[Federal Register Volume 65, Number 10 (Friday, January 14, 2000)]
[Notices]
[Pages 2446-2449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-893]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24234; File No. 812-11584]
Great-West Life & Annuity Insurance Company, et al.; Notice of
Application
January 7, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or Commission'').
ACTION: Notice of Application for approval under Section 26(b) of the
Investment Company Act of 1940, as amemded.
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SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the Janus Aspen Worldwide Growth Portfolio
for the Van Eck Worldwide Hard Assets Fund; the Janus Aspen
International Growth Portfolio for the Lexington Emerging Markets Fund;
the SAFECO RST Growth Portfolio for the Stein Roe Special Venture Fund;
the INVESCO VIF--Equity Income Fund for the INVESCO VIF--Total Return
Fund; and the Alger American Growth Portfolio for the Janus Aspen
Aggressive Growth Portfolio, Alger American Small Capitalization
Portfolio, Strong Discovery Fund II and American Century VP Capital
Appreciation Portfolio.
APPLICANTS: Great-West Life & Annuity Insurance Company (``GWL&A''),
First Great-West Life & Annuity Insurance Company (``FGWLA''), Variable
Annuity-1 Series Account of GWL&A (the ``GWL&A Account''), Variable
Annuity-1 Series Account of FGWLA (the ``FGWLA Account'' or together,
with the GWL&A Account, the ``Accounts'') (hereinafter, all parties are
collectively referred to as the ``Applicants'').
FILING DATE: The application was filed on April 16, 1999, and amended
and restated on September 29, 1999, and December 28, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the Application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on January 31, 2000, and should be accompanied
by proof of service on Applicants, in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the writer's interest, the reason for the request and the
issues contested. Persons who wish to be notified of a hearing may
request notification by writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, c/o Jorden Burt
Boors Cicchetti Benson & Johnson, LLP, 1025 Thomas Jefferson Street,
N.W., Suite 400 East, Washington, DC 20007-0805; Attention: Tom Ira,
Esq.
FOR FURTHER INFORMATION CONTACT: Michael Pappas, Senior Counsel, or
Susan Olson, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application is available for a fee from the
Public Reference Branch of the Commission, 450 Fifth Street NW.,
Washington, DC 20549-0102 (tel. (202) 942-8090).
Applicant's Representations
1. GWL&A is a stock life insurance company organized under the laws
of the State of Colorado. GWL&A is an indirect, wholly-owned subsidiary
of The Great-West Life Assurance Company, which is a subsidiary of
Great-West Lifeco, Inc., an insurance holding company ultimately
controlled by Power Corporation of Canada. GWL&A is principally engaged
in offering life insurance, annuity contracts, and accident and health
insurance and is admitted to do business in the District of Columbia,
Puerto Rico, the U.S. Virgin Islands, Guam and in all states of the
United States, except New York.
2. FGWLA is a stock life insurance company organized under the laws
of the State of New York. FGWLA is a wholly owned subsidiary of GWL&A,
and is principally engaged in the sale of life insurance, accident and
health insurance, and annuities. FGWLA is admitted to do business in
New York and Iowa.
3. The GWL&A Account and the FGWLA Account are distinct investment
accounts of GWL&A and FGWLA, respectively, which act as funding
vehicles for certain group and individual flexible premium variable
deferred annuity contracts (the ``Schwab Contracts'' or the
``Contracts''). Charles Schwab & Co., Inc. (``Schwab'') is the
principal underwriter and distributor of the Schwab Contracts. The
assets of the GWL&A Account and the FGWLA Account are owned by GWL&A
and FGWLA, respectively, and the obligations under the Schwab Contracts
are obligations of GWL&A and FGWLA, respectively. GWL&A and FGWLA each
are required to maintain sufficient assets in the GWL&A Account and
FGWLA Account, respectively, to meet anticipated obligations of the
Schwab Contracts.
4. The Schwab Contracts currently offer twenty-eight investment
sub-accounts, each of which invest exclusively in one of the
corresponding portfolios (the ``underlying portfolios'') of sixteen
open-end management investment companies. The assets of the Accounts
are kept separate from the other assets of GWL&A and FGWLA. The income,
gains, and losses of the Accounts, whether or not realized, are
credited to or charged against the Accounts without regard to other
income, gains, or losses of any other separate account or arising out
of any other business that GWL&A or FGWLA may conduct.
