[Federal Register Volume 63, Number 137 (Friday, July 17, 1998)]
[Notices]
[Pages 38683-38685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19052]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23313; 812-10664]
WRL Series Fund, Inc. and WRL Investment Management, Inc. Notice
of Application
July 10, 1998.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 15(a) of the Act and rule 18f-2 under the Act.
SUMMARY OF APPLICATION: The order would permit applicants to enter into
and materially amend subadvisory agreements without obtaining
shareholder approval.
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UMMARY: The order would permit applicants to enter into and materially
amend subadvisory agreements without obtaining shareholders approval.
APPLICANTS: WRL Series Fund, Inc. (the ``Fund'') and WRL Investment
Management, Inc. (the ``Adviser'').
FILING DATES: The application was filed on May 13, 1997, and amended on
April 2, 1998. Applicants have agreed to file an amendment, the
substance of which is included in this notice, during the notice
period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
be request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 4, 1998,
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549; Applicants, 201 Highland Avenue, Largo, Florida 33770-2597.
FOR FURTHER INFORMATION CONTACT:
Brian T. Hourihan, Senior Counsel, at (202) 942-0526, or Christine Y.
Greenless, Branch Chief, at (202) 942-
[[Page 38684]]
0564 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington,
D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Fund, a Maryland corporation, is an open-end management
investment company registered under the Act. The Fund currently
consists of seventeen separate series (each a ``Portfolio''), each of
which has its own investment objective and policies.\1\ Shares of the
Fund currently are sold only to separate accounts of Western Reserve
Life Assurance Co. of Ohio (``Western Reserve''), PFL Life Insurance
Company, and First AUSA Life Insurance Company, Inc. (``First AUSA'')
to fund benefits under certain variable life insurance policies and
variable annuity contracts.
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\1\ Applicants request that the relief also apply to future
Portfolios, and to any registered open-end management investment
company that in the future is advised by the Adviser, or any person
controlling, controlled by, or under common control with the Adviser
(``Future Fund''). All existing investment companies that currently
intend to rely on the order have been named as applicants, and any
Future Fund that relies on the order will comply with the terms and
conditions in the application.
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2. The Adviser, registered under the Investment Advisers Act of
1940 (the ``Advisers Act''), serves as investment adviser to the Fund
pursuant to an investment advisory agreement (``Advisory
Agreement'').\2\ Under the Advisory Agreement, the Adviser, subject to
the supervision of the board of directors of the Fund (the ``Board''),
selects and contracts with sub-advisers (``Sub-Advisers'') to provide
each Portfolio with portfolio management. The Adviser also monitors and
evaluates each Sub-Adviser's performance, and may recommend its
termination. Each Sub-Adviser recommended by the Adviser is approved by
the Board, including a majority of the directors who are not
``interested persons'' of the Fund, as defined in section 2(a)(19) of
the Act (``Independent Directors''). The Adviser also provides the Fund
and the Portfolios with overall administrative services. The Fund pays
the Adviser a fee for its services with respect to each Portfolio.
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\2\ The Adviser is a direct, wholly-owned subsidiary of Western
Reserve, which, in turn, is wholly-owned by First AUSA. First AUSA
is wholly-owned by AEGON USA, Inc., a financial services holding
company, which, in turn, is a wholly-owned indirect subsidiary of
AEGON nv, a Netherlands corporation.
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3. The Adviser has entered into contracts (``Sub-Advisory
Agreements'') with fourteen Sub-Advisers, each of which is registered
as an investment adviser under the Advisers Act. Currently, sixteen
Portfolios are advised by one Sub-Adviser and one Portfolio is advised
by two Sub-Advisers. Subject to the general supervision of the Adviser
and the Board, each Sub-Adviser makes the specific investment decisions
for the Portfolio it advises and places orders to purchase or sell
securities on behalf of that Portfolio. None of the Sub-Advisers has
broader supervisory, management or administrative responsibilities with
respect to a Portfolio or the Fund. The Adviser pays each Sub-Adviser
out of the advisory fees it receives from each Portfolio.
4. Applicants request an order to permit the Adviser to enter into
and materially amend Sub-Advisory Agreements without obtaining
shareholder approval. The requested relief will not extend to a Sub-
Adviser that is an ``affiliated person'' of either the Fund or the
Adviser, as defined in section 2(a)(3) of the Act, other than by reason
of serving as a Sub-Adviser to one or more of the Portfolios
(``Affiliated Sub-Adviser'').
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as an investment adviser to a registered investment company except
pursuant to a written contract that has been approved by a majority of
the investment company's outstanding voting securities. Rule 18f-2
under the Act provides that each series or class of stock in a series
company affected by a matter must approve the matter if the Act
requires shareholder approval.
