[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1189-1192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-379]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24230; File No. 812-11438]
Golden American Life Insurance Company, et al.; Notice of
Application
December 30, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(b) of the Investment Company Act of 1940 (``Act'') and an
order granting exemptive relief pursuant to Section 17(b) of the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section
26(b) of the Act, approving the substitution of shares of the Mid-Cap
Growth Series of The GCG Trust for shares of the All-Growth Series of
The GCG Trust. Applicants also seek an order, pursuant to Section 17(b)
of the Act, granting exemptions from Section 17(a) to permit Applicants
to carry out the substitution by means of in-kind redemption and
purchase transactions.
APPLICANTS: Golden American Life Insurance Company (``Golden
American''), Golden American Life Insurance Company Separate Account A
(``Golden American Separate Account A''), Golden American Life
Insurance Company Separate Account B (``Golden American Separate
Account B''), Equitable Life Insurance Company of Iowa (``Equitable''),
Equitable Life Insurance Company of Iowa Separate Account A
(``Equitable Separate Account A''), First Golden American Life
Insurance Company of New York (``First Golden''), First Golden American
Life Insurance Company of New York Separate Account NY-B (``First
Golden Separate Account NY-B''), and The GCG Trust (``GCG Trust'').
FILING DATES: The application was filed on December 18, 1998, and
amended and restated on July 13, 1999, and December 23, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing the Secretary of the SEC and serving
Applicants with a copy of the request, in person or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 24,
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 request should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609. Applicants, Marilyn Talman, Esquire, Golden American Life
Insurance Company, 1475 Dunwoody Drive, West Chester, Pennsylvania
19380.
FOR FURTHER INFORMATION CONTACT: Ronald A. Holinsky, Attorney, or Susan
M. 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 SEC, 450 Fifth Street, NW, Washington,
DC 20549-0102, or call (202) 942-8090.
Applicants' Representations
1. Golden American and Equitable are stock life insurance companies
organized under the insurance laws of Delaware and Iowa, respectively.
Each is authorized to write variable annuity and variable life
insurance policies in at least 48 states and the District of Columbia.
First Golden is a stock life insurance company organized under the
insurance laws of the state of New York, and is authorized to write
variable annuity contracts in New York and Delaware. Golden American,
Equitable and First Golden (collectively, ``Applicant Insurance
Companies'') are wholly owned subsidiaries of ING Groep N.V. (``ING''),
a global financial services holding company.
2. Equitable Separate Account A, Golden Separate Account A, Golden
Separate Account B and First Golden Separate Account NY-BH
(collectively, ``Applicant Separate Accounts'') are separate accounts
for which one of the Applicant Insurance Companies serves as the
sponsor and depositor. Golden American serves as sponsor and depositor
of Golden Separate Account and Golden Separate Account B; Equitable
serves as sponsor and depositor of Equitable Separate Account A; First
Golden serves as sponsor and depositor of First Golden Separate Account
NY-B. Each Applicant Separate Account is a segregated asset account of
its insurance company sponsor and each is registered under the Act as a
unit investment trust. Each Applicant Separate Account is administered
and accounted for as part of the general business of the Applicant
Insurance Company of which it is a part. The income, gains or losses of
Applicant
[[Page 1190]]
Separate Accounts are credited to or charged against the assets of each
such separate account, without regard to income, gains or losses of
such Applicant Insurance Company.
3. Each Applicant Separate Account serves as a finding vehicle for
certain variable annuity and/or variable life contracts (collectively,
``Variable Contracts'') written by the respective Applicant Insurance
Companies. Applicant Separate Accounts are divided into separate
subaccounts, each dedicated to owning shares of one of the investment
options available under the Variable Contracts. The Variable Contracts
are structured such that holders of any of the Variable Contracts
(``Contractholders'') may select one or more of the investment options
available under the contract held by allocating premiums payable under
such contract to that subaccount of the relevant Applicant Separate
Account that corresponds to the investment option desired. Thereafter,
Contractholders accumulate funds, on a tax-deferred basis, based on the
investment experience of the selected subaccount(s). Contractholders
may, during the life of the contract, make unlimited transfers of
accumulation values among the subaccounts available under the contract
held, subject to any applicable administrative and/or transfer fees.
4. The GCG Trust is registered under the Act as an open-end
management series investment company. The GCG Trust offers shares of
several separate investment series, including the All-Growth Series and
the Mid-Cap Growth Series.
5. Under the terms of an investment advisory agreement (``Trust
Management Agreement'') between the GCG Trust and Directed Services,
Inc. (``DSI''), DSI manages the business and affairs of each of the
several series of the GCG Trust, subject to the control of the Board of
Trustees of the GCG Trust. Under the Trust Management Agreement, DSI is
authorized to exercise full investment discretion and make all
determinations with respect to the investment of the assets of the
respective series, but may, at its own cost and expense, retain
portfolio managers for the purpose of making investment decisions and
research information available to the GCG Trust. DSI has retained
Massachusetts Financial Services Company as portfolio manager of the
Mid-Cap Growth Series and Pilgrim Baxter & Associates, Limited as
portfolio manager of the All-Growth Series.