5. The GWL&A Account is a unit investment trust (``UIT'') and has
filed a registration statement on form N-4 (Registration Nos. 811-07549
and 333-01153) for the purpose of registering the GWL&A Account under
the 1940 Act
[[Page 2447]]
and the Schwab Contracts as securities under the Securities Act of
1933, as amended (``the 1933 Act'').
6. The FGWLA Account is a UIT and has filed a registration
statement on Form N-4 (Registration Nos. 811-08183 and 333-25289) for
the purpose of registering the FGWLA Account under the 1940 Act and the
Schwab Contracts as securities under the 1933 Act.
7. The Schwab Contracts are flexible premium annuity contracts
which may be issued under retirement plans which qualify for federal
tax benefits under Section 408 of the Internal Revenue Code (the
``Code'') as individual retirement accounts, other retirement plans
which do not qualify under the Code or to individuals in non-plan
contexts.
8. The Schwab Contracts do not have either contingent deferred or
front-end sales loads and no sales charge applies to the transfer among
sub-accounts offered in the Contracts. Under the Contracts, there are
no limits on the number of transfers a Contract owner can make. There
is, however, a $10.00 fee for each transfer in excess of twelve in any
calendar year. The proposed substitution will not count as a transfer
for this purpose. The Contracts also have an annual contract fee of
$25.00. The contract charge currently is waived for Contracts with an
Annuity Account Value of at least $50,000. These charges will not be
affected by the transfer.
9. The Contracts expressly reserve GWL&A's and FGWLA's respective
rights, both on their own behalf and on behalf of the Accounts, to
eliminate sub-accounts, combine two or more sub-accounts are invested
or for a new underlying portfolio.
10. GWL&A and FGWLA, on their own behalf and on behalf of the
Accounts, propose to exercise their contractual right to eliminate the
Van Eck Worldwide Hard Assets Fund, Lexington Emerging Markets Fund,
Stein Roe Special Venture fund, Janus Aspen Aggressive Growth
Portfolio, Alger American Small Capitalization Portfolio, Strong
Discovery Fund II, American Century VP Capital Appreciation Portfolio,
and the INVESCO VIF--Total Return Fund as funding options under the
Contracts.
Collectively, the portfolios being eliminated will hereinafter be
referred to as the ``Eliminated Portfolios.''
11. GWL&A and FGWLA each propose the following substitutions.
Applicants state that none of the funds are affiliated with GWL&A or
FGWLA under the 1940 Act.
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Substituted portfolios Eliminated portfolios
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Janus Aspen Worldwide Growth Van Eck Worldwide Hard Assets Fund.
Portfolio.
Janus Aspen International Growth Lexington Emerging Markets Fund.
Portfolio.
SAFECO RST Growth Portfolio........ Stein Roe Special Venture Fund.
INVESCO VIF--Equity Income Fund.... INVESCO VIF--Total Return Fund.
Alger American Growth Portfolio.... Janus Aspen Aggressive Growth
Portfolio.
Alger American Small Capitalization
Portfolio.
Strong Discovery Fund II.
American Century VP Capital
Appreciation Portfolio.
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12. In each case, Applicants have determined that the Substituted
Portfolio is the most appropriate investment alternative in relation to
the respective Eliminated Portfolio as compared with all other options
available under the Contracts, taking into account all relevant
factors. Applicants believe that the Substituted Portfolios have, as
their primary emphasis, investment objectives that are similar to or
consistent with those of the corresponding Eliminated Portfolios such
that investment expectations of Contract owners would continue to be
fulfilled upon consummation of each of the proposed substitutions.
While, in a relatively few cases, an Eliminated Portfolio may seek to
achieve its objective by employing a strategy that differs from the
strategy employed by the respective Substituted Portfolio, Applicants
argue that comparability of corresponding funds is but one factor,
albeit an important one, to be considered for purposes of determining
whether a proposed substitution should be approved pursuant to Section
26(b). Further, in the few cases where the Eliminated Portfolio's
strategy differs from the Substituted Portfolio's strategy, Applicants
note that the Eliminated Portfolios have generated less Contract owner
interest while the Applicants have observed increased demand for the
Substituted Portfolios. Applicants believe that essentially all other
appropriate factors weigh in favor of each of the proposed
substitutions. These include, among others, comparative performance
histories, relative asset bases, fee levels, the tax free nature of the
proposed transactions, and the diversity of other investment options
available under the Contracts. Applicants emphasize that, to the extent
Contract owners seek a particular investment option, such as a small
cap option, Contract owners will have ample opportunity to allocate
their assets among the wide range and number of investment options
available under the Contracts should they decide that the Substituted
Portfolios are not appropriate for their needs.
