82 FR 15738 - Transamerica Financial Life Insurance Company, et al.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 60 (March 30, 2017)

[Federal Register Volume 82, Number 60 (Thursday, March 30, 2017)]
[Notices]
[Pages 15738-15741]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-06244]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32571; File No. 812-14487]


Transamerica Financial Life Insurance Company, et al.

March 24, 2017.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice.

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    Notice of application for an order approving the substitution of 
certain securities pursuant to Section 26(c) of the Investment Company 
Act of 1940, as amended (the ``1940 Act'' or ``Act'').

Applicants:  Transamerica Financial Life Insurance Company (``TFLIC''), 
Transamerica Advisors Life Insurance Company (``TALIC'') (each a 
``Company'' and together, the ``Companies''), Merrill Lynch Life 
Variable Annuity Separate Account D, and ML of New York Variable 
Annuity Separate Account D (each an ``Account'' and together, the 
``Accounts''). The Companies and the Accounts collectively are referred 
to herein as the ``Applicants.''

Summary of Application:  Applicants seeks an order pursuant to Section 
26(c) of the 1940 Act, approving the substitution of shares issued by 
certain series of Transamerica Series Trust (the ``Replacement Funds'') 
for shares of certain registered investment companies currently held by 
sub-accounts of the Accounts (the ``Existing Funds''), to support 
certain variable annuity contracts (collectively, the ``Contracts'') 
issued by the Companies.

Filing Date:  The application was filed on June 15, 2015, and amended 
on December 8, 2015, July 1, 2016, and November 14, 2016.

Hearing or Notification of Hearing:  An order granting the requested 
relief 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 the 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 April 18, 2017, and should be accompanied by 
proof of service on Applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Pursuant to Rule 0-5 under the Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, 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 
Commission's Secretary.

ADDRESSES: Commission: Secretary, SEC, 100 F Street NE., Washington, DC 
20549-1090. Applicants: Alison C. Ryan, Associate General Counsel, 
Transamerica, 1150 South Olive Street, T-27-01, Los Angeles, CA 90015.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or David J. Marcinkus, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. TALIC is the depositor of Merrill Lynch Variable Annuity 
Separate Account D. TFLIC is the depositor of ML of New York Variable 
Annuity Separate Account D. Each Company is an indirect wholly-owned 
subsidiary of AEGON N.V.
    2. Each Account is a ``separate account'' as defined by rule 0-1(e) 
under the 1940 Act and each is registered under the 1940 Act as a unit 
investment trust. Each Account is divided into sub-accounts, which 
reflect the investment performance of certain registered investment 
companies, including Transamerica Series Trust. The Accounts are 
administered and accounted for as part of the general business of the 
Companies. The application sets forth the registration statement file 
numbers for the security interests under the Contracts and the 
Accounts.

[[Page 15739]]

    3. The Contracts are individual and group variable annuity 
contracts. Each of the prospectuses for the Contracts discloses that 
the issuing Company reserves the right, subject to compliance with 
applicable law, to substitute shares of another registered open-end 
management investment company for shares of a registered open-end 
management investment company held by a sub-account of an Account.
    4. Transamerica Series Trust is an open-end management investment 
company of the series type that is registered with the Commission under 
the 1940 Act (File No. 811-04419).\1\ Shares of the series are 
registered under the Securities Act of 1933 (File No. 033-00507) and 
are sold to the separate accounts of life insurance companies to fund 
benefits under variable life policies or variable annuity contracts and 
to certain affiliated asset allocation funds.
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    \1\ Effective May 1, 2008, Transamerica Series Trust changed its 
name from AEGON/Transamerica Series Trust.
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    5. Transamerica Asset Management, Inc. (``TAM''), an investment 
adviser that is registered with the Commission, has overall 
responsibility for the management of each Transamerica Series Trust 
Replacement Fund. TAM delegates to a sub-adviser the responsibility for 
day-to-day management of the investments of each Transamerica Series 
Trust Replacement Fund, subject to TAM's oversight. TAM may, in the 
future, determine to provide the day-to-day management of any 
Transamerica Series Trust Replacement Fund without the use of a sub-
adviser.
    6. Applicants propose, as set forth below, to substitute shares of 
the Replacement Funds for shares of the Existing Funds 
(``Substitutions'') to fund the Contracts:

------------------------------------------------------------------------
             Existing fund                       Replacement fund
------------------------------------------------------------------------
AllianzGI NFJ Mid-Cap Value Fund (A)...  Transamerica JPMorgan Mid Cap
                                          Value VP (Service Class).
American Century Equity Income Fund (A)  Transamerica Barrow Hanley
                                          Dividend Focused VP (Service
                                          Class).
American Century Ultra Fund (A)........  Transamerica Jennison Growth VP
                                          (Service Class).
Columbia Acorn USA (A).................  Transamerica T. Rowe Price
                                          Small Cap VP (Service Class).
Columbia Acorn International (A).......  Transamerica MFS International
                                          Equity VP (Initial Class).
Pioneer Emerging Markets Fund (A)......  Transamerica TS&W International
                                          Equity VP (Service Class).
Templeton Foreign Fund (A).............  Transamerica MFS International
                                          Equity VP (Initial Class).
Columbia Large Cap Growth Fund V         Transamerica WMC US Growth VP
 (formerly known as Columbia Marsico      (Service Class).
 Growth Fund) (A).
------------------------------------------------------------------------

    7. The Applicants believe that the Replacement Funds have 
investment objectives, policies and risk profiles, as described in 
their prospectuses, that are substantially the same as, or sufficiently 
similar to, the corresponding Existing Funds to make those Replacement 
Funds appropriate candidates as substitutes. Applicants also state that 
the investment objectives and investment strategies of each Replacement 
Fund are similar to the corresponding Existing Fund, or each 
Replacement Fund's underlying portfolio construction and investment 
results are similar to those of the Existing Fund and therefore the 
fundamental objectives, risk and performance expectations of those 
Contract owners with interests in sub-accounts of the Existing Funds 
will continue to be met after the Substitutions.
    8. The investment objectives of each Existing Fund and its 
corresponding Replacement Fund are set forth below. Additional 
information for each Existing Fund and Replacement Fund, including 
principal investment strategies, principal risks and comparative 
performance history, can be found in the application.

------------------------------------------------------------------------
             Existing fund                       Replacement fund
------------------------------------------------------------------------
AllianzGI NFJ Mid-Cap Value Fund seeks   Transamerica JPMorgan Mid Cap
 long-term growth of capital and income.  Value seeks growth from
                                          capital appreciation.
American Century Equity Income Fund      Transamerica Barrow Hanley
 seeks current income. Capital            Dividend Focused VP Seeks
 appreciation is a secondary objective.   total return gained from the
                                          combination of dividend yield,
                                          growth of dividends and
                                          capital appreciation.
American Century Ultra Fund seeks long-  Transamerica Jennison Growth VP
 term growth of capital.                  seeks long-term growth of
                                          capital.
Columbia Acorn USA seeks long-term       Transamerica T. Rowe Price
 capital appreciation.                    Small Cap VP seeks long-term
                                          growth of capital by investing
                                          primarily in common stocks of
                                          small growth companies.
Columbia Acorn International seeks long  Transamerica MFS International
 term capital appreciation.               Equity VP seeks capital
                                          growth.
Pioneer Emerging Markets Fund seeks      Transamerica TS&W International
 long term growth of capital.             Equity VP seeks maximum long-
                                          term total return, consistent
                                          with reasonable risk to
                                          principal, by investing in a
                                          diversified portfolio of
                                          common stocks of primarily non-
                                          U.S. issuers.
Templeton Foreign Fund seeks long-term   Transamerica MFS International
 capital growth.                          Equity VP seeks capital
                                          growth.
Columbia Large Cap Growth Fund V seeks   Transamerica WMC US Growth VP
 long-term growth of capital.             seeks to maximize long-term
                                          growth.
------------------------------------------------------------------------

    9. Applicants state that the Substitutions are designed to allow 
Contract owners to continue their investment in similar or better 
investment options without interruption and at no additional cost to 
them. Contract owners with sub-account balances invested through the 
Accounts in shares of the Replacement Funds will have the same or lower 
total expense ratios taking into account fund expenses (including Rule 
12b-1 fees, if any). With respect to all of the proposed Substitutions, 
the combined management fee and Rule 12b-1 fees

[[Page 15740]]

