[Federal Register Volume 62, Number 228 (Wednesday, November 26, 1997)]
[Notices]
[Pages 63206-63208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31016]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22897; File No. 812-10760]


Western Reserve Life Assurance Co. of Ohio, et al.; Notice of 
Application

November 19, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 26(b) of the 
Investment Company Act of 1940 (``1940 Act'') approving the proposed 
substitution of securities.

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SUMMARY OF APPLICATION: Applicants request an order approving the 
substitution of securities issued by certain registered management 
investment companies and held by the Accounts to support individual 
flexible premium deferred variable annuity contracts and individual 
flexible premium variable life insurance policies issued by Western 
Reserve.

APPLICANTS: Western Reserve Life Assurance Co. of Ohio (``Western 
Reserve''), WRL Series Annuity Account (``Annuity Account'') and WRL 
Series Life Account (``Life Account'') (the Life Account and the 
Annuity Account together, the ``Accounts'').

FILING DATES: The application was filed on August 15, 1997, and an 
amended and restated application was filed on October 22, 1997.

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 December 15, 
1997, 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 of a hearing by 
writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Thomas E. Pierpan, Esquire, Western Reserve Life 
Assurance Co. Of Ohio, 201 Highland Avenue, Largo, Florida 33770-2597.

FOR FURTHER INFORMATION CONTACT:
Michael Koffler, Attorney, or Mark Amorosi, 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 St., N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Western Reserve, a stock life insurance company, is principally 
engaged in the business of writing life insurance policies and annuity 
contracts and is authorized to do business in the District of Columbia 
and all states except New York. Western Reserve is a wholly-owned 
subsidiary of First AUSA Life Insurance Company which is a wholly-owned 
subsidiary of AEGON USA, Inc., which in turn is a wholly-owned indirect 
subsidiary of AEGON nv, a Netherlands corporation, which is a publicly 
traded international insurance group. Western Reserve is the sponsor 
and depositor of the Accounts.
    2. Western Reserve issues individual flexible premium variable life 
insurance policies and individual flexible premium deferred variable 
annuity contracts (collectively, the ``Contracts'') through the Life 
Account and the Annuity Account respectively. Each of the Accounts is a 
separate account and is registered under the 1940 Act as a unit 
investment trust. Interests in the Accounts offered through the 
Contracts

[[Page 63207]]

have been registered under the Securities Act of 1933 (``1933 Act''). 
Each Account is comprised of sub-accounts established to receive and 
invest net purchase payments of the Contracts. Each sub-account invests 
exclusively in the shares of a specified portfolio of the WRL Series 
Fund, Inc. (the ``Fund'') and supports the Contracts.
    3. The Fund is registered under the 1940 Act as an open-end 
management investment company. The Fund is a series investment company 
as defined by rule 18f-2 under the 1940 Act and is currently comprised 
of 21 investment portfolios (the ``Portfolios''). The Fund issues a 
separate series of shares of stock in connection with each Portfolio 
and has registered these shares under the 1933 Act. WRL Investment 
Management, Inc. (``WRL Management''), a direct wholly-owned subsidiary 
of Western Reserve, is the investment adviser to the Fund.
    4. Applicants state that the following Portfolios of the Fund have 
not generated substantial Contract owner interest since their 
inception: the Short-to-Intermediate Government Portfolio, the C.A.S.E. 
Quality Growth Portfolio, the C.A.S.E. Growth & Income Portfolio, the 
Foreign Sector Portfolio and the US Sector Portfolio (collectively, the 
``Replaced Portfolios''). In addition, the Replaced Portfolios are each 
relatively small in terms of assets compared to many other similar 
investment portfolios of open-end management investment companies 
available as investment vehicles for variable annuity and variable life 
insurance products. Applicants state that, as a result, the annual 
expense ratios of the Replaced Portfolios, absent any expense 
reimbursement, have been higher than the ratios of most similar, but 
larger portfolios. Moreover, the current expense reimbursement 
arrangements for the Replaced Portfolios are voluntary and there is no 
assurance these arrangements will continue in the future. Applicants 
also state that the performance of the Replaced Portfolios since their 
inception has been unremarkable given overall market performance during 
the relevant time periods.
    5. For these reasons, Applicants propose that Western Reserve 
substitute shares of the Bond Portfolio for shares of the Short-to-
Intermediate Government Portfolio; shares of the U.S. Equity Portfolio 
for shares of the US Sector Portfolio; shares of the Global Portfolio 
for shares of the Foreign Sector Portfolio; shares of the C.A.S.E. 
Growth Portfolio for shares of the C.A.S.E. Quality Growth Portfolio; 
and shares of the C.A.S.E. Growth Portfolio for shares of the C.A.S.E. 
Growth & Income Portfolio.
    6. Applicants represent that the Portfolios proposed as substitutes 
for each of the Replaced Portfolios (the ``Substitute Portfolios'') are 
substantially larger than their Replaced Portfolio counterparts. 
Applicants also represent that each Substitute Portfolio also has lower 
expense ratios and (with the exception of the U.S. Equity Portfolio, 
which does not yet have a performance record of significant duration) 
has either outperformed or performed comparably, relative to the 
corresponding Replaced Portfolio.
    7. Applicants state that, by supplements to the prospectuses for 
the Contracts of the Accounts, all owners and prospective owners of the 
Contracts were notified of Western Reserve's intention to take the 
necessary actions to substitute the Replaced Portfolios with the 
Substitute Portfolios. The supplements advised owners and prospective 
owners that they will be unable to allocate net purchase payments to, 
or transfer cash values to, the sub-accounts of the Accounts 
corresponding to each of the Replaced Portfolios after November 15, 
1997. The supplements also advised owners and prospective owners that 
on the date of the proposed substitutions, the Substitute Portfolios 
will replace the Replaced Portfolios as the underlying investments for 
such sub-accounts. The supplements further apprised owners and 
prospective owners that from the date of the supplements until 30 days 
after the date of the proposed substitutions, owners will be permitted 
to make one transfer per affected sub-account of all the cash value 
under a Contract invested in such affected sub-account to other 
available subaccount(s), other than one of the other affected sub-
accounts, without that transfer(s) counting as one of the 12 transfers 
permitted in a Contract year free of charge. In addition, the 
supplements informed owners and prospective owners that Western Reserve 
will not exercise any rights reserved by Western Reserve under any of 
the Contracts to impose additional restrictions on transfers until at 
least 30 days after the proposed substitutions.
    8. Applicants state that at least 60 days before the date of the 
proposed substitutions, affected owners were provided with a prospectus 
for the Fund which includes complete current information concerning the 
Substitute Portfolios.
    9. Applicants propose to have Western Reserve redeem shares of each 
Replaced Portfolio in cash and purchase with the proceeds shares of the 
relevant Substitute Portfolio. Applicants represent that redemption 
requests and purchase orders will be placed simultaneously so that 
Contract values will remain fully invested at all times.
    10. Applicants state that the proposed substitutions will take 
place at relative net asset value with no change in the amount of any 
Contract owner's cash value or death benefit or in the dollar value of 
his or her investment in any of the Accounts. Applicants represent that 
Contract owners will not incur any fees or charges as a result of the 
proposed substitutions and that their rights and Western Reserve's 
obligations under the Contracts will not be altered in any way. All 
expenses incurred in connection with the proposed substitutions, 
including legal, accounting and other fees and expenses, will be paid 
by Western Reserve. In addition, Applicants represent that the proposed 
substitutions will not impose any tax liability on Contract owners. The 
proposed substitutions will not cause the Contract fees and charges 
currently paid by existing Contract owners to be greater after the 
proposed substitutions than before the proposed substitutions.
    11. Within 5 days after the proposed substitutions, any owners who 
were affected by a substitution will be sent a written notice informing 
them that the substitutions were carried out and that they may make one 
transfer of all cash value under a Contract invested in each of the 
affected subaccounts to other subaccount(s) until 30 days after the 
substitution without that transfer counting as one of the 12 transfers 
permitted in a Contract year free of charge. the notice will also 
reiterate that Western Reserve will not exercise any rights reserved by 
Western Reserve under any of the Contracts to impose additional 
restrictions on transfers until at least 30 days after the proposed 
substitutions.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to Section 26(b) of the 1940 Act approving the substitutions by Western 
Reserve of (1) shares of the Bond Portfolio for shares of the Short-to-
Intermediate Government Portfolio; (2) shares of the U.S. Equity 
Portfolio for shares of the US Sector Portfolio; (3) shares of the 
Global Portfolio for shares of the Foreign Sector Portfolio; (4) shares 
of the C.A.S.E. Growth Portfolio for shares of the C.A.S.E. Quality 
Growth Portfolio; and (5) shares of the C.A.S.E. Growth Portfolio for 
shares of the C.A.S.E. Growth & Income Portfolio held by