6. Pursuant to the Trust Management Agreement, DSI is responsible
for providing the GCG Trust (or arranging and paying for the provision
to the GCG Trust) a comprehensive package of administrative and other
services necessary for the ordinary operation of certain selected
series of the Trust, including the Mid-Cap Growth Series and the All-
Growth Series. This fee (``Unified Fee'') is calculated for the
participating GCG Trust series based on a percentage of assets basis
and in accordance with schedules that provide, for most of the GCG
Trust series, fee reductions at specified asset levels or ``break
points.'' One feature of the Unified Fee is that certain of the GCG
Trust series, which include the Mid-Cap Growth Series and the All-
Growth Series, albeit in different groups, are grouped together for the
purpose of determining whether a break point has been reached. The rate
at which the Unified Fee payable to DSI is calculated will be reduced
when the combined assets of all of the GCG Trust series in the
designated fee group reach the scheduled break points. As a result, a
GCG Trust series that is part of a designated fee group is likely to
realize a reduction in the fee payable to DSI more quickly than might
otherwise be the case.
7. The Variable Contracts expressly reserve to Applicant Insurance
Companies the right, subject to compliance with applicable law, to
substitute shares of another open-end management investment company for
shares of an open-end management investment company held by a sub-
account of the appropriate Separate Account. The prospectuses for the
Variable Contracts and Applicant Separate Accounts contain appropriate
disclosure of this right.
8. Applicant Insurance Companies propose to substitute shares of
the Mid-Cap Series for those of the All-Growth Series by means of cash
and in-kind redemptions and purchases (``Substitution''). Following the
Substitution, Applicant Separate Accounts will have two subaccounts
holding shares of the Mid-Cap Growth Series and will combine these
subaccounts.
9. Applicants state that the investment objectives and policies of
the Mid-Cap Growth Series are sufficiently similar to those of the All-
Growth Series to assure that the essential objectives and risk
expectations of those Contractholders with interest in the All-Growth
Series subaccounts (``Affected Contractholders'') will be met. Both the
Mid-Cap Growth Series and the All-Growth Series share the primary
objective of increase in value of the shares of the portfolio
securities (capital growth). The Mid-Cap Growth Series also has the
same investment strategy as the All-Growth Series, of allocating assets
primarily among equity and bond classes of investments, with the
majority invested in equity investments in companies with medium market
capitalization. Both may be invested significantly in over-the-counter
securities. In addition, the All-Growth Series is authorized to
allocate 10% of its assets investing in securities of foreign issuers,
the Mid-Cap Growth Series is authorized to invest 20% of its net assets
in equity securities of foreign issuers. The chief distinction between
the series is that the All-Growth Series is diversified and the Mid-Cap
Growth Series is non-diversified, although it is not currently taking
advantage of that distinction and has no present intention of doing so.
Applicants state that several factors could cause the Mid-Cap Growth
Series to change its investment style to non-diversified including a
response to extreme market conditions or a change of the portfolio
manager, although Applicants state that there is no desire to change
the portfolio manager. Golden American has, therefore, concluded that
the overall investment objectives of the All-Growth Series and the Mid-
Cap Growth Series are sufficiently similar such that the Mid-Cap Growth
Series is appropriate for substitution.
10. Applicants state that the lower expenses of the Mid-Cap Growth
Series was considered. The expense ratio for the nine-month period
ended September 30, 1999, for the All-Growth Series and Mid-Cap Growth
Series were 0.96% and 0.91%, respectively, and 0.99% and 0.95%,
respectively, for fiscal year 1998. Unified Fees as of September 30,
1999 based on net assets for that day for the All-Growth Series and
Mid-Cap Growth Series were 0.96% and 0.90%, respectively.
11. Applicants also state that the Mid-Cap Growth Series has more
consistent investment performance. Applicants state that the All-Growth
Series has not generated the hope for total returns on a consistent
basis.
12. Applicants state that the Substitution and the related
subaccount combinations are part of an overall business plan of
Applicant Insurance Companies to make their respective products,
including the Variable Contracts, more competitive and more efficient
to administer and oversee. Applicants represent that the Substitution
is appropriate because it will allow the GCG Trust to eliminate a
portfolio with erratic performance and higher expenses and place
Contractholders in a position to
[[Page 1191]]
participate in a portfolio with better, more consistent performance and
a lower Unified Fee.
13. Applicants state that DSI serves as overall manager of the All-
Growth Series and the Mid-Cap Growth Series. The portfolio manager of
the Mid-Cap Growth Series is Massachusetts Financial Services Company.
After the Substitution, Affected Contractholders whose interest in the
All-Growth Series is redeemed and invested in the Mid-Cap Growth Series
will continue to benefit from the services of DSI as overall manager.
14. Applicants state that, as of the effective date of the
Substitution (``Effective Date''), shares of the All-Growth subaccounts
of the Applicant Separate Accounts will be redeemed for cash and
certain securities will be transferred in-kind. Applicants, on behalf
of the All-Growth subaccount of Applicant Separate Accounts will
simultaneously place a redemption request with the All-Growth Series
and a purchase order with the Mid-Cap Growth Series so that the
purchase will be for the exact amount of the redemption proceeds. The
proceeds of such redemptions, whether effected in cash or in-kind, will
then be used to purchase the appropriate number of shares of the Mid-
Cap Growth Series. As a result, moneys attributable to Contractholders
currently invested in the All-Growth Series will be fully invested.