paid by the Replacement Fund are the same or lower than those of the 
corresponding Existing Fund. The application sets forth the fees and 
expenses of each Existing Fund and its corresponding Replacement Fund 
in greater detail.
    10. Applicants represent that as of the effective date of the 
Substitutions (``Effective Date'') shares of the Existing Funds will be 
redeemed for cash. The Companies, on behalf of each Existing Fund sub-
account of each relevant Account, will simultaneously place a 
redemption request with each Existing Fund and a purchase order with 
the corresponding Replacement Fund so that the purchase of Replacement 
Fund shares will be for the exact amount of the redemption proceeds. 
Thus, Contract values will remain fully invested at all times.
    11. The Substitutions will take place at relative net asset value 
(in accordance with Rule 22c-1 under the 1940 Act) with no change in 
the amount of any affected Contract owner's contract value, cash value, 
accumulation value, account value or death benefit or in dollar value 
of his or her investment in the applicable Accounts.\2\ No brokerage 
commissions or other fees will be paid by either the Existing Funds or 
the Replacement Funds or by the affected Contract owners in connection 
with the Substitutions.
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    \2\ Applicants state that, because the Substitutions will occur 
at relative net asset value, and the fees and charges under the 
Contracts will not change as a result of the Substitutions, the 
benefits offered by the guarantees under the Contracts will be the 
same immediately before and after the Substitutions. Applicants also 
state that what effect the Substitutions may have on the value of 
the benefits offered by the Contract guarantees would depend, among 
other things, on the relative future performance of the Existing 
Funds and Replacement Funds, which Applicants cannot predict. 
Nevertheless, Applicants note that at the time of the Substitutions, 
the Contracts will offer a comparable variety of investment options 
with as broad a range of risk/return characteristics.
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    12. The affected Contract owners will not incur any fees or charges 
as a result of the Substitutions nor will their rights or the 
Companies' obligations under the Contracts be altered in any way. The 
Companies or their affiliates will pay all expenses and transaction 
costs of the Substitutions, including brokerage, legal, accounting, and 
other fees and expenses. The Substitutions will not cause the Contract 
fees and charges currently being paid by affected Contract owners to be 
greater after the Substitutions than before the Substitutions. 
Moreover, the Substitutions will not impose any tax liability on 
affected Contract owners.
    13. As described in the application, after notification of the 
Substitution and for 30 days after the Effective Date, affected 
Contract owners may reallocate the sub-account value of an Existing 
Fund to any other investment option available under their Contract 
without incurring any transfer charges.
    14. All Contract owners affected by the Substitutions will be 
notified of this application by means of supplements to the Contract 
prospectuses at least 30 days prior to the Effective Date. The notice 
will advise Contract owners that from the date of the notice until the 
Effective Date, owners are permitted to make one transfer of Contract 
value out of the Existing Fund sub-account to one or more other sub-
accounts without the transfer (or exchange) being treated as one of a 
limited number of transfers (or exchanges) permitted without a transfer 
charge. Among other information, the notice will inform affected 
Contract owners that the Companies will not exercise any rights 
reserved under any Contract to impose additional restrictions on 
transfers until at least 30 days after the Effective Date.
    15. If affected Contract owners reallocate account value during 
this 60 day period, there will be no charge for the reallocation of 
accumulated value from the Existing Fund sub-accounts and the 
reallocation will not count as a transfer when imposing any applicable 
restriction or limit under the Contract on transfers. Additionally, all 
affected Contract owners will be sent prospectuses of the applicable 
Replacement Funds at least 30 days before the Effective Date.
    16. Within five (5) business days after the Effective Date, 
affected Contract owners will be sent a written confirmation, which 
will include confirmation that the Substitutions were carried out as 
previously notified, a restatement of the information set forth in the 
pre-Substitution notice and values of the Contract owner's position in 
the Existing Fund before the Substitution and the Replacement Fund 
after the Substitution.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to Section 26(c) of the 1940 Act approving the Substitutions. Section 
26(c) 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. Section 26(c) 
requires the Commission to issue such an order if the evidence 
establishes that the substitution is consistent with the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the 1940 Act.
    2. Applicants submit that the terms and conditions of the 
Substitutions meet the standards set forth in Section 26(c) and assert 
that the replacement of an Existing Fund with the corresponding 
Replacement Fund is consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the l940 Act. 
As described in the application, for a period of two years following 
the Effective Date, the Companies or their affiliates will reimburse 
any Contract owner affected by the proposed Substitutions involving 
Transamerica Series Trust Replacement Funds and whose sub-account 
invests in the Replacement Fund to the extent a Replacement Fund's net 
annual operating expenses exceeds the net annual operating expenses of 
the corresponding Existing Fund. Applicants further assert that each 
Replacement Fund has similar investment objectives and investment 
strategies as the corresponding Existing Fund, or each Replacement 
Fund's underlying portfolio construction and investment results are 
similar to those of the corresponding Existing Fund. Accordingly, 
Applicants believe that the fundamental investment objectives, risk and 
performance expectations of the Contract owners will continue to be met 
after the Substitutions.
    3. Applicants also maintain that it is in the best interests of the 
Contract owners to substitute the Replacement Fund for its 
corresponding Existing Fund. Applicants anticipate that the 
substitution of an Existing Fund with the corresponding Replacement 
Fund will result in a Contract that is administered and managed more 
efficiently, and one that is more competitive with other variable 
products. The rights of affected Contract Owners and the obligations of 
the Companies under the Contracts will not be altered by the 
Substitutions. Affected Contract owners will not incur any additional 
tax liability or any additional fees and expenses as a result of the 
Substitutions.
    4. Each of the prospectuses for the Contracts discloses that the 
issuing Company reserves the right, subject to compliance with 
applicable law, to substitute shares of another registered open-end 
management investment company for shares of an open-end management 
investment company held by a sub-account of an Account.
    5. Applicants also assert that none of the proposed Substitutions 
is of the type that Section 26(c) was designed to prevent. Unlike a 
traditional unit investment trust where a depositor could only 
substitute an investment

