the Substitution will not be counted as a new investment
selection or free transfer in determining the limit, if any, on the
total number of Portfolios that Contract owners can select or transfer
into during the life of a Contract.
g. The Substitution will not alter in any way the annuity or life
benefits, tax benefits or any contractual obligations of Applicants
under the Contracts.
h. The Substitution will not result in any tax liability for
Contract owners.
i. KILICO will not receive, for three years from the date of the
Substitution, any direct or indirect benefits from the Scudder
Portfolios, their adviser or underwriter, or from affiliates of the
Scudder Portfolios, their adviser or underwriter, in connection with
assets attributable to the Contracts affected by the Substitution, at a
higher rate than it received from the Janus Portfolios, their adviser
or underwriter, or from affiliates of the Janus Portfolios, their
adviser or underwriter, including without limitation Rule 12b-1 fees,
shareholder service or administrative or other service fees, revenue-
sharing or other arrangements. KILICO represents that the Substitution
it carries out and its selection of the Scudder Portfolios were not
motivated by any financial consideration paid or to be paid to it or to
any of its affiliates by either of the Scudder Portfolios, their
adviser or underwriter, or by the affiliates of the Scudder Portfolios,
their adviser or underwriter.
j. Contract owners may withdraw amounts under the Contracts or
terminate their interest in a Contract, under the conditions that
currently exist, including payment of any
[[Page 70788]]
applicable withdrawal or surrender charge.
k. Contract owners affected by the Substitution will be sent
written confirmation of the Substitution that identify the
substitutions made on behalf of that Contract owner within five (5)
days following the Substitution Date.
Applicants' Legal Analysis
1. Section 26(c) 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; and 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. Section 26(c) protects the
expectation of investors that the unit investment trust will accumulate
shares of a particular issuer and is intended to insure that
unnecessary or burdensome sales loads, additional reinvestment costs or
other charges will not be incurred due to unapproved substitutions of
securities.
2. Applicants request an order pursuant to Section 26(c) of the
1940 Act approving the Substitution. Applicants represent that the
purposes, terms, and conditions of the Substitution are consistent with
the protections for which Section 26(c) was designed. Applicants
believe the Substitution will benefit Contract owners by: (1) Providing
an underlying investment option for subaccounts invested in a Janus
Portfolio that is substantially similar in all material aspects to that
Janus Portfolio; and (2) providing such Contract owners with and
investment option with the same or lower investment management fee and
a lower expense ratio than the current investment option.
3. Contract owners who do not want their assets allocated to the
Scudder Portfolios would be able to transfer assets to any one of the
other sub-accounts available under their Contract without charge until
thirty days after the Substitution have elapsed.
4. The Insurance Company, on behalf of itself and its Separate
Account, represent that the Substitution will not result in any change
in the amount of any Contract owner's Contract value or in the dollar
value of his or her investment in such Contract, or the annuity or life
benefits, tax benefits or any contractual obligation of the Applicants
under the Contracts. Contract owners will not incur any fees, expenses
or charges as a result of the proposed transactions. Furthermore, the
proposed transactions will not result in any change to the Contract
fees and charges currently being paid by existing Contract owners.
5. Applicants will not complete the Substitution as described in
the amended Application unless all of the following conditions are met:
a. The Commission will have issued an order approving the
Substitution under Section 26(c) of the 1940 Act.
b. Each Affected Contract Owner will have been mailed initial
disclosure of the Substitution following the initial filing of this
Application (in the form of a supplement to the applicable Contract
prospectus) that will describe the terms of the Substitution Contract
owners' rights in connection with them and will have been mailed a
prospectus with respect to the Scudder Portfolios.
c. Applicants will have satisfied themselves, based on advice of
counsel familiar with insurance laws, that the Contracts allow the
substitution of Portfolios as described in this amended Application,
and that the transactions can be consummated as described herein under
applicable insurance laws and under the various Contracts.
d. Applicants will have complied with any regulatory requirements
they believe are necessary to complete the transactions in each
jurisdiction where the Contracts are qualified for sale.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested approval meets the standards set out in Section 26(c) and,
therefore, the requested order approving the Substitution should be
granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29978 Filed 11-25-02; 8:45 am]
BILLING CODE 8010-01-P