15. The Substitution will take place at relative net asset value
(in accordance with Rule 22c-1 under the Act) with no change in the
amount of any Affected Contractholder's accumulation value or death
benefit or in the dollar value of his or her investment in the
Applicant Separate Accounts. Affected Contractholders will not incur
any fees or charges as a result of the proposed Substitution nor will
their rights or Applicant Insurance Companies' obligations under the
Variable Contracts be altered in any way. Applicant Insurance Companies
or their affiliates will pay all expenses incurred in connection with
the proposed Substitution, including legal, accounting, and other fees
and expenses. In addition, the proposed Substitution will not impose
any tax liability on Affected Contractholders. The proposed
Substitution will not cause the Variable Contract fees and charges
currently being paid by Affected Contractholders to be greater after
the proposed Substitution than before the proposed Substitution. Also,
after notification of the Substitution, and for thirty days after the
Substitution, Affected Contractholders may reallocate, to any other
investment options available under their Variable Contract, their All-
Growth subaccount accumulation value without incurring any costs or
excessive allocation charges.
16. Any transfer in-kind within the proposed Substitution will take
place pursuant to rule 17a-7(d) under the Act and no brokerage
commissions, fees (except customary transfer fees) or other
remuneration will be paid by the All-Growth Series or the Mid-Cap
Growth Series or Affected Contractholders in connection with the
transactions. Applicants submit that the terms or the proposed
transaction, including the consideration to be paid by the Mid-Cap
Growth Series and received by the All-Growth Series, is fair and
reasonable, and that the transactions do not involve overreaching. The
transactions of the proposed Substitution will be consistent with the
policies of each investment company involved and the general purposes
of the Act, and comply with the requirements of section 17(b) of the
Act.
17. Immediately following the Substitution, Applicants will cause
the All-Growth subaccounts of Applicant Separate Accounts to combine
with the Mid-Cap Growth subaccounts of Applicant Separate Accounts at
full net asset value so that there is no loss of account value for the
Contractholders. Affected Contractholders will not incur any fees or
charges as a result of this combination of subaccounts nor will their
rights or Applicants' obligations under the Variable Contracts alter in
any way. Applicants will pay all expenses incurred in connection with
the combinations, including legal and/or accounting fees. In addition,
the combination will not result in any adverse tax liability on
Affected Contractholders, or any change in the economic interest or
contract value of Affected Contractholders.
18. Affected Contractholders were notified of the Application by
means of a supplement to the GCG Trust prospectus on or about March 8,
1999. Following the issuance of the requested order, but prior to the
Effective Date, each Affected Contractholder will receive a notice
setting forth the Effective Date and advising Affected Contractholders
of their right, if they so chose, at any time prior to the Effective
Date, to reallocate or withdraw accumulated value in the All-Growth
subaccount under their Variable Contract or otherwise terminate their
interest thereof in accordance with the terms and conditions of their
Variable Contract. If Affected Contractholders reallocate accumulation
value prior to the Effective Date or thirty days after the Effective
Date, there will be no charge for the reallocation and it will not be
counted toward the total number of reallocations made within the
contract year. All current Contractholders have received a prospectus
containing a description of the Mid-Cap Growth Series and another copy
will be forwarded to any Contractholder who requests one. Within five
days after the Effective Date, Affected Contractholders will receive a
notice (``Substitution Notice'') stating that shares of the All-Growth
Series have been redeemed and that the shares of the Mid-Cap Growth
Series have been substituted. The Substitution Notice will include a
written confirmation showing the before and after accumulation values
(which will not have changed as a result of the substitution) and
detailing the transactions effected on behalf of the Affected
Contractholder with regard to the Substitution.
Applicants' Legal Analysis
1. Section 26(b) of the Act prohibits any depositor or trustee of a
unit investment trust that invests exclusively in the securities of a
single issuer from substituting the securities of another issuer
without the approval of the Commission. Section 26(b) provides that
such approval shall be granted by order of the Commission, if the
evidence establishes that the substitution is consistent with the
protection of investors and the purposes of the Act.
2. Applicants request an order pursuant to section 26(b) of the Act
approving the Substitution and related transactions. Applicants assert
that the purposes, terms, and conditions of the proposed Substitution
and related transactions are consistent with the protection of
investors and the purposes fairly intended by the Act. Applicants
further assert that the Substitution will not result in the type of
costly forced redemption against which section 26(b) was intended to
guard.
3. Section 17(a)(1) of the Act prohibits any affiliated person of a
registered investment company, or an affiliated person of an affiliated
person, from selling any security or other property to such registered
investment company. Section 17(a)(2) of the Act prohibits any of the
persons described above, from purchasing any security or other property
from such registered investment company.
4. Applicant Insurance Companies state that it could be said to be
transferring unit values between