A special meeting of shareholders of, or, as applicable, contract holders investing in (together, the
Shareholders) each series of Transamerica Funds and Transamerica Series Trust identified below (each series, a Fund and collectively, the Funds) will be held at the offices of Transamerica Asset Management, Inc.
(TAM), 570 Carillon Parkway, St. Petersburg, Florida 33716, on April 11, 2014, at 4:00 p.m. (Eastern time) for Transamerica Series Trust, and on April 28, 2014, at 4:00 p.m. (Eastern time) for Transamerica Funds.
At the special meeting, you are being asked to vote on one or more of the following proposals to:
We are seeking your approval of these proposals through the enclosed joint proxy
statement, which we invite you to review closely.
Voting is quick and easy. You may vote your shares or interests by
telephone, via the Internet or by simply completing and signing the enclosed proxy card (your ballot), and mailing it in the accompanying postage-paid return envelope.
If you have any questions about a proposal, please call Computershare Fund Services (Computershare) toll-free at
1-866-438-2987.
You may also attend the meeting and vote in person. However, even if you intend to do so, we
encourage you to provide voting instructions by one of the methods described above.
Please take notice that a special meeting of shareholders of, or, as applicable, contract holders investing in (together, the
Shareholders), each series of Transamerica Funds and Transamerica Series Trust identified below (each series, a Fund and collectively, the Funds) will be held at the offices of Transamerica Asset Management, Inc.,
570 Carillon Parkway, St. Petersburg, Florida 33716, on April 11, 2013, at 4:00 p.m. (Eastern time) for Transamerica Series Trust, and on April 28, 2014, at 4:00 p.m. (Eastern time) for Transamerica Funds, to consider and vote on the
following proposals:
Each shareholder of record of each Fund at the close of business on February 7, 2014 is entitled to notice of and to vote
at the special meeting and any adjournments or postponements thereof.
until at least July, 31, 2014. A paper or email copy of the proxy materials may be obtained, without charge, by contacting the
Funds proxy solicitor, Computershare Fund Services at 1-866-438-2987.
JOINT PROXY STATEMENT
Introduction
This Joint Proxy Statement is furnished in connection with the solicitation of proxies by the Boards of Trustees (the
Board and each member of a Board, a Board Member) of each of the Transamerica Funds (TF) and Transamerica Series Trust (TST) funds listed in the accompanying Notice of Special Meeting of Shareholders
(each, a Fund and, collectively, the Funds). The proxies are being solicited for use at a special meeting of shareholders of, or, as applicable, contract holders investing in (together, the Shareholders), each
Fund to be held at the offices of Transamerica Asset Management, Inc. (TAM), 570 Carillon Parkway, St. Petersburg, Florida 33716, on April 11, 2014, at 4:00 p.m. (Eastern time) for Transamerica Series Trust, and on
April 28, 2014, at 4:00 p.m. (Eastern time) for Transamerica Funds (for each Fund, a Special Meeting), and at any and all adjournments or postponements thereof. The Special Meetings will be held for the purposes set forth in the
accompanying Notice of Special Meetings of Shareholders.
The Board of each of TF and TST (each, an Investment
Company) has determined that the use of this Joint Proxy Statement for each Funds Special Meeting is in the best interests of the Fund and its respective Shareholders in light of the similar matters being considered and voted on by the
Shareholders with respect to each of the Funds. This Joint Proxy Statement and the accompanying materials, or a Notice of Internet Availability of Proxy Materials for TF Shareholders, are being first mailed by the Boards to Shareholders on or about
March 12, 2014.
Each of TF and TST is organized as a Delaware statutory trust. Funds that are series of TST are
offered to variable annuity and variable life insurance separate accounts established by insurance companies to fund variable annuity contracts and variable life insurance policies. For purposes of this Joint Proxy Statement, the term
Shareholder (when used to refer to the beneficial holder of ownership interests in the Fund) shall also be deemed to include holders of variable annuity contracts and variable life insurance policies.
In certain cases, for ease of comprehension, the term Fund is used in this Joint Proxy Statement where it may be
more precise to refer to the Investment Company of which the Fund is a series. In addition, for purposes of convenience in this Joint Proxy Statement, shareholders or contract holders have been together defined as
Shareholders, as noted above and the shares or beneficial interests that they hold in the Funds are sometimes referred to as interests.
You are being asked to vote at the Special Meeting of each Fund in which you held interests as of the close of business on
February 7, 2014 (the Record Date). Each shareholder of record of a Fund at the close of business on the Record Date is entitled to one vote for each dollar of net asset value of the Fund represented by the shareholders shares
of the applicable Fund (with proportional fractional votes for fractional shares). The net assets and total number of shares of each Fund at the close of business on the Record Date is shown in
Appendix A
.
The Fund with respect to which your vote is being solicited is named on the proxy card included with this Joint Proxy
Statement. If you have the right to vote with respect to more than one Fund as of the Record Date, you may receive more than one proxy card. Please sign, date and return each proxy card, or if you prefer to provide voting instructions by telephone
or over the Internet, please vote on the proposals with respect to each applicable Fund. If you vote by telephone or over the Internet, you will be asked to enter a unique code that has been assigned to you, which is printed on your proxy card(s).
This code is designed to confirm your identity, provide access to the voting sites and confirm that your voting instructions are properly recorded.
1
All properly executed proxies received prior to a Funds Special Meeting
will be voted at that Special Meeting. On the matters coming before each Special Meeting as to which a holder has specified a choice on that holders proxy, the holders shares will be voted accordingly. If a proxy is properly executed and
returned and no choice is specified with respect to one or more proposals, the shares will be voted FOR each such proposal. The duly appointed proxies may, in their discretion, vote upon such other matters as may properly come before the
Special Meetings.
Shareholders who execute proxies or provide voting instructions by telephone or the Internet may revoke
them with respect to any or all proposals at any time before a vote is taken on a proposal by filing with the applicable Fund a written notice of revocation (addressed to the Secretary at the principal executive offices of the Fund at the address
above), by delivering a duly executed proxy bearing a later date or by attending the Special Meeting and voting in person, in all cases prior to the exercise of the authority granted in the proxy card. Merely attending the Special Meeting, however,
will not revoke any previously executed proxy. If you hold your shares through a bank or other intermediary or if you are the holder of a variable annuity contract or variable life insurance policy (as discussed below), please consult your bank or
intermediary or your participating insurance company regarding your ability to revoke voting instructions after such instructions have been provided.
Quorum, Vote Required and Manner of Voting Proxies
Quorum
A quorum of shareholders is required to take action at each Special Meeting. For the purposes of taking action on Proposals I
through XI, shareholders entitled to vote and present in person or by proxy representing at least thirty percent (30%) of the voting power of each respective Fund shall constitute a quorum at a Special Meeting.
Only proxies that are voted, abstentions and broker non-votes will be counted toward establishing a quorum.
Broker non-votes are shares held by a broker or nominee as to which proxies have been returned but (a) instructions have not been received from the beneficial owners or persons entitled to vote and (b) the broker or nominee
does not have discretionary voting power on a particular matter.