13. Applicants represent that, without taking waivers or reductions
into account, the total expenses of the Substituted Portfolios compared
to the Eliminated Portfolios are as follows:
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Substituted portfolios Eliminated portfolios
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Janus Aspen Worldwide Growth Van Eck Worldwide Hard Assets Fund--
Portfolio--0.74% \1\. 1.17%.
Janus Aspen International Growth Lexington Emerging Markets Fund--
Portfolio--0.95% \2\. 1.84%.
SAFECO RST Growth Portfolio--0.80%. Stein Roe Special Venture Fund--
0.73%.
INVESCO VIF--Equity Income Fund-- INVESCO VIF--Total Return Fund--
0.91%. 0.92%.
Alger American Growth Portfolio-- Janus Aspen Aggressive Growth
0.79%. Portfolio--0.76%.
Alger American Small Capitalization
Portfolio--0.89%.
Strong Discovery Fund II--01.20%.
American Century VP Capital
Appreciation Portfolio--1.00%.
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\1\ With waivers or reductions, the total expenses for the Janus Aspen
Worldwide Growth Portfolio would be 0.72%.
\2\ With waivers or reductions, the total expenses for the Janus Aspen
International Growth Portfolio would be 0.86%.
[[Page 2448]]
14. Applicants represent that the Average Annual Total Return of
the Substituted and Eliminated Portfolios over one, three, five and ten
years as of the period ended December 31, 1998, was as follows:
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Substituted Portfolios Eliminated Portfolios
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Janus Aspen Worldwide Growth Portfolio Van Eck Worldwide Hard Assets Fund
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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28.92% 26.66% 21.32% N/A -30.92% -7.13% -3.26% N/A
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Janus Aspen International Growth Portfolio Lexington Emerging Markets Fund
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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17.23% 23.23% N/A N/A -28.21% -11.96% N/A N/A
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SAFECO RST Growth Portfolio Stein Roe Special Venture Fund
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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1.83% 24.80% 25.13% N/A -17.31% 4.21% 5.06% N/A
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INVESCO VIF--Equity Income Fund INVESCO VIF--Total Return Fund
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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15.30% 21.81% N/A N/A 9.56% 14.75% N/A N/A
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Alger American Growth Portfolio Janus Aspen Aggressive Growth Portfolio
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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48.08% 27.93% 23.50% N/A 34.26% 17.76% 19.35% N/A
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Alger American Growth Portfolio Alger American Small Capitalization Portfolio
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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48.08% 27.93% 23.50% N/A 15.53% 10.25% 13.21% 20.21%
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Alger American Growth Portfolio Strong Discovery Fund II
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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48.08% 27.93% 23.50% N/A 34.26% 17.76% 19.35% N/A
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Alger American Growth Portfolio American Century VP Capital Appreciation Portfolio
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1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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48.08% 27.93% 23.50% N/A -2.22% -3.40% 3.10% 8.40%
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15. Applicants have concluded that the Substitution would be
appropriate in light of, among other things, the relatively poor
performance of the Eliminated Portfolios. Applicants assert that the
Eliminated Portfolios will be replaced with portfolios having
comparable investment objectives and better historical performance
returns and, accordingly, Applicants believe the Substituted Portfolios
are more likely to provide Contract owners with favorable investment
performance in the future. Applicants assert that the Substitution will
not expose Contract owners to any unreasonable risks and that, in each
case, expense ratios of the Substituted Portfolios are less than or
comparable to the respective Eliminated Portfolios and the historical
performance of the Substituted Portfolios are better than those of the
respective Eliminated Portfolios.
16. If Contract owners are not satisfied with the Substituted
Portfolio to which their assets will be reallocated upon consummation
of the Substitution, Contract owners will have the opportunity to
transfer those assets into any of the other investment options
available under their Contracts. In this regard, Applicants state that
even after the Substitution is effected, there will still be a total of
27 other investment options (not including the Substituted Portfolio).