2. Section 6(c) of the Act authorizes the Commission to exempt
person or transactions from the provisions of the Act to the extent
that the exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the Act. Applicants request
relief under section 6(c) from section 15(a) of the Act and rule 18f-2
under the Act. For the reasons discussed below, applicants believe the
requested relief meets the standard of section 6(c).
3. Applicants assert that the Fund's investors rely on the Adviser
for investment management, and except the Adviser to select and monitor
one or more Sub-Advisers best suited to achieve a Portfolio's
investment objective. Applicants represent that the Adviser has
substantial experience in performing these functions for the Fund.
Applicants submit that, consequently, from the perspective of an
investor, the role of the Sub-Advisers is comparable to that of
individual portfolio managers employed by other investment company
advisory firms. Applicants thus contend that, without the requested
relief, the Fund may be precluded from promptly and effectively
employing Sub-Advisers best suited to the needs of the Portfolios.
Applicants also that the Advisory Agreement will remain fully subject
to the requirements of section 15 of the Act and rule 18f-2 under the
Act, including the requirements for shareholder approval.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Adviser will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser without the Sub-Adviser Agreement with any
Affiliated Sub-Adviser without the Sub-Advisory Agreement, including
the compensation to be paid under the Agreement, being approved by the
variable contract owners with assets allocated to any sub-account of a
registered separate account for which the Portfolio serves as a funding
medium.
2. At all times, a majority of the Board will be Independent
Directors, and the nomination of new or additional Independent
Directors will be within the discretion of the then-existing
Independent Directors.
3. When a Sub-Adviser change is proposed for a Portfolio with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Directors, will make a separate finding, reelected in the
Board's minutes, that the change is in the best interests of the
Portfolio and the variable contract owners with assets allocated to any
sub-account of a registered separate account for which the Portfolio
serves as a funding medium, and does not involve a conflict of interest
from which the Adviser or the Affiliated Sub-Adviser derives an
inappropriate advantage.
4. The Adviser will provide general management and administrative
services to the Fund and the Portfolios, including overall supervisory
responsibility for the general management and investment of the Fund's
securities portfolios, and, subject to review and approval by the
Board, will: (i) Set each Portfolio's overall investment strategies,
(ii) select Sub-Advisers, (iii) monitor and evaluate the performance of
Sub-Advisers, (iv) allocate and, when appropriate,
[[Page 38685]]
reallocate a Portfolio's assets among its Sub-Advisers in those cases
where a Portfolio has more than one Sub-Adviser, and (v) implement
procedures reasonably designed to ensure that the Sub-Advisers comply
with the Portfolio's investment objectives, policies, and restrictions.
5. Within 90 days of the hiring of any new Sub-Adviser, the Adviser
will furnish the variable contract owners with assets allocated to any
sub-account of a registered separate account for which the Portfolio
serves as a funding medium with all information about the new Sub-
Adviser that would be included in a proxy statement. The information
will include any change in the disclosure caused by the addition of a
new Sub-Adviser. The Adviser will meet this condition by providing the
variable contract owners with an information statement meeting the
requirement of Regulation 14C, Schedule 14C, and item 22 of Schedule
14A under the Securities Exchange Act of 1934.
6. The Fund will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to the application.
In addition, the Fund will hold itself out to the public as employing
the management structure described in the application. The Fund's
prospectus will prominently disclose that the Adviser has ultimate
responsibility for the investment performance of the Portfolios due to
its responsibility to oversee Sub-Advisers and recommend their hiring,
termination, and replacement.
7. Before the Fund may rely on the requested order, the operations
of each Portfolio as described in the application will be approved by a
majority of the Portfolio's outstanding voting securities, as defined
in the Act, pursuant to voting instructions provided by the variable
contract owners with assets allocated to any sub-account of a
registered separate account for which the Portfolio serves as a funding
medium, or, in the case of a Future Fund whose shareholders purchased
shares on the basis of a prospectus containing the disclosure
contemplated by condition 6 above, by the sole shareholder before
offering shares of the Future Fund to the variable contract owners
through a separate account.
8. No director or officer of the Fund or of the Adviser will own
directly or indirectly (other than through a pooled investment vehicle
that is not controlled by the director or officer) any interest in a
Sub-Adviser, except for: (i) Ownership of interests in the Adviser or
any entity that controls, is controlled by, or is under common control
with the Adviser, or (ii) ownership of less than 1% of the outstanding
securities of any class of equity or debt securities of a publicly
traded company that is either a Sub-Adviser or an entity that controls,
is controlled by, or is under common control with a Sub-Adviser.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-19052 Filed 7-16-98; 8:45 am]
BILLING CODE 8010-01-M