In the absence of a quorum, a Special Meeting may be
adjourned by the motion of the person presiding at the Special Meeting. If a quorum is present but sufficient votes to approve a proposal are not received, a Special Meeting may be adjourned by the affirmative vote of a majority of the shares
present in person or represented by proxy at the Special Meeting. The persons named as proxies may, at their discretion, vote those proxies in favor of an adjournment of a Special Meeting. A vote may be taken on any proposal prior to any such
adjournment if sufficient votes have been received.
Vote Required
Proposal I
. Approval of Proposal I requires the vote of a majority of the outstanding voting
securities of the Transamerica Multi-Manager Alternative Strategies Portfolio within the meaning of the 1940 Act, which is defined as the affirmative vote of the lesser of (a) 67% or more of the voting power of the voting securities of
the Fund that are present or represented by proxy at the Special Meeting if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Fund are present or represented by proxy, or (b) more than
50% of the voting power of the outstanding securities of the Fund (a 1940 Act Majority Vote).
Proposal
II
. Approval of Proposal II requires a 1940 Act Majority Vote of the shareholders of Transamerica Opportunistic Allocation.
2
Proposal III.
Approval of Proposal III requires a 1940 Act Majority Vote
of the shareholders of Transamerica Asset Allocation Conservative VP.
Proposal IV
. Approval of Proposal IV
requires a 1940 Act Majority Vote of the shareholders of Transamerica Asset Allocation Moderate VP.
Proposal
V
. Approval of Proposal V requires a 1940 Act Majority Vote of the shareholders of Transamerica Asset Allocation Moderate Growth VP.
Proposal VI
. Approval of Proposal VI requires a 1940 Act Majority Vote of the shareholders of Transamerica Asset
Allocation Growth VP.
Proposal VII
. Approval of Proposal VII requires a 1940 Act Majority Vote of the
shareholders of Transamerica International Moderate Growth VP.
Proposal VIII
. Approval of Proposal VIII
requires a 1940 Act Majority Vote of the shareholders of Transamerica Multi-Manager Alternative Strategies VP.
Proposal IX
. Approval of Proposal IX requires a 1940 Act Majority Vote of the shareholders of Transamerica ING
Conservative Allocation VP.
Proposal X
. Approval of Proposal X requires a 1940 Act Majority Vote of the
shareholders of Transamerica ING Moderate Growth Allocation VP.
Proposal XI
. Approval of Proposal XI requires a
1940 Act Majority Vote of the shareholders of Transamerica ING Balanced Allocation VP.
Assuming the presence of a quorum,
abstentions and broker non-votes have the effect of a negative vote.
Manner of Voting
The Funds expect that, before the Special Meetings, broker-dealer firms holding shares of each Fund in street name
for their customers will request voting instructions from their customers and beneficial owners. The New York Stock Exchange (the NYSE) may take the position that a broker-dealer that is a member of the NYSE and that has not received
instructions from a customer or client prior to the date specified in the broker-dealer firms request for voting instructions may not vote such customer or clients shares with respect to each Proposal.
If you hold shares in a Fund through a bank or other financial institution or intermediary (called a service agent) that has
entered into a service agreement with the Fund or the distributor of the Fund, the service agent may be the record Shareholder of your shares. At the Special Meetings, a service agent will vote shares for which it receives instructions from its
customers in accordance with those instructions. Depending on its policies, applicable law or contractual or other restrictions, a service agent may be permitted to vote shares with respect to which it has not received specific voting instructions
from its customers. In those cases, the service agent may, but may not be required to, vote such shares in the same proportion as those shares for which the service agent has received voting instructions or in the same proportion as those shares for
which the Fund receives voting instructions from other Shareholders. This practice is sometimes called proportional voting or echo voting.
In the case of shares of Funds (such as the Funds that are series of TST) that are not offered to the public, but only sold to
certain asset allocation portfolios and to variable annuity separate accounts established by insurance companies (including Western Reserve Life Assurance Co. of Ohio, Transamerica Life Insurance Company, Transamerica Financial Life Insurance
Company, Inc., Monumental Life Insurance Company, Transamerica Advisors
3
Life Insurance Company of New York and Transamerica Advisors Life Insurance Company (collectively, the Insurance Companies)) to fund variable annuity contracts and variable life
insurance policies, ownership of the shares is legally vested in the separate accounts. The Insurance Companies will vote shares held by these separate accounts in a manner consistent with voting instructions timely received from the Shareholders of
the variable annuity contracts and variable life insurance policies used to fund the accounts. A signed proxy card or other authorization by a Shareholder that does not specify how the Shareholders interest should be voted on a proposal may be
deemed an instruction to vote such interest in favor of the applicable proposal. The Insurance Companies will use proportional voting to vote shares held by separate accounts for which no timely instructions are received from the Shareholders of
variable annuity contracts and variable life insurance policies. The Insurance Companies do not require that a specified number of owners of variable annuity contracts and variable life insurance policies submit voting instructions before the
Insurance Companies will vote the shares of the Funds held by their respective separate accounts at the Special Meetings. As a result, a small number of owners of variable annuity contracts and variable life insurance policies could determine how
the Insurance Companies vote, if other owners fail to vote. Other participating insurance companies may follow similar voting procedures.
If you beneficially own shares that are held in street name through a broker-dealer or that are held of record by
a service agent and if you do not give specific voting instructions for your shares, they may not be voted at all or, as described above, they may be voted in a manner that you may not intend. Therefore, you are strongly encouraged to give your
broker-dealer, service agent or participating insurance company specific instructions as to how you want your shares to be voted.
A signed proxy card or other authorization by a beneficial owner of shares in a Fund that does not specify how the beneficial
owners shares should be voted on a proposal may be deemed an instruction to vote such shares in favor of the applicable proposal.
If you have any questions about the proposals or about voting, please call Computershare Fund Services at 1-866-438-2987.
4
PROPOSAL I APPROVAL OF A NEW INVESTMENT SUB-ADVISORY
AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC (AUIM) (to
be voted on for Transamerica Multi-Manager Alternative Strategies Portfolio).
This Proposal I is to be voted on by
shareholders of Transamerica Multi-Manager Alternative Strategies Portfolio (for purposes of this proposal, the Fund).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Funds investment adviser, and AUIM, the Funds proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of TAM. In
connection with the proposed addition of a sub-adviser, there will be no change to the Funds portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Fund has an investment advisory agreement with TAM, which was last approved by
shareholders on December 21, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Fund. Pursuant to the investment advisory agreement, TAM is responsible for providing investment advisory
services, including management, supervision and investment research and advice, to the Fund and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory agreement. The Fund
currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Fund because the Funds portfolio manager - currently an employee of TAM -
is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled to receive investment advisory fees for
its service as investment adviser to the Fund. The advisory fee is calculated based on the average daily net assets of the Fund. The Fund paid TAM $1,086,155 in advisory fees after waivers or reimbursements, if any, for the fiscal year ended
October 31, 2013. If this Proposal I is approved, TAM, not the Fund, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Fund. There will be no change operating expenses. Although the Fund may rely on an
Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new unaffiliated sub-adviser for a fund pursuant to the terms of a new
investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal I is being sought because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the nature or the level of investment advisory
services provided to the Fund. While TAM currently provides all of the investment advisory services to the Fund itself, certain of those services will be transitioned to AUIM when the Funds portfolio manager becomes an employee of AUIM instead
of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Fund, including, among other things: the design, development and ongoing review and evaluation of the Fund, its investment strategy,
compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Funds prospectus and other disclosure materials; and the ongoing oversight and
monitoring of AUIM. The Funds objective, investment strategies and risks will not change.
