[Federal Register Volume 63, Number 249 (Tuesday, December 29, 1998)]
[Notices]
[Pages 71662-71664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34400]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23620; File No. 812-11358]


Western Reserve Life Assurance Co. of Ohio, et al.

December 22, 1998.
Agency: Securities and Exchange Commission (the ``Commission'' or 
``SEC'').

Action: Notice of application for an order under Section 26(b) of the 
Investment Company Act of 1940 (the ``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 management investment 
companies and held by the Account to support individual flexible 
premium deferred variable annuity contracts (the ``Contracts'') issued 
by Western Reserve.

Applicants: Western Reserve Life Assurance Co. of Ohio (``Western 
Reserve'') and WRL Series Annuity Account (the ``Account'').

FILING DATE: The application was filed on October 15, 1998.

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 January 18, 
1999, and should be accompanied by proof of service on the 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, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, Thomas E. Pierpan, 
Esquire, Western Reserve Life Assurance Co. of Ohio, 570 Carillon 
Parkway, St. Petersburg, FL 33716-1202.

For Further Information Contact: Kevin P. McEnery, Senior Counsel, or 
Mark C. 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 polices 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. AEGON USA, Inc. 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 Account.
    2. Western Reserve issues individual flexible premium deferred 
variable annuity contracts (the ``Contracts'') through the Account. The 
Account is a separate account and is registered under the 1940 Act as a 
unit investment trust. Interests in the Account offered through the 
Contracts have been registered

[[Page 71663]]

under the Securities Act of 1933 (``1933 Act''). The 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. Each Contract permits at least 12 transfers of cash value per 
Contract year among and between the sub-accounts available as 
investment options without the imposition of a transfer charge. All of 
the Contracts reserve to Western Reserve the right to further restrict 
transfer privileges.
    4. 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 18 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.
    5. Applicants state that one of the Portfolios of the Fund has not 
generated substantial Contract owner interest since its inception. The 
Global Sector Portfolio (the ``Replaced Portfolio'') is relatively 
small in terms of assets when compared to many other similar investment 
portfolios of open-end management investment companies available as 
investment vehicles for variable annuity products. Applicants state 
that, as a result, the annual expense ratios of the Replaced Portoflio 
have been higher than the ratios of most similar, but larger, 
portfolios. Applicants also state that the performance of the Replaced 
Portfolio since its inception has been unremarkable given overall 
market performance during the relevant time period.
    6. For these reasons, Applicants propose that Western Reserve 
substitute shares of the Global Portfolio for shares of the Global 
Sector Portfolio.
    7. The Global Portfolio seeks long-term growth of capital in a 
manner consistent with preservation of capital by primarily investing 
in common stocks of foreign and domestic issuers. The Global Sector 
Portfolio seeks growth of capital by following an asset allocation 
strategy that shifts among a wide range of asset categories and within 
them, market sectors. The Global Sector Portfolio invests primarily in 
equity securities of domestic and foreign issuers, including common 
stocks, preferred stocks, convertible securities and warrants; debt 
securities of domestic and foreign issuers; real estate investment 
trusts; equity securities of companies involved in the exploration, 
mining processing, or dealing or investing in gold; gold bullion; and 
domestic money market instruments.
    8. Applicants represent that the Portfolio proposed as a substitute 
(the ``Substitute Portfolio'') is substantially larger than the 
Replaced Portfolio. Applicants also represent that the Substitute 
Portfolio has lower expense ratio and has outperformed the Replaced 
Portfolio.
    9. Applicants state that, by supplements to the prospectuses for 
the Contracts of the Account, all owners and prospective owners of the 
Contracts were notified of Western Reserve's intention to take the 
necessary actions to substitute shares of the Global Portfolio for 
shares of the Global Sector Portfolio. 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-account of 
the Account corresponding to the Replaced Portfolio, after May 1, 1999. 
The supplements also advised owners and prospective owners that, on the 
date of the proposed substitution, the Substitute Portfolio will 
replace the Replaced Portfolio as the underlying investment for such 
sub-account. The supplements further apprised owners and prospective 
owners that from the date of the supplements until 30 days after the 
date of the proposed substitution, owners will be permitted to make one 
transfer of all the cash value under a Contract invested in such 
affected sub-account to other available sub-account(s), without that 
transfer counting as one of the limited number of 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 substitution.
    10. Applicants state that at least 60 days before the date of the 
proposed substitution, affected owners were provided with a prospectus 
for the Fund, which includes complete current information concerning 
the Substitute Portfolio.
    11. Applicants propose to have Western Reserve redeem shares of the 
Replaced Portfolio in cash and purchase shares of the 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.
    12. Applicants state that the proposed substitution 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 the Account. Applicants represent that 
Contract owners will not incur any fees or charges as a result of the 
proposed substitution 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 substitution, 
including legal, accounting and other fees and expenses, will be paid 
by Western Reserve. In addition, Applicants represent that the proposed 
substitution will not impose any tax liability on Contract owners. The 
proposed substitution will not cause the Contract fees and charges 
currently paid by existing Contract owners to be greater after the 
proposed substitution than before the proposed substitution.
    13. Within 5 days after the proposed substitution, Applicants 
represent that any owners who were affected by the substitution will be 
sent a written notice informing them that the substitution was carried 
out and that they may make one transfer of all cash value under a 
Contract invested in the affected sub-account to other sub-account(s) 
until 30 days after the substitution without that transfer counting as 
one of the limited number of transfers permitted in a Contract year 
free of charge. The notice also will 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 substitution.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to Section 26(b) of the 1940 Act approving the substitution by Western 
Reserve of shares of the Global Portfolio for shares of the Global 
Sector Portfolio. Applicants submit that the proposed substitution 
meets the standards that the Commission has applied to substitutions 
that have been approved in the past.
    2. Section 26(b) of the 1940 Act provides, in pertinent part, 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.''

[[Page 71664]]

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 subaccount of the relevant 
Account. Applicants also assert that the prospectuses for the Contracts 
and the Account contain appropriate disclosure of this right.
    4. Applicants contend that the Substitute Portfolio will have lower 
or equal future expense ratios than the past expense ratios of the 
Replaced Portfolio. The Substitute Portfolio is substantially larger 
than the Replaced Portfolio, and the Substitute Portfolio has had more 
favorable expense ratios over the last two years than the Replaced 
Portfolio.
    5. As of May 1, 1999, the Replaced Portfolio will no longer be 
available for new investment, and most likely will experience the net 
redemption of its shares from that date forward. Therefore, Applicants 
assert it is highly likely that in the near future the Replaced 
Portfolio's asset base will decrease and, accordingly, the Replaced 
Portfolio's expense ratio will increase.
    6. Applicants state that the Substitute Portfolio has performed 
favorably over the past two years and since its inception compared to 
the Replaced Portfolio. Applicants therefore anticipate that after the 
proposed substitution, the Substitute Portfolio will provide Contract 
owners with more favorable or comparable overall investment results 
than would be the case if the proposed substitution does not take 
place.
    7. Applicants represent that the Substitute Portfolio is a suitable 
and appropriate investment vehicle for Contract owners and that the 
Substitute Portfolio has substantially identical or similar investment 
objectives and policies to the Replaced Portfolio.

Conclusion

    Applicants submit that, for all the reasons summarized above, the 
proposed substitution is 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 Secretary.
[FR Doc. 98-34400 Filed 12-28-98; 8:45 am]
BILLING CODE 8010-01-M