[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4504-4506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2134]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23006; File No. 812-10750]
Great-West Life & Annuity Insurance Company, et al; Notice of
Application
January 22, 1998.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'') approving certain
substitutions of securities, and pursuant to Section 17(b) of the 1940
Act exempting related transactions from Section 17(a) of the 1940 Act.
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SUMMARY OF APPLICATION: Applicants request an order to permit certain
registered unit investment trusts to substitute shares of certain
registered open-end investment companies for shares of certain
registered investment companies currently held by those unit investment
trusts, and to permit certain in-kind redemptions of portfolio
securities in connection with the substitutions.
APPLICANTS: Great-West Life & Annuity Insurance Company (``GWL&A''),
Maxim Series Account (the ``Maxim Account''), Pinnacle Series Account
(the ``Pinnacle Account,'' together with GWL&A and the Maxim Account,
the ``Separate Accounts''), Maxim Series Fund, Inc. (``Maxim Series
Fund'') and BenefitsCorp Equities, Inc. (``BCE'').
FILING DATE: The application was filed on August 8, 1997, and amended
and restated on December 9, 1997.
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 February 17, 1998, and should be accompanied
by proof of service on Applicants, in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the writer's interest, the reason for the request, and the
issues contested. Persons may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Jorden Burt
Berenson & Johnson, LLP, 1025 Thomas Jefferson Street, N.W., Suite 400
East, Washington, D.C. 20007-0805, Attention: Josephine Cicchetti, Esq.
FOR FURTHER INFORMATION CONTACT: Ethan D. Corey, Senior Counsel, at
(202) 942-0675, or Kevin M. Kirchoff, Branch Chief, at (202) 942-0672,
Office of Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application may be obtained for a fee from
the Public Reference Branch of the Commission, 450 5th Street, N.W.,
Washington, D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. GWL&A, a Colorado stock life insurance company, does business in
the District of Columbia, Puerto Rico, and in all states of the United
States, except New York.
2. GWL&A is wholly-owned by The Great-West Life Assurance Company,
which is a subsidiary of Great-West Lifeco Inc., an insurance holding
company. Great-West Lifeco Inc. is a subsidiary of Power Financial
Corporation of Canada, which is controlled by Power Corporation of
Canada.
3. The Maxim Account, a separate account established by GWL&A under
Colorado law, is registered with the Commission as a unit investment
trust. The Maxim Account is a distinct investment account of GWL&A
which acts as a funding vehicle for certain individual flexible premium
variable deferred annuity contracts (the ``Maxim Contracts'').
4. Currently there are three different Maxim Contracts issued under
the Maxim Account. Two of the Maxim Contracts (``MSA-1'' and ``MSA-2'')
are no longer sold, have fewer than 5,000 participants and no longer
file post effective amendments in reliance upon a no-action letter.
MSA-1 has five investment divisions, each of which invests exclusively
in one of the corresponding portfolios of Maxim Series Fund, an open-
end management investment company. MSA-2 has seven investment
divisions, five of which invest solely in corresponding portfolios of
Maxim Series Fund and two of which invest solely in corresponding
portfolios of American Century Variable Portfolios, Inc. (``American
Century''), another open-end management investment company. The third
Maxim Contract (``MVP'') has fifteen investment divisions, thirteen of
which invest solely in corresponding portfolios of Maxim Series Fund
and two of which invest solely in corresponding portfolios of American
Century.
5. The Maxim Account is used in connection with Maxim Contracts
that may be issued under retirement plans which qualify for federal tax
benefits under Sections 401 and 408 of the Internal Revenue Code (the
``Code'') as individual retirement accounts and under other retirement
plans which do not qualify under the Code.
6. The Pinnacle Account, a separate account established by GWL&A
under Colorado law, is registered with the Commission as a unit
investment trust. The Pinnacle Account is a distinct investment account
of GWL&A which acts as a funding vehicle for certain single premium
variable life insurance policies (the ``Policies,'' together with the
Maxim Contracts, the ``Contracts'').
7. The Policies have five investment divisions, each of which
invests exclusively in one of the corresponding portfolios of the Maxim
Series Fund.
8. The Pinnacle Account no longer files post-effective amendments
to its registration statement in reliance upon a no-action letter
granted to GWL&A and the Pinnacle Account.
9. BCE is the principle underwriter and distributor of MVP. The
Policies, MSA-1, and MSA-2 are not currently sold and there is no need
for an underwriter. BCE is registered with the Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc.
10. Of the Contracts and Policies, only MVP is still sold. MVP may
be issued under retirement plans which qualify for federal tax benefits
under Sections 401 and 408 of the Code as individual retirement
accounts and under other retirement plans which do not qualify under
the Code.