5
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Fund. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and instruments
are purchased, retained, sold or exchanged by the Fund, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Fund will benefit from AUIMs ability to leverage the experience, scale, depth of talent
and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of AUIMs capabilities.
If the New Sub-Advisory Agreement with AUIM is approved, the Funds assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Funds Board Members and of TAM, the sub-adviser will regularly provide the Fund, with respect to that portion of a Funds assets allocated to it by TAM, with investment research, advice, management and supervision, will furnish a
continuous investment program for the allocated assets consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds current Prospectus and Statement of Additional Information, and any written
restrictions or limitations from TAM or the Fund, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Fund, and will implement those decisions, all subject to
the provisions of the Funds governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the Funds Board and disclosed
to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the
Funds New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency
dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the Funds Board that may modify or restrict the sub-advisers authority regarding the execution of the Funds portfolio
transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act)) to the Fund and/or the other accounts over which the sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to
pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that
transaction if the sub-adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities that the sub-adviser and its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote
proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise voting rights pertaining to its allocated portion of the Funds assets in accordance with the
sub-advisers proxy voting policies and procedures without consultation with TAM or the Fund. The New Sub-Advisory Agreement further provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any
amendments thereto, to TAM.
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the security
valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent
6
the price that could be obtained for the security in a current market transaction, the sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in
the event of a pricing problem and to participate in the Funds valuation committee meetings.
Fees.
Under the
New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM receives from the Fund.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Fund) will pay AUIM sub-advisory fees, according to the
following schedule, for its services with respect to the Funds average daily net assets on an annual basis:
0.20% of the first $500
million
0.19% over $500 million up to $600 million
0.18% over $600 million up to $1 billion
0.17% over $1 billion up to $2 billion
0.16% in excess of $2 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Fund will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Fund and the offering of its shares. The operating expenses of the Fund are not expected to increase as a result
of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory Agreement provides
that the sub-adviser will not deal with itself, or with members of the Funds Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor
will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the sub-adviser or
its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time. The New Sub-Advisory Agreement specifically provides that personnel of the
sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. In addition, the sub-adviser may
engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Fund or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition, if
transactions of the Fund and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other than to
render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of securities
transactions for the Fund. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and
duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Fund as contemplated by the New Sub-Advisory Agreement.
7
Term and Continuance.
If approved by shareholders of the Fund, the New
Sub-Advisory Agreement for the Fund will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically approved at
least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of renewal, and
by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same calendar as the
investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the Fund provides that the
Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Fund acting by a vote of at least a majority of its outstanding voting securities. In addition, the New Sub-Advisory Agreement may be terminated by
TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Fund also provides that the sub-adviser may terminate the Agreement upon giving 90 days written notice to TAM. The New
Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Funds (for purposes of this section, the Board) held on
January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Fund between TAM and AUIM, the Funds proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Fund are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Fund and its Shareholders. The Board, including the Independent Board Members, unanimously approved the New
Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the New
Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the legal
standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Fund and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Funds portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Fund based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
8
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Fund and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Fund to TAM would not change;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Fund after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Fund would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be allocated
on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Fund and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Fund. The Board also considered that AUIM and TAM are
affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Fund and its Shareholders, including
compliance services. The Board noted that there will be no change to the Funds portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an experienced and respected
asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Fund based on the assessment of the services that AUIM provides to other Transamerica mutual funds.
The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel necessary to provide the
sub-advisory services to the funds subject to those agreements.
Based on their review of the materials provided and the
assurances they had received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Fund and that AUIMs appointment is not expected to
adversely affect the nature, extent and quality of services provided to the Fund.
9
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Fund and noted that there would be no change to the Funds portfolio manager, objective, investment strategies,
or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had recently
considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related services
that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Funds investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Fund to TAM would not change. The Board also considered that
the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Fund would be aggregated with the assets of certain other Transamerica mutual funds sub-advised by AUIM for purposes of calculating the
sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Fund will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it considered, the Board determined that the sub-advisory
fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Fund, the Board noted that TAM and AUIM are
affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered profitability
information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Funds assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Fund has achieved economies of scale, and the appropriateness of management fees payable
to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Fund.
10
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Fund and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Fund and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Fund.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
|
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Fund to TAM, an affiliate of AUIM, during the fiscal year ended 2013 were $1,086,155. If the New
Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $1,102,290. The amount paid by the Fund to TAM would not have changed. TAM will continue to provide investment advisory services to the Fund, as
described in this Proxy Statement. TAM, not the Fund, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Fund and the services for which the amounts
were paid, if any, are disclosed in Appendix E. There were no other material payments by the Fund to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Fund.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for the fiscal year
ended December 31, 2013.
Shareholder Approval
To become effective with respect to the Fund, the New Sub-Advisory Agreement must be approved by a vote of a majority of the
outstanding voting securities of the Fund. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of the Fund
that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the
11
voting power of the outstanding voting securities of the Fund are present or represented by proxy or (b) more than 50% of the voting power of the outstanding voting securities of the Fund.
The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Fund, as a whole, after consideration of all factors which it determined to be relevant to its deliberations, including those discussed
above.
Your Board recommends that you vote FOR the approval of the New Sub-Advisory Agreement.
12
PROPOSAL II APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Opportunistic Allocation).
This Proposal II is to be voted on by
shareholders of Transamerica Opportunistic Allocation (for purposes of this proposal, the Fund).
At the
Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory Agreement) between Transamerica Asset Management, Inc. (TAM), the Funds investment adviser, and AUIM, the
Funds proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Funds portfolio manager(s), objective,
investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The
Board approved the New Sub-Advisory Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of
the New Sub-Advisory Agreement is included in
Appendix B
.
The Fund has an investment advisory agreement with TAM,
which was last approved by shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment
advisory agreement at an in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Fund. Pursuant to the investment advisory agreement, TAM is responsible for
providing investment advisory services, including management, supervision and investment research and advice, to the Fund and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment
advisory agreement. The Fund currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Fund because the Funds portfolio manager -
currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled to receive
investment advisory fees for its service as investment adviser to the Fund. The advisory fee is calculated based on the average daily net assets of the Fund. The Fund paid TAM $0 in advisory fees after waivers or reimbursements, if any, for the
fiscal year ended October 31, 2013. If this Proposal II is approved, TAM, not the Fund, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Fund. There will be no change operating expenses. Although the Fund
may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new unaffiliated sub-adviser for a fund pursuant to the
terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal II is being sought because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the nature or the level of investment advisory
services provided to the Fund. While TAM currently provides all of the investment advisory services to the Fund itself, certain of those services will be transitioned to AUIM when the Funds portfolio manager becomes an employee of AUIM instead
of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Fund, including, among other things: the design, development and ongoing review and evaluation of the Fund, its investment strategy,
compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Funds prospectus and other disclosure materials; and the ongoing oversight and
monitoring of AUIM. The Funds objective, investment strategies and risks will not change.