[[Page 15741]]

security in a manner which permanently affected all the investors in 
the trust, the Contracts provide each Contract owner with the right to 
exercise his or her own judgment and transfer account values into other 
sub-accounts. Moreover, the Contracts will offer affected Contract 
owners the opportunity to transfer amounts out of the affected sub-
accounts into any of the remaining sub-accounts without cost or other 
disadvantage. The Substitution, therefore, will not result in the type 
of costly forced redemptions that Section 26(c) was designed to 
prevent. Applicants also maintain that the Substitutions are unlike the 
type of substitutions which Section 26(c) was designed to prevent in 
that by purchasing a Contract, Contract owners select much more than a 
particular registered management open-end investment company in which 
to invest their account values. They also select the specific type of 
insurance coverage offered by the Companies under their Contracts as 
well as other rights and privileges set forth in the Contracts.
    Applicants' Conditions:
    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The proposed Substitutions will not be effected unless the 
Companies determine that: (a) The Contracts allow the substitution of 
shares of registered open-end investment companies in the manner 
contemplated by the application; (b) the Substitutions can be 
consummated as described in the application under applicable insurance 
laws; and (c) any regulatory requirements in each jurisdiction where 
the Contracts are qualified for sale have been complied with to the 
extent necessary to complete the Substitutions.
    2. The Companies or their affiliates will pay all expenses and 
transaction costs of the Substitutions, including legal and accounting 
expenses, any applicable brokerage expenses and other fees and 
expenses. No fees or charges will be assessed to the Contract owners to 
effect the Substitutions.
    3. The proposed Substitutions will be effected at the relative net 
asset values of the respective shares in conformity with Section 22(c) 
of the 1940 Act and Rule 22c-1 thereunder without the imposition of any 
transfer or similar charges by Applicants. The Substitutions will be 
effected without change in the amount or value of any Contracts held by 
affected Contract owners.
    4. The proposed Substitutions will in no way alter the tax 
treatment of affected Contract owners in connection with their 
Contracts, and no tax liability will arise for affected Contract owners 
as a result of the Substitutions.
    5. The rights or obligations of the Companies under the Contracts 
of affected Contract owners will not be altered in any way.
    6. Affected Contract owners will be permitted to make at least one 
transfer of Contract value from the sub-account investing in the 
Existing Fund (before the Effective Date) or the Replacement Fund 
(after the Effective Date) to any other available investment option 
under the Contract without charge for a period beginning at least 30 
days before the Effective Date through at least 30 days following the 
Effective Date. Except as described in any market timing/short-term 
trading provisions of the relevant prospectus, the Company will not 
exercise any right it may have under the Contract to impose 
restrictions on transfers between the sub-accounts under the Contracts, 
including limitations on the future number of transfers, for a period 
beginning at least 30 days before the Effective Date through at least 
30 days following the Effective Date.
    7. All affected Contract owners will be notified, at least 30 days 
before the Effective Date about: (a) The intended substitution of 
Existing Funds with the Replacement Funds; (b) the intended Effective 
Date; and (c) information with respect to transfers as set forth in 
Condition 6 above. In addition, the Companies will deliver to all 
affected Contract owners, at least 30 days before the Effective Date, a 
prospectus for each applicable Replacement Fund.
    8. The Companies will deliver to each affected Contract owner 
within five (5) business days of the Effective Date a written 
confirmation which will include: (a) A confirmation that the 
Substitutions were carried out as previously notified; (b) a 
restatement of the information set forth in the pre-Substitution 
notice; and (c) values of the Contract owner's positions in the 
Existing Fund before the Substitution and the Replacement Fund after 
the Substitution.
    9. After the Effective Date the Applicants agree not to change a 
Replacement Fund's sub- adviser without first obtaining shareholder 
approval of either (a) the sub-adviser change or (b) the parties' 
continued ability to rely on their manager-of-managers exemptive order.
    10. For two years following the Effective Date the net annual 
expenses of each Replacement Fund that is a Transamerica Series Trust 
Fund will not exceed the net annual expenses of the corresponding 
Existing Fund as of the fund's most recent fiscal year. To achieve this 
limitation, the Replacement Fund's investment adviser will waive fees 
or reimburse the Replacement Fund in certain amounts to maintain 
expenses at or below the limit. Any adjustments will be made at least 
on a quarterly basis. In addition, the Companies will not increase the 
Contract fees and charges, including asset based charges such as 
mortality expense risk charges deducted from the sub-accounts that 
would otherwise be assessed under the terms of the Contracts for a 
period of at least two years following the Effective Date.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06244 Filed 3-29-17; 8:45 am]
 BILLING CODE 8011-01-P