[[Page 4505]]
11. All of the Contracts expressly reserve GWL&A's right, both on
its own behalf and on behalf of the Separate Accounts, to eliminate
investment divisions, combine two or more investment divisions, or
substitute one or more underlying funds for others in which its
investment divisions are invested.
12. GWL&A, on its own behalf and on behalf of the Pinnacle Account
and the Maxim Account, proposes to exercise its contractual right to
eliminate the Maxim Series Fund Total Return Portfolio (``Total Return
Portfolio'') as an investment division under the Policies and MSA-1.
GWL&A also proposes, on its behalf and on behalf of the Maxim Account
to exercise its contractual right to eliminate the Total Return
Portfolio and the American Century Balanced Portfolio (collectively,
the ``Eliminated Portfolios'') as investment divisions under MVP and
MSA-2.
13. With respect to MVP, GWL&A proposes to substitute shares of the
Maxim Series Fund Maxim INVESCO Balanced Portfolio (the ``Balanced
Portfolio'') for shares of the Eliminated Portfolios. In addition, with
respect to MSA-1 and MSA-2, GWL&A proposes to substitute shares of the
Maxim Series Fund Maxim Stock Index Portfolio (the ``Index Portfolio,''
together with the Balanced Portfolio, the ``Substituted Portfolios'')
for shares of the Eliminated Portfolios. Finally, with respect to the
Policies, GWL&A proposes to substitute shares of the Index Portfolio
for shares of the Total Return Portfolio. When discussed together, the
Pinnacle Account and the Maxim Account substitutions will be
collectively referred to as the ``Substitution.'' Applicants believe
the Substitution will benefit the Contract owners by eliminating
portfolios with below average historical return..
14. The investment objective of the Total Return Portfolio is to
obtain the highest possible total return, through a combination of
income and capital appreciation, consistent with reasonable risk. The
investment objective of the American Century Balanced Portfolio is
capital growth and current income. The investment objective of the
Index Portfolio is to provide investment results, before fees, that
correspond to the total return of the Standard & Poor's (``S&P'') 500
Index and the S&P Mid-Cap Index, weighted according to their respective
pro-rata shares of the market. The investment objective of the Balanced
Portfolio is to achieve a high total return on investment through
capital appreciation and current income.
15. As of September 30, 1997, the Maxim Total Return Portfolio has
provided 1, 5 and 10 year (or since investment division inception)
total returns of (i) 24.91%, 12.01% and 9.30% to MSA-1 Contract owners;
(ii) 24.72%, 11.87% and 9.52% to MSA-2 Contract owners; (iii) 24.95%
and 9.39% to MVP Contract owners; and (iv) 25.81%, 12.87% and 12.43% to
Pinnacle Policy owners.\1\ The American Century Balanced Portfolio has
provided 1, 5 and 10 year (or since investment division inception)
total returns of 19.20%, 10.56% and 10.23% to MSA-2 Contract owners.
The Maxim Stock Index Fund has provided 1, 5 and 10 year (or since
investment division inception) total returns of: (i) 36.68%, 17.00% and
11.37% to MSA-1 Contract owners; (ii) 37.40%, 17.21% and 11.41% to MSA-
2 Contract owners; and (iii) 38.52%, 18.31% and 12.42% to Pinnacle
Policy owners. The Maxim INVESCO Balanced Portfolio has provided total
return of 28.26% to MVP Contract owners since its inception on October
1, 1996. The Maxim INVESCO Balanced Portfolio was created to copy the
investment strategy of the INVESCO Balanced Fund and is sub-advised by
the same portfolio manager that advises the INVESCO Balanced Fund. The
one-year and since-inception total return of the INVESCO Balanced Fund
are 25.75% and 20.63%, respectively. The expense level of the INVESCO
Balanced Fund is 1.29%; the expense level of the Maxim INVESCO Balanced
Portfolio is 1.00%.
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\1\ Total return figures for the Pinnacle Policies do not
reflect the deduction of cost of insurance charges..
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16. Contract owners will be advised of their ability to transfer
their Contract value to the remaining investment divisions or to leave
their Contract value in the Eliminated Portfolios for an automatic
substitution on the date that GWL&A will schedule the Substitution to
occur (the ``Automatic Selection Date''). As of the Automatic Selection
Date, all Contract values allocated to the Eliminated Portfolios
automatically will be reallocated to the Substituted Portfolios. No
Eliminated Portfolio will accept additional premium payments (i.e., new
money or transfers) on or after the Automatic Selection Date. Contract
owners can transfer their assets from the Substituted Portfolios to any
remaining investment division available under their Contracts. No sales
load deductions or transfer charges will be assessed in connection with
any transfers among the portfolios because of the Substitution or
otherwise.
