Securities and Exchange Commission (“SEC” or “Commission”).
Notice of an 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 the Application:
USAllianz Variable Insurance Products Trust (the “Fund”) and USAllianz Advisers, LLC (the “Manager”) (together, “Applicants”) request an order that would permit them to enter into and materially amend subadvisory agreements without shareholder approval.
The application was filed on May 2, 2001, and amended on August 19, 2002. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice.
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, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on September 16, 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 SEC's Secretary.
Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-0609. Applicants: the Fund, c/o BISYS Fund Services, 3435 Stelzer Road, Columbus, OH 43219; the Manager, 5701 Golden Hills Drive, Minneapolis, MN 55416.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel, at (202) 942-0581, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the application. The complete application may be obtained for a fee at the SEC's Public Reference Branch, 450 5th Street, NW., Washington, DC 20549-0102 (telephone (202) 942-8090).
1. The Fund, a Delaware business trust, is registered under the Act as an open-end management investment company. The Fund currently is comprised of multiple series (each a “Portfolio,” and collectively, the “Portfolios”), each with its own investment objectives and policies. The Portfolios currently serve as the investment medium for variable life insurance policies and variable annuity contracts issued by Allianz Life Insurance Company of North America or its insurance company affiliate, Preferred Life Insurance Company of New York.
2. The Manager, registered under the Investment Advisers Act of 1940 (the “Advisers Act”), serves as the investment adviser to the Portfolios pursuant to an investment advisory agreement with the Fund (“Management Agreement”) that was approved by the board of trustees of the Fund (the “Board”), including a majority of the trustees who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Trustees”), and by each Portfolio's initial shareholder. Under the terms of the Management Agreement, the Manager Start Printed Page 55287provides investment management services for each Portfolio and may hire one or more subadvisers (“Portfolio Managers”) to exercise day-to-day investment discretion over the assets of the Portfolio pursuant to separate investment sub-advisory agreements (“Portfolio Management Agreements”). All current and future Portfolio Managers will be registered under the Advisers Act. Portfolio Managers are recommended to the Board by the Manager and selected and approved by the Board, including a majority of the Independent Trustees. The Manager compensates each Portfolio Manager out of the fees paid to the Manager by the applicable Portfolio.
3. Subject to Board review, the Manager selects Portfolio Managers for the Portfolios, monitors and evaluates Portfolio Manager performance, and oversees Portfolio Manager compliance with the Portfolios' investment objectives, policies, and restrictions. The Manager recommends Portfolio Managers based upon a number of factors used to evaluate their skills in managing assets pursuant to particular investment objectives. The Manager also recommends to the Board whether a Portfolio Management Agreement should be renewed, modified or terminated.
4. Applicants request relief to permit the Manager, subject to Board approval, to enter into and materially amend Portfolio Management Agreements without shareholder approval. The requested relief will not extend to a Portfolio Manager that is an affiliated person, as defined in section 2(a)(3) of the Act, of the Fund or the Manager, other than by reason of serving as a Portfolio Manager to one or more of the Portfolios (an “Affiliated Portfolio Manager”).
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is 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 the vote of a majority of the 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 provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities, or transactions from any provision of the Act, or from any rule thereunder, if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants believe that the requested relief meets this standard for the reasons discussed below.
3. The investment structure of the Portfolios is different from that of traditional investment companies. Applicants assert that investors are relying on the Manager's experience to select one or more Portfolio Managers best suited to achieve a Portfolio's desired investment objectives. Applicants assert that, from the perspective of the investor, the role of the Portfolio Managers is comparable to that of individual portfolio managers employed by other investment advisory firms. Applicants contend that requiring shareholder approval of the Portfolio Management Agreements would impose unnecessary costs and delays on the Portfolios, and may preclude the Manager from acting promptly in a manner considered advisable by the Board. Applicants note that the Management Agreement will remain subject to the shareholder approval requirements of section 15(a) of the Act and rule 18f-2 under the Act.
Applicants agree that any order granting the requested relief will be subject to the following conditions:
1. Before a Future Portfolio, that does not currently have an effective registration statement and whose public shareholders will purchase shares on the basis of a prospectus containing the disclosures contemplated by condition number 2 below, may rely on the order requested herein, the operation of the Future Portfolio in the manner described in the application will be approved by its initial shareholder(s) before shares of such Future Portfolio are offered to the public.