17. GWL&A and FGWLA will schedule the Substitution to occur on the
Automatic Selection Date. Such date will be soon as practicable
following the issuance of an order by the Commission granting the
relief requested in the Application. As of the Automatic Selection
Date, all Contract values allocated to the Eliminated Portfolios
[[Page 2449]]
will be reallocated to the corresponding Substituted Portfolios.
Contract owners can always exercise their own judgment as to the most
appropriate alternative investment and transfer their assets from the
Eliminated Portfolios to any one or a mix of the remaining sub-accounts
available under their Contracts. Applicants note that, even after the
Substitution, the Contracts will continue to offer a wide array of
investment options having diverse investment objectives. No sales load
deductions or other charges will be assessed in connection with any
transfers among sub-accounts because of the Substitution.
18. By way of sticker, the Schwab Variable Annuity prospectuses
have disclosed the proposed Substitution for several months. The
stickers also disclosed that the Eliminated Portfolios will not accept
additional premium payments (i.e. new money or transfers) on or after
June 1, 1999, and that contract values allocated to the Eliminated
Portfolios can be transferred without assessment of any charges and
without such transfers counting toward the twelve free transfers
permitted each calendar year. These stickers were mailed to all
Contract owners at or around the time of filing of the initial
Application. After the Notice of Application is issued, a second
notification will be provided to all Contract owners who have amounts
allocated to the Eliminated Portfolios, again advising them of the
pending Substitution and of their ability to transfer free of charge to
the remaining sub-accounts of their choice (or remain in the Eliminated
Portfolios until the automatic substitution on the Automatic Selection
Date).
19. The Contract owners also will be mailed a confirmation of the
Substitution transaction within five days of the Automatic Selection
Date. The confirmation will contain a reminder of the Contract owner's
ability to effect one transfer without incurring any charges, and such
transfer will not be counted as one of the twelve free transfers
permitted in a calendar year so long as the transfer is made within 30
days of the effective date of the Substitution.
20. Applicants represent that the proposed Substitution will be
effected by redeeming shares of the Eliminated Portfolios on the
Automatic Selection Date at net asset value and using the proceeds to
purchase shares of the corresponding Substituted Portfolio at net asset
value on the same date. Contract owners will not incur any fees or
charges as a result of the transfer of account values from the
Eliminated Portfolios. The Substitution will not increase Contract or
separate account fees and charges after the Substitution. Expenses
incurred in connection with the Substitution, including legal,
accounting and other expenses, will not be borne by Contract owners.
Contract values will remain unchanged and fully invested following the
consummation of the Substitution. In addition, Applicants represent
that, as of the date of filing of the second amended Application, and
to Applicants' best knowledge, the Substitution will not result in any
adverse federal income tax impact on owners. Following the
Substitution, the sub-accounts which invest in the Eliminated
Portfolios will be terminated.
Applicant's Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides that it shall be unlawful
for any depositor or trustee of a registered unit investment trust
holding the security of a single issuer to substitute another security
for such security unless the Commission shall have approved such
substitution; and the Commission shall issue an order approving such
substitution if the evidence establishes that it is consistent with the
protection of investors and the purposes fairly intended by the
policies and provisions of the 1940 Act.
2. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the substitution of securities.
3. Applicants represent that the purposes, terms and conditions of
the Substitution are consistent with the protections for which Section
26(b) was designed and will not result in any of the harms which
Section 26(b) was designed to prevent.
4. Any Contract owner who does not want his or her assets allocated
to the Substituted Portfolio would be able to transfer assets to any
one of the other investment divisions available under his or her
Contract without charge. Such transfers could be made prior to or after
Automatic Selection Date.
5. The Substitution will be effected at net asset value in
conformity with Section 22 of the 1940 Act and Rule 22c-1 thereunder.
Contract owners will not incur any fees or charges as a result of the
transfer of account values from any Portfolio. There will be no
increase in the Contract or separate account fees and charges after the
Substitution. All Contract values will remain unchanged and fully
invested. In addition, Applicants represent that, as of the date of
filing the second amended Application, and to Applicants' best
knowledge, the Substitution will not have any adverse federal income
tax impact on Contract owners. Contract owners', GWL&A's, and FGWLA's
rights and obligations under the Schwab Contracts will not be affected
in any way by the Substitution.
Conclusion
In light of the foregoing facts and representations, Applicants
believe that the request to allow the Substitution meets the applicable
standards of an order under Section 26(b) of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-893 Filed 1-13-00; 8:45 am]
BILLING CODE 8010-01-M