17. Applicants represent that, as noted before, the total expenses
of the Balanced Portfolio currently are 1.00%, which is the same as the
total expenses of the American Century Balanced Portfolio. Therefore,
MVP owners with investments in the American Century Balanced Portfolio
will not pay greater costs at the portfolio level. The total expenses
of the Maxim Total Return Portfolio are 0.60%. Should MVP owners with
current allocations in the Maxim Total Return Portfolio determine that
another investment is more appropriate, due to the change in portfolio
expenses, those owners of MVP can transfer their assets to any of the
remaining twelve investment divisions available under their Contract.
18. With respect to MSA-1 and MSA-2, Applicants represent the total
expenses of the Index Portfolio are 0.60%. This is less than the total
expenses of the American Century Balanced Portfolio and equal to the
total expenses of the Maxim Total Return Portfolio. Should MSA-1 and
MSA-2 Contract owners with current allocations in the Eliminated
Portfolios determine that another investment is more appropriate for
their needs, such Contract owners can transfer their assets to any of
the remaining investment divisions available under their respective
Contracts.
19. Policy owners will not incur any additional expenses at the
policy level. As stated above, the total expenses of the Index
Portfolio are equal to the total expenses of the Maxim Total Return
Portfolio. Should Policy owners with current allocations in the
Eliminated Portfolio determine that another investment is more
appropriate for their needs, such Policy owners can transfer their
assets to any of the remaining investment divisions.
Applicants' 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. Section 26(b) protects the
expectation of investors that the unit investment trust will accumulate
shares of a particular issuer and is intended to insure that
unnecessary or burdensome sales loads, additional reinvestment
[[Page 4506]]
costs or other charges will not be incurred due to unapproved
substitutions of securities.
2. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the Substitution. Applicants represent that the
purposes, terms, and conditions of the Substitution are consistent with
the protection for which Section 26(b) was designed. Applicants believe
the Substitution will benefit MVP and MSA-2 owners by eliminating two
portfolios with below-average historical returns and consolidating
their investments in portfolios which have investment objectives
similar to the Eliminated Portfolios. MSA-1 owners and Policy owners
will also benefit because of the elimination of a poorly performing
portfolio and the consolidation of their investments in a portfolio
which has investment objectives similar to the Total Return Portfolio.
3. Any Contract owner who does not want his or her assets allocated
to the Substituted Portfolios would be able to transfer assets to any
one of the other investment divisions available under their Contract
without charge prior to or after the Automatic Selection Date.
4. Applicants represent that the Substitution will be effected at
net asset value in conformity with Sections 22(c) and 22(g) of the 1940
Act and Rule 22c-1 thereunder. The Substitution may be effected
primarily for cash, but also may involve partial redemptions in-kind of
securities (``Related Transactions''). The use of in-kind redemptions
in conformity with Section 22(g) of the 1940 Act would alleviate the
impact of the brokerage fees and expenses upon GWL&A or the investment
adviser or sub-adviser of the Substituted Portfolio, as these entities
will bear all expenses related to the Substitution. The Related
Transactions will be effected to the extent consistent with the
investment objectives and any applicable diversification requirements.
5. GWL&A or the investment adviser of the Substituted Portfolios
will assume the transfer and custodial expenses and legal and
accounting fees incurred with respect to the Substitution. Contract
owners will not incur any fees or charges as a result of the transfer
of account values from any portfolio. Applicants represent that there
will be no increase in the Contract or Separate Account fees and
charges after the Substitution. Applicants further represent that the
Substitution is designed to avoid any adverse federal income tax effect
on Contract owners or Policy owners.
6. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
or an affiliate of an affiliated person, of a registered investment
company, from selling any security or other property to such registered
investment company. Section 17(a)(2) of the 1940 Act prohibits such
affiliated persons from purchasing any security or other property from
such registered investment company.
7. Section 17(b) of the 1940 Act authorizes the Commission to issue
an order exempting a proposed transaction from Section 17(a) if: (a)
the terms of the proposed transaction are fair and reasonable and do
not involve overreaching on the part of any person concerned; (b) the
proposed transaction is consistent with the policy of each registered
investment company concerned; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
8. Applicants request an order pursuant to Section 17(b) of the
1940 Act exempting the Related Transactions from the provisions of
Section 17(a) of the 1940 Act.
9. Applicants represent that the terms of the Substitution are
reasonable and fair and do not involve overreaching on the part of any
person concerned. The Substitution will be effected at the net asset
value of the securities involved and the interests of Contract owners
will not be diluted. In-kind redemptions will alleviate some of the
expenses involved with the Substitution and only will be used to the
extent they are consistent with the investment objectives and
applicable diversification requirements of the affected portfolios. All
in-kind redemptions will be conducted in a manner conforming with the
conditions of Rule 17a-7 under the 1940 Act.
10. Applicants represent that the Substitution and the Related
Transactions are consistent with the policies of each investment
company involved and the general purposes of the 1940 Act, and comply
with the requirements of Section 17(b).
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the Substitution and Related Transactions
should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2134 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M