13
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Fund. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and instruments
are purchased, retained, sold or exchanged by the Fund, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Fund will benefit from AUIMs ability to leverage the experience, scale, depth of talent
and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of AUIMs capabilities.
If the New Sub-Advisory Agreement with AUIM is approved, the Funds assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Funds Board Members and of TAM, the sub-adviser will regularly provide the Fund, with respect to that portion of a Funds assets allocated to it by TAM, with investment research, advice, management and supervision, will furnish a
continuous investment program for the allocated assets consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds current Prospectus and Statement of Additional Information, and any written
restrictions or limitations from TAM or the Fund, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Fund, and will implement those decisions, all subject to
the provisions of the Funds governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the Funds Board and disclosed
to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the
Funds New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency
dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the Funds Board that may modify or restrict the sub-advisers authority regarding the execution of the Funds portfolio
transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act)) to the Fund and/or the other accounts over which the sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to
pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that
transaction if the sub-adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities that the sub-adviser and its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote
proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise voting rights pertaining to its allocated portion of the Funds assets in accordance with the
sub-advisers proxy voting policies and procedures without consultation with TAM or the Fund. The New Sub-Advisory Agreement further provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any
amendments thereto, to TAM.
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the security
valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent
14
the price that could be obtained for the security in a current market transaction, the sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in
the event of a pricing problem and to participate in the Funds valuation committee meetings.
Fees.
Under the
New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM receives from the Fund.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Fund) will pay AUIM sub-advisory fees, according to the
following schedule, for its services with respect to the Funds average daily net assets on an annual basis:
0.05% of the first $250
million
0.04% over $250 million up to $1 billion
0.03% in excess of $1 billion
Payment of Expenses.
The New Sub-Advisory Agreement requires the sub-adviser to pay all expenses incurred by it in the
performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New Sub-Advisory Agreement, the Fund will bear all expenses not expressly
assumed by TAM or the sub-adviser incurred in the operation of the Fund and the offering of its shares. The operating expenses of the Fund are not expected to increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory Agreement provides that the sub-adviser will not deal with itself, or with
members of the Funds Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or
selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the sub-adviser or its affiliates, except in each case as permitted by the
1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time. The New Sub-Advisory Agreement specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or
devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind,
including investment advisory and management services, to any other fund, firm, individual or association.
The New
Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such
securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition, if transactions of the Fund and another client are combined, as permitted by applicable laws and regulations, such transactions must be
consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation
on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Fund as
contemplated by the New Sub-Advisory Agreement.
Term and Continuance.
If approved by shareholders of the Fund, the
New Sub-Advisory Agreement for the Fund will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically approved
at least annually by (i) the vote of
15
a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms
of renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same calendar
as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the Fund provides
that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Fund acting by a vote of at least a majority of its outstanding voting securities. In addition, the New Sub-Advisory Agreement may be
terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Fund also provides that the sub-adviser may terminate the Agreement upon giving 90 days written notice to TAM.
The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Funds (for purposes of this section, the Board) held on
January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Fund between TAM and AUIM, the Funds proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Fund are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Fund and its Shareholders. The Board, including the Independent Board Members, unanimously approved the New
Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the New
Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the legal
standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Fund and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Funds portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Fund based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
16
|
(f)
|
the proposed responsibilities of AUIM for the Fund and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Fund to TAM would not change;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Fund after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Fund would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be allocated
on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Fund and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Fund. The Board also considered that AUIM and TAM are
affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Fund and its Shareholders, including
compliance services. The Board noted that there will be no change to the Funds portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an experienced and respected
asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Fund based on the assessment of the services that AUIM provides to other Transamerica mutual funds.
The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel necessary to provide the
sub-advisory services to the funds subject to those agreements.
Based on their review of the materials provided and the
assurances they had received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Fund and that AUIMs appointment is not expected to
adversely affect the nature, extent and quality of services provided to the Fund.
17
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Fund and noted that there would be no change to the Funds portfolio manager, objective, investment strategies,
or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had recently
considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related services
that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Funds investment objectives, policies and strategies.
Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Fund to TAM would not change. The Board also considered that
the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Fund would be aggregated with the assets of certain other Transamerica mutual funds sub-advised by AUIM for purposes of calculating the
sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Fund will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it considered, the Board determined that the sub-advisory
fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Fund, the Board noted that TAM and AUIM are
affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered profitability
information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Funds assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Fund has achieved economies of scale, and the appropriateness of management fees payable
to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Fund.
18
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Fund and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Fund and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Fund.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Fund to TAM, an affiliate of AUIM, during the fiscal year ended October 31, 2013 were $0. If the New
Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $0. The amount paid by the Fund to TAM would not have changed. TAM will continue to provide investment advisory services to the Fund, as described in
this Proxy Statement. TAM, not the Fund, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Fund and the services for which the amounts
were paid, if any, are disclosed in Appendix E. There were no other material payments by the Fund to AUIM, TAM, or any of their affiliates during that period. There were no other material payments by the Fund to AUIM, TAM, or any of their affiliates
during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered
investment companies with investment objectives similar to the Fund.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
19
Shareholder Approval
To become effective with respect to the Fund, the New Sub-Advisory Agreement must be approved by a vote of a majority of the
outstanding voting securities of the Fund. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of the Fund
that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Fund are present or represented by proxy or (b) more than 50% of the voting
power of the outstanding voting securities of the Fund. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Fund, as a whole, after consideration of all factors which it determined to be
relevant to its deliberations, including those discussed above.
Your Board recommends that you vote FOR the approval of the
New Sub-Advisory Agreement.
20
PROPOSAL III APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Asset Allocation Conservative VP).
This Proposal III is to
be voted on by shareholders of Transamerica Asset Allocation Conservative VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $1,758,368 in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal III is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal III is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
21
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
22
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
23
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
24
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
25
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
26
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
|
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$1,758,368. If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $1,406,694. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory
services to the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with investment
objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
27
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
28
PROPOSAL IV APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Asset Allocation Moderate VP).
This Proposal IV is to be
voted on by shareholders of Transamerica Asset Allocation Moderate VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $4,959,524 in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal IV is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal IV is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
29
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
30
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
31
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
32
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
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(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
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(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
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(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
33
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
34
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$4,959,524. If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $3,967,620. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory
services to the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
35
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
36
PROPOSAL V APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Asset Allocation Moderate Growth VP).
This Proposal V is
to be voted on by shareholders of Transamerica Asset Allocation Moderate Growth VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $5,162,550 in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal V is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal V is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
37
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
38
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
39
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
40
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
41
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
42
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$5,162,550. If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $4,130,040. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory
services to the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the amounts were paid,
if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
43
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
44
PROPOSAL VI APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Asset Allocation Growth VP).
This Proposal VI is to be
voted on by shareholders of Transamerica Asset Allocation Growth VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $1,053,267 in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal VI is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal VI is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
45
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
46
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
47
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
48
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
49
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
50
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$1,053,267. If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $842,614. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory
services to the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
51
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
52
PROPOSAL VII APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica International Moderate Growth VP).
This Proposal VII is to be
voted on by shareholders of Transamerica International Moderate Growth VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $565,173 in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal VII is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal VII is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
53
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
54
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
55
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
56
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
57
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
58
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were $565,173.
If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $452,138. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory services to the
Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
59
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
60
PROPOSAL VIII APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica Multi-Manager Alternative Strategies VP).
This Proposal VIII is
to be voted on by shareholders of Transamerica Multi-Manager Alternative Strategies VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $(20,284) in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal VIII is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal VIII is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
61
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
62
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.20% of the first $500 million
0.19% over $500 million up to $600 million
0.18% over $600 million up to $1 billion
0.17% over $1 billion up to $2 billion
0.16% in excess of $2 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error
63
of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Portfolio. The sub-adviser is not
protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under the agreement. This same limitation of
liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
Term and Continuance.
If approved by shareholders of the Portfolio, the New Sub-Advisory Agreement for the Portfolio
will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically approved at least annually by (i) the vote
of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of renewal, and by (ii) either the Board or the
affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the Portfolio provides that the Agreement may be terminated at any
time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New Sub-Advisory Agreement may be terminated by TAM upon written notice to the
sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving 90 days written notice to TAM. The New Sub-Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
64
|
(d)
|
that AUIM and TAM are affiliated entities;
|
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
|
(g)
|
that advisory fee rate paid by the Portfolio to TAM would not change;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
|
|
(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
65
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would not change. The Board also considered
that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds sub-advised by AUIM for purposes of calculating
the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it considered, the Board determined that the
sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
66
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
|
AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$(20,284). If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $262. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory services to
the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
67
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
68
PROPOSAL IX APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica ING Conservative Allocation VP).
This Proposal IX is to be voted
on by shareholders of Transamerica ING Conservative Allocation VP (for purposes of this proposal, the Portfolio).
At the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory
Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of
TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s), objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included below. The Board approved the New Sub-Advisory
Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval. The form of the New Sub-Advisory Agreement is
included in
Appendix B
.
The Portfolio has an investment advisory agreement with TAM, which was last approved by
shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last approved the investment advisory agreement at an
in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement, TAM is responsible for providing investment
advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties of TAM under the investment advisory
agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because the Portfolios portfolio
manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment performance. TAM is entitled
to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $(16,294) in advisory fees after waivers or
reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal IX is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the Portfolio. There will be no
change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of Shareholders, to employ a new
unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this Proposal IX is being sought
because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any material changes in the
nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to AUIM when the
Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design, development and
ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the Portfolios
prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
69
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
70
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
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Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
|
72
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
|
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(g)
|
that advisory fee rate paid by the Portfolio to TAM would not increase;
|
|
(h)
|
that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
|
(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
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(j)
|
that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
73
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
74
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
|
2.
|
1111 North Charles Street, Baltimore MD 21201, United States
|
3.
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AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$(16,294). If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $305. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory services to
the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
75
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
76
PROPOSAL X APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica ING Balanced Allocation VP).
This Proposal X is to be voted on by
shareholders of Transamerica ING Balanced Allocation VP (for purposes of this proposal, the Portfolio).
At
the Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM,
the Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s),
objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included
below. The Board approved the New Sub-Advisory Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval.
The form of the New Sub-Advisory Agreement is included in
Appendix B
.
The Portfolio has an investment advisory
agreement with TAM, which was last approved by shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last
approved the investment advisory agreement at an in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement,
TAM is responsible for providing investment advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties
of TAM under the investment advisory agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because
the Portfolios portfolio manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment
performance. TAM is entitled to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $358 in advisory
fees after waivers or reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal X is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from the
Portfolio. There will be no change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of
Shareholders, to employ a new unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this
Proposal X is being sought because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any
material changes in the nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to
AUIM when the Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design,
development and ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the
Portfolios prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
77
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
78
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
79
Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
|
(a)
|
that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
|
|
(b)
|
that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
|
|
(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
|
|
(d)
|
that AUIM and TAM are affiliated entities;
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80
|
(e)
|
that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
|
|
(f)
|
the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
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(g)
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that advisory fee rate paid by the Portfolio to TAM would not increase;
|
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(h)
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that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
|
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(i)
|
that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
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(j)
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that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
|
Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
81
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
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Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
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4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
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2.
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1111 North Charles Street, Baltimore MD 21201, United States
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3.
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AEGONplein 50, 2591 TV The Hague, The Netherlands
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The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were $358. If
the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $830. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory services to the Portfolio,
as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
83
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
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PROPOSAL XI APPROVAL OF A NEW INVESTMENT
SUB-ADVISORY AGREEMENT
To approve a new sub-advisory agreement with Aegon USA Investment Management, LLC
(AUIM) (to be voted on for Transamerica ING Moderate Growth VP).
This Proposal XI is to be voted on by
shareholders of Transamerica ING Moderate Growth VP (for purposes of this proposal, the Portfolio).
At the
Special Meeting, Shareholders will be asked to approve a new sub-advisory agreement (the New Sub-Advisory Agreement) between Transamerica Asset Management, Inc. (TAM), the Portfolios investment adviser, and AUIM, the
Portfolios proposed new sub-adviser, as part of an internal restructuring of TAM. AUIM is an affiliate of TAM. In connection with the proposed addition of a sub-adviser, there will be no change to the Portfolios portfolio manager(s),
objective, investment strategies, or risks.
A general description of the proposed New Sub-Advisory Agreement is included
below. The Board approved the New Sub-Advisory Agreement at an in-person meeting held on January 22 and 23, 2014. Shareholder approval of the New Sub-Advisory Agreement must also be obtained, and the Board has authorized seeking such approval.
The form of the New Sub-Advisory Agreement is included in
Appendix B
.
The Portfolio has an investment advisory
agreement with TAM, which was last approved by shareholders on November 16, 2012 when certain changes were made to standardize terms across all the investment advisory agreements for funds in the Transamerica fund complex. The Board last
approved the investment advisory agreement at an in-person meeting held on January 22 and 23, 2014 when it was revised to describe in greater detail the services provided by TAM to the Portfolio. Pursuant to the investment advisory agreement,
TAM is responsible for providing investment advisory services, including management, supervision and investment research and advice, to the Portfolio and is authorized to enter into contracts with one or more sub-advisers to perform certain duties
of TAM under the investment advisory agreement. The Portfolio currently does not have a sub-adviser. TAM has recommended, and the Board has approved (subject to shareholder approval), the appointment of AUIM as a sub-adviser to the Portfolio because
the Portfolios portfolio manager - currently an employee of TAM - is transitioning his functions to AUIM as a result of the internal restructuring. TAM will oversee AUIM and monitor its provision of portfolio management services and investment
performance. TAM is entitled to receive investment advisory fees for its service as investment adviser to the Portfolio. The advisory fee is calculated based on the average daily net assets of the Portfolio. The Portfolio paid TAM $(10,675) in
advisory fees after waivers or reimbursements, if any, for the fiscal year ended December 31, 2013. If this Proposal XI is approved, TAM, not the Portfolio, will pay AUIM a sub-advisory fee out of the investment advisory fee it receives from
the Portfolio. There will be no change operating expenses. Although the Portfolio may rely on an Order from the Securities and Exchange Commission (the SEC) that permits TAM, subject to certain conditions, and without the approval of
Shareholders, to employ a new unaffiliated sub-adviser for a fund pursuant to the terms of a new investment sub-advisory agreement, either as a replacement for an existing sub-adviser or as an additional sub-adviser, Shareholder approval of this
Proposal XI is being sought because AUIM is an affiliate of TAM.
The appointment of AUIM is not expected to result in any
material changes in the nature or the level of investment advisory services provided to the Portfolio. While TAM currently provides all of the investment advisory services to the Portfolio itself, certain of those services will be transitioned to
AUIM when the Portfolios portfolio manager becomes an employee of AUIM instead of TAM, as a result of the restructuring. TAM will continue to provide investment advisory services to the Portfolio, including, among other things: the design,
development and ongoing review and evaluation of the Portfolio, its investment strategy, compliance program, valuation process and proxy voting process; the ongoing oversight and analysis of portfolio trading and risk management; preparation of the
Portfolios prospectus and other disclosure materials; and the ongoing oversight and monitoring of AUIM. The Portfolios objective, investment strategies and risks will not change.
85
AUIM has asset management capabilities across the fixed income spectrum, a depth
of research and management staff, and resources that will enable it to implement the investment strategies of the Portfolio. As noted above, the portfolio manager primarily responsible for determining what securities and other investments and
instruments are purchased, retained, sold or exchanged by the Portfolio, will continue to serve in that role as an employee of AUIM, rather than of TAM. In addition, the Portfolio will benefit from AUIMs ability to leverage the experience,
scale, depth of talent and institutional resources of AUIM. TAM recommended the appointment of AUIM as sub-adviser to the Board based on the desire to ensure continuity of service following the restructuring, as well as an overall assessment of
AUIMs capabilities. If the New Sub-Advisory Agreement with AUIM is approved, the Portfolios assets will continue to be invested in the same manner that they are currently invested.
General Description of Sub-Advisory Agreement
Set forth below is a general description of certain terms of the New Sub-Advisory Agreement. A copy of the form of New
Sub-Advisory Agreement is attached to this Joint Proxy Statement as
Appendix B
, and you should refer to
Appendix B
for the complete terms of the New Sub-Advisory Agreement.
Investment Management Services.
The New Sub-Advisory Agreement provides that, subject to the supervision of the
Portfolios Board Members and of TAM, the sub-adviser will regularly provide the Portfolio, with respect to that portion of a Portfolios assets allocated to it by TAM, with investment research, advice, management and supervision, will
furnish a continuous investment program for the allocated assets consistent with the Portfolios investment objectives, policies and restrictions, as stated in the Portfolios current Prospectus and Statement of Additional Information, and
any written restrictions or limitations from TAM or the Portfolio, will determine from time to time what securities and other investments and instruments will be purchased, retained, sold or exchanged by the Portfolio, and will implement those
decisions, all subject to the provisions of the Portfolios governing documents, the 1940 Act, the applicable rules and regulations of the SEC, and other applicable federal and state law, as well as any other specific policies adopted by the
Portfolios Board and disclosed to the sub-adviser and any written instructions and directions the Board or TAM provides to the sub-adviser.
Under the Portfolios New Sub-Advisory Agreement, the sub-adviser is authorized to place orders pursuant to its
investment determinations with respect to the allocated assets either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. Subject to any policies and procedures of the
Portfolios Board that may modify or restrict the sub-advisers authority regarding the execution of the Portfolios portfolio transactions provided in the Agreement and applicable law, the sub-adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Portfolio and/or the other accounts over which the
sub-adviser or its affiliates exercise investment discretion, a practice commonly referred to as soft dollars. The sub-adviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the sub-adviser determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities that the sub-adviser and
its affiliates have with respect to accounts over which they exercise investment discretion.
The New Sub-Advisory
Agreement further provides that, unless TAM advises the sub-adviser in writing that the right to vote proxies has been expressly reserved to TAM or the Investment Companies or otherwise delegated to another party, the sub-adviser will exercise
voting rights pertaining to its allocated portion of the Portfolios assets in accordance with the sub-advisers proxy voting policies and procedures without consultation with TAM or the Portfolio. The New Sub-Advisory Agreement further
provides that the sub-adviser will furnish a copy of its proxy voting policies and procedures, and any amendments thereto, to TAM.
86
The New Sub-Advisory Agreement provides that the sub-adviser will monitor the
security valuations of the assets allocated to it and that if the sub-adviser believes that the carrying value for a security does not fairly represent the price that could be obtained for the security in a current market transaction, the
sub-adviser will notify TAM promptly. In addition, the sub-adviser will be available to consult with TAM in the event of a pricing problem and to participate in the Portfolios valuation committee meetings.
Fees.
Under the New Sub-Advisory Agreement, TAM will pay the sub-adviser a fee out of the investment advisory fee TAM
receives from the Portfolio.
Under the New Sub-Advisory Agreement, if approved, TAM (not the Portfolio) will pay AUIM
sub-advisory fees, according to the following schedule, for its services with respect to the Portfolios average daily net assets on an annual basis:
0.08% of the first $10 billion
0.075% in excess of $10 billion
The average daily net assets for purposes of calculating the sub-advisory fees will be determined on a combined basis with
certain other Transamerica mutual funds sub-advised by AUIM.
Payment of Expenses.
The New Sub-Advisory Agreement
requires the sub-adviser to pay all expenses incurred by it in the performance of its duties under the Agreement and requires TAM to pay all expenses incurred by it in the performance of TAMs duties under the Agreement. Under the New
Sub-Advisory Agreement, the Portfolio will bear all expenses not expressly assumed by TAM or the sub-adviser incurred in the operation of the Portfolio and the offering of its shares. The operating expenses of the Portfolio are not expected to
increase as a result of entering into the New Sub-Advisory Agreement.
Conflicts of Interest.
The New Sub-Advisory
Agreement provides that the sub-adviser will not deal with itself, or with members of the Portfolios Board or any principal underwriter of the Portfolio, as principals or agents in making purchases or sales of securities or other property for
the account of the Portfolio, nor will it purchase any securities from an underwriting or selling group in which the sub-adviser or its affiliates is participating, or arrange for purchases and sales of securities between the Portfolio and another
account advised by the sub-adviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Portfolio from time to time. The New Sub-Advisory Agreement
specifically provides that personnel of the sub-adviser may nonetheless engage in any other business or devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a
dissimilar nature. In addition, the sub-adviser may engage in any other business or render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association.
The New Sub-Advisory Agreement also provides that if the purchase or sale of securities consistent with the investment
policies of the Portfolio or one or more other accounts of the sub-adviser are considered at or about the same time, transactions in such securities must be allocated among the accounts in a manner deemed equitable by the sub-adviser. In addition,
if transactions of the Portfolio and another client are combined, as permitted by applicable laws and regulations, such transactions must be consistent with the sub-advisers policies and procedures as presented to the Board from time to time.
Limitation on Liability.
Under the New Sub-Advisory Agreement, the sub-adviser assumes no responsibility other
than to render the services called for by the agreement in good faith, and the sub-adviser is not liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of
securities transactions for the Portfolio. The sub-adviser is not protected, however, against liability by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability applies to affiliates of the sub-adviser who may provide services to the Portfolio as contemplated by the New Sub-Advisory Agreement.
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Term and Continuance.
If approved by shareholders of the Portfolio, the
New Sub-Advisory Agreement for the Portfolio will continue in effect, unless sooner terminated as set forth therein, for two years from its effective date, and will continue in effect from year to year thereafter, if continuance is specifically
approved at least annually by (i) the vote of a majority of the Board Members who are not parties thereto or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on the approval of the terms of
renewal, and by (ii) either the Board or the affirmative vote of a majority of the outstanding voting securities of the Portfolio. Notwithstanding the foregoing, the New Sub-Advisory Agreement will be considered by the Board on the same
calendar as the investment advisory agreement with TAM.
Termination.
The New Sub-Advisory Agreement for the
Portfolio provides that the Agreement may be terminated at any time, without penalty, by the Board or by the shareholders of the Portfolio acting by a vote of at least a majority of its outstanding voting securities. In addition, the New
Sub-Advisory Agreement may be terminated by TAM upon written notice to the sub-adviser, without the payment of any penalty. The New Sub-Advisory Agreement for the Portfolio also provides that the sub-adviser may terminate the Agreement upon giving
90 days written notice to TAM. The New Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act) and may not be assigned by TAM without the consent of the sub-adviser.
Board Considerations
At a meeting of the Board of Trustees of Transamerica Series Trust (for purposes of this section, the Board) held
on January 22 and 23, 2014, the Board considered the approval of the New Sub-Advisory Agreement for the Portfolio between TAM and AUIM, the Portfolios proposed new sub-adviser.
Following their review and consideration, the Board Members determined that the terms of the New Sub-Advisory Agreement
between TAM and AUIM with respect to the Portfolio are reasonable and approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders. The Board, including the Independent Board Members, unanimously approved
the New Sub-Advisory Agreement for an initial two-year period.
To assist the Board Members in their consideration of the
New Sub-Advisory Agreement, the Board Members received in advance of their meeting certain materials and information. In addition, the Independent Board Members consulted with their independent legal counsel, discussing, among other things, the
legal standards and certain other considerations relevant to the Board Members deliberations.
Among other matters, the Board considered:
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(a)
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that TAM advised the Board Members that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of
services provided to the Portfolio and its shareholders, including compliance services;
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(b)
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that TAM proposed the new sub-adviser as part of an internal restructuring and that, in connection with the proposed addition of a sub-adviser,
there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks.
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(c)
|
that AUIM is an experienced and respected asset management firm, and that TAM believes that AUIM has the capabilities, resources and personnel
necessary to provide sub-advisory services to the Portfolio based on an assessment of the services that AUIM provides to other funds within the Transamerica mutual fund complex;
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(d)
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that AUIM and TAM are affiliated entities;
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88
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(e)
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that in June 2013 the Board performed a full annual review of a number of sub-advisory agreements with AUIM with respect to Transamerica
mutual funds not discussed herein, and determined that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Transamerica mutual fund complex;
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(f)
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the proposed responsibilities of AUIM for the Portfolio and the services expected to be provided by it;
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(g)
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that advisory fee rate paid by the Portfolio to TAM would not increase;
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(h)
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that the proposed sub-advisory fees to be paid by TAM to AUIM are reasonable in light of the services to be provided;
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(i)
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that TAM recommended to the Board that AUIM be appointed as Sub-Adviser to the Portfolio after the internal restructuring in order to maintain
continuity of the portfolio management team; and
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(j)
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that the Portfolio would bear its portion of the costs of obtaining shareholder approval of the New Sub-Advisory Agreements, such costs to be
allocated on the basis of the Funds respective net assets except where direct costs can reasonably be attributed to a particular Fund.
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Further, the Board Members, including a majority of the independent Board Members, found that the change in sub-adviser to
AUIM is in the best interests of the Portfolio and its shareholders and does not involve a conflict of interest from which TAM and AUIM derives an inappropriate advantage.
A discussion followed that included consideration of these and other matters.
In their deliberations, the Board Members evaluated a number of considerations that they believed, in light of the legal
advice furnished to them by independent legal counsel and their own business judgment, to be relevant. They based their decisions on the considerations discussed here, among others, although they did not identify any consideration or particular
information that was controlling of their decisions, and each Board Member may have attributed different weights to the various factors.
Nature,
Extent and Quality of the Services to be Provided
In evaluating the nature, extent and quality of the services to be
provided by AUIM under the New Sub-Advisory Agreement, the Board considered, among other things, information provided by TAM and AUIM regarding AUIMs operations (including research and trading), facilities, organization and personnel of AUIM,
AUIMs ability to use its resources effectively in performing its duties under the New Sub-Advisory Agreement, and AUIMs capabilities in implementing the investment strategies of the Portfolio. The Board also considered that AUIM and TAM
are affiliated entities. The Board considered that TAM has advised the Board that the appointment of AUIM is not expected to result in any diminution in the nature, extent and quality of services provided to the Portfolio and its Shareholders,
including compliance services. The Board noted that there will be no change to the Portfolios portfolio manager, objective, investment strategies, or risks as part of the internal reorganization. The Board considered that AUIM is an
experienced and respected asset management firm and that TAM believes that AUIM has the capabilities, resources and personnel necessary to provide sub-advisory services to the Portfolio based on the assessment of the services that AUIM provides to
other Transamerica mutual funds. The Board Members also considered that in June 2013 they had performed a full annual review of a number of sub-advisory agreements with AUIM and had determined that AUIM has the capabilities, resources and personnel
necessary to provide the sub-advisory services to the funds subject to those agreements.
89
Based on their review of the materials provided and the assurances they had
received from TAM, the Board determined that AUIM can provide sub-advisory services that are appropriate in scope and extent in light of the investment program for the Portfolio and that AUIMs appointment is not expected to adversely affect
the nature, extent and quality of services provided to the Portfolio.
Investment Performance
The Board considered AUIMs investment management experience, capabilities and resources, including with respect to other
Transamerica mutual funds that it sub-advises within the Transamerica mutual fund complex. The Board reviewed the performance of the Portfolio and noted that there would be no change to the Portfolios portfolio manager, objective, investment
strategies, or risks as a result of adding AUIM as a sub-adviser.
In addition, the Board Members noted that they had
recently considered the performance of other funds sub-advised by AUIM as part of the full annual review of the sub-advisory agreements for those funds and, in that connection, determined that AUIM was capable of providing investment and related
services that are appropriate in scope and extent in light of those funds operations, the competitive landscape of the investment company business and investor needs.
On the basis of this information and the Boards assessment of the nature, extent and quality of the services to be
provided by AUIM, the Board concluded that AUIM is capable of generating a level of investment performance that is appropriate in light of the Portfolios investment objectives, policies and strategies.
Advisory Fee, Sub-Advisory Fee, Cost of Services Provided and Profitability
The Board considered that the advisory fee rate payable by the Portfolio to TAM would be amended to add a breakpoint at
certain asset levels. The Board also considered that the proposed sub-advisory fee schedule in the New Sub-Advisory Agreement and noted that the assets of the Portfolio would be aggregated with the assets of certain other Transamerica mutual funds
sub-advised by AUIM for purposes of calculating the sub-advisory fees payable by TAM to AUIM. The Board Members noted that the Portfolio will not pay the sub-advisory fee. On the basis of these considerations, together with the other information it
considered, the Board determined that the sub-advisory fee to be received by AUIM under the New Sub-Advisory Agreement is reasonable in light of the services to be provided.
With respect to AUIMs costs and profitability in providing services to the Portfolio, the Board noted that TAM and AUIM
are affiliates, and that information about AUIMs revenues and expenses was incorporated into an analysis of the anticipated impact of the sub-adviser change on TAMs profitability. As a result, the Board principally considered
profitability information for TAM and AUIM in the aggregate.
Economies of Scale
The Board considered that the Portfolios assets would be aggregated with the assets of certain other Transamerica mutual
funds sub-advised by AUIM for purposes of determining the applicable sub-advisory fee rate. The Board noted that TAM believes that the appointment of AUIM as sub-adviser has the potential to attract additional assets because of AUIMs asset
management capabilities across the fixed income spectrum. The Board Members concluded that they would have the opportunity to periodically reexamine whether the Portfolio has achieved economies of scale, and the appropriateness of management fees
payable to TAM and fees payable by TAM to AUIM, in the future.
Fall-Out Benefits
The Board took into consideration the character of any incidental benefits received by AUIM, including the potential for
increased visibility in the marketplace as a result of AUIMs relationship with the Portfolio.
90
Conclusion
After consideration of the factors described above, as well as other factors, the Board Members, including all of the
Independent Board Members, found that the change in sub-adviser to AUIM is in the best interests of the Portfolio and its Shareholders and does not involve a conflict of interest from which TAM or AUIM derives an inappropriate advantage. The Board,
including all of the Independent Board Members, concluded that the approval of the New Sub-Advisory Agreement is in the best interests of the Portfolio and its Shareholders and voted to approve the New Sub-Advisory Agreement.
In the event that Shareholders do not approve the Proposal, the Board will determine the appropriate course of action with
respect to the management of the Portfolio.
Information about the Sub-Adviser
AUIM, located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, is a registered investment adviser. AUIM, an affiliate of
TAM, is a wholly owned, indirect subsidiary of Aegon N.V., a Netherlands corporation and publicly traded international insurance group. AUIM is directly owned by Aegon USA Asset Management Holding,
LLC,
1
which is owned by AUSA Holding Company,
2
which is owned by Aegon USA, LLC.
1
Aegon
USA, LLC is owned by Aegon U.S. Holding Corporation,
1
which is owned by Transamerica Corporation (DE).
1
Transamerica Corporation (DE) is owned
by The Aegon Trust,
3
which is owned by Aegon International B.V.
3
AEGON International B.V. is owned by AEGON N.V.
3
1.
|
4333 Edgewood Road NE, Cedar Rapids IA 52499, United States
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2.
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1111 North Charles Street, Baltimore MD 21201, United States
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3.
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AEGONplein 50, 2591 TV The Hague, The Netherlands
|
The name and principal occupation of the directors and principal executive officers (or persons performing similar functions)
of the Sub-Adviser are set forth in
Appendix C
. The principal address of each individual as it relates to his or her duties at the Sub-Adviser is the same as that of the Sub-Adviser.
Amounts paid by the Portfolio to TAM, an affiliate of AUIM, during the fiscal year ended December 31, 2013 were
$(10,675). If the New Sub-Advisory Agreement had been in effect during the last fiscal year, TAM would have paid AUIM $1,741. The amount paid by the Portfolio to TAM would not have changed. TAM will continue to provide investment advisory services
to the Portfolio, as described in this Proxy Statement. TAM, not the Portfolio, will pay any sub-advisory fees to AUIM under the New Sub-Advisory Agreement.
Amounts paid to TAM and to affiliates of TAM during the fiscal year ended by the Portfolio and the services for which the
amounts were paid, if any, are disclosed in Appendix E. There were no other material payments by the Portfolio to AUIM, TAM, or any of their affiliates during that period.
Management Activities.
AUIM does not act as adviser or sub-adviser for any other registered investment companies with
investment objectives similar to the Portfolio.
Brokerage Information
There were no brokerage commissions incurred on security transactions placed with affiliates of the adviser or sub-adviser for
the fiscal year ended December 31, 2013.
91
Shareholder Approval
To become effective with respect to the Portfolio, the New Sub-Advisory Agreement must be approved by a vote of a majority of
the outstanding voting securities of the Portfolio. The vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of the vote of (a) 67% or more of the voting power of the voting securities of
the Portfolio that are present at the Meeting or represented by proxy if holders of shares representing more than 50% of the voting power of the outstanding voting securities of the Portfolio are present or represented by proxy or (b) more than
50% of the voting power of the outstanding voting securities of the Portfolio. The New Sub-Advisory Agreement was approved by the independent Board Members, separately, and by the Board of the Portfolio, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those discussed above.
Your Board recommends that you vote
FOR the approval of the New Sub-Advisory Agreement.
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OTHER BUSINESS
The Board Members do not know of any matters to be presented at the Special Meetings other than those set forth in this Joint
Proxy Statement. If other business should properly come before a Special Meeting, including any questions as to an adjournment of postponement of the Shareholder Meeting, any such matter will be voted in accordance with the judgment of the persons
named in the accompanying proxy card.
ADDITIONAL INFORMATION
Administrator, Transfer Agent and Principal Underwriter
Transamerica Fund Services, Inc. (TFS), the administrator of each series of TF and TST, is located at 570
Carillon Parkway, St. Petersburg, Florida 33716. TFS has outsourced the provision of certain administrative services to State Street Bank & Trust (State Street). TFS is also the transfer agent of each series of TF and TST. The
current distributor of each series of TF and TST is Transamerica Capital, Inc. (TCI), located at 4600 South Syracuse Street, Suite 1100, Denver, Colorado 80237. TAM, TFS and TCI are all affiliated due to their common ultimate
ownership by Aegon, N.V.
Custodian
State Street, located at 200 Clarendon Street, 16th Floor, Boston, Massachusetts 02116, serves as each Funds custodian.