[[Page 63208]]

corresponding sub-accounts of the Accounts.
    2. Section 26(b) of the 1940 Act provides, in pertinent part, that 
``[i]t 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) of the 1940 Act 
also provides that the Commission shall issue an order approving such 
substitution if the evidence establishes that the substitution is 
consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the 1940 Act.
    3. Applicants assert that the Contracts give Western Reserve the 
right, subject to Commission approval, to substitute shares of another 
open-end management investment company for shares of an open-end 
management investment company held by a sub-account of the relevant 
Account. Applicants also assert that the prospectuses for the Contracts 
and the Accounts contain appropriate disclosure of this right.
    4. Applicants contend that the Substitute Portfolios will have 
lower or equal future expense ratios than the past expense ratios of 
the Replaced Portfolios. Each of the Substitute Portfolios is 
substantially larger than the corresponding Replaced Portfolio and each 
Substitute Portfolio (except the U.S. Equity Portfolio, which commenced 
operations on January 2, 1997) has had more favorable expense ratios 
over the last two years than the corresponding Replaced Portfolio.
    5. As of November 15, 1997, the Replaced Portfolios will no longer 
be available for new investment, and most likely will experience the 
net redemption of their shares from that date forward. Therefore, 
Applicants assert that it is highly likely that in the near future each 
Replaced Portfolio's asset base will decrease and, accordingly, each 
Replaced Portfolio's expense ratio will increase.
    6. Applicants state that each Substitute Portfolio has performed 
favorably over the past two years (except the U.S. Equity Portfolio, 
which commenced operations on January 2, 1997), and since its inception 
compared to the corresponding Replaced Portfolio. Applicants therefore 
anticipate that after the proposed substitutions, the Substitute 
Portfolios will provide Contract owners with more favorable or 
comparable investment results than would be the case if the proposed 
substitutions do not take place.
    7. Applicants represent that each of the Substitute Portfolios is a 
suitable and appropriate investment vehicle for Contract owners and 
that each Substitute Portfolio has, or will have, substantially 
identical or similar investment objectives and policies to its 
corresponding Replaced Portfolio.

Conclusion

    Applicants submit that, for all the reasons summarized above, the 
proposed substitutions are consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Security.
[FR Doc. 97-31016 Filed 11-27-97; 8:45 am]
BILLING CODE 8010-01-M