2. The prospectus of each Portfolio relying on the requested relief will disclose the existence, substance and effect of any order granted pursuant to the application. In addition, each Portfolio relying on the requested relief will hold itself out to the public as employing the manager of managers structure described in the application. A Portfolio's prospectus will prominently disclose that the Manager has ultimate responsibility to oversee the Portfolio Managers and recommend their hiring, termination and replacement.
3. The Manager will provide general management services to each of the Portfolios, including overall supervisory responsibility for the general management and investment of each Portfolio's assets, and, subject to the review and approval by the Board will: (i) Set each Portfolio's overall investment strategies; (ii) evaluate, select, and recommend Portfolio Managers to manage all or part of a Portfolio's assets; (iii) when appropriate, allocate and reallocate a Portfolio's assets among multiple Portfolio Managers; (iv) monitor and evaluate the investment performance of Portfolio Managers; and (v) implement procedures reasonably designed to ensure that the Portfolio Managers comply with the relevant Portfolio's investment objectives, policies, and restrictions.
4. At all times, a majority of the Board will be persons who are Independent Trustees, and the nomination of new or additional Independent Trustees will be placed within the discretion of the then-existing Independent Trustees.
5. The Manager will not enter into a Portfolio Management Agreement on behalf of a Portfolio with any Affiliated Portfolio Manager, unless such agreement, including the compensation to be paid thereunder, has been approved by the shareholders of the applicable Portfolio.
6. When a Portfolio Manager change is proposed for a Portfolio with an Affiliated Portfolio Manager, the Board, including a majority of the Independent Trustees, will make a separate finding, reflected in the minutes of the meeting of the Board, that such change is in the best interests of the applicable Portfolio and its shareholders and does not involve a conflict of interest from which the Manager or the Affiliated Portfolio Manager derives an inappropriate advantage.
7. No trustee or officer of the Fund or director or officer of the Manager will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by that director, trustee, or officer) any interest in a Portfolio Manager except for: (i) ownership of interests in the Manager or any entity that controls, is controlled by, or is under common control with the Manager; or (ii) ownership of less than 1% of the outstanding securities of any class of equity or debt of a publicly-traded company that is either a Portfolio Manager or an entity that controls, is Start Printed Page 55288controlled by, or is under common control with a Portfolio Manager.
8. Within 90 days of the hiring of any new Portfolio Manager, the Manager will furnish the shareholders of the applicable Portfolio all the information about the new Portfolio Manager that would be included in a proxy statement. This information will include any changes in such disclosure caused by the addition of a new Portfolio Manager. To meet this obligation, the Manager will provide the shareholders of the applicable Portfolio with an information statement meeting the requirements of Regulation 14C and Schedule 14C under the Securities Exchange Act of 1934 (“the 1934 Act”), as well as the requirements of Item 22 of Schedule 14A under the 1934 Act.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
1. Applicants also request relief with respect to future series of the Fund and any other registered open-end management investment companies and their series that: (a) Are advised by the Manager or any entity controlling, controlled by, or under common control with the Manager; (b) use the manager of managers structure described in the application; and (c) comply with the terms and conditions in the application (“Future Portfolios,” included in the term “Portfolios”). The Fund is the only existing registered open-end management investment company that currently intends to rely on the requested order. If the name of any Portfolio contains the name of a Portfolio Manager (as defined below), it will be preceded by the name of the Manager or the name “USAZ,” which is an abbreviation of the name “USAllianz Advisers, LLC.”Back to Citation
2. One of the Portfolios, the USAZ Money Market Fund, was recently restructured. The former investment adviser of the USAZ Money Market Fund, Allianz of America, Inc., an affiliate of the Manager, currently serves as its Portfolio Manager (as defined below) and the Manager serves as its investment adviser. The restructuring to permit the USAZ Money Market Fund to operate under the manager of managers structure will require the approval of its shareholders. A shareholder meeting of the USAZ Money Market Fund is scheduled to take place on August 30, 2002, for that purpose, as well as the ratification of its Management Agreement with the Manager and its Portfolio Management Agreement (as defined below) with the Portfolio Manager.Back to Citation
3. The term “shareholders” includes variable contract owners, as applicable. The Fund's prospectus has disclosed with respect to each Portfolio, except in the case of the USAZ Money Market Fund, since the effective date of its registration statement, that the Fund would seek an exemptive order from the Commission permitting changes in Portfolio Managers without submitting the Portfolio Management Agreements to a vote of the applicable Portfolio's shareholders.Back to Citation
[FR Doc. 02-21954 Filed 8-27-02; 8:45 am]
BILLING CODE 8010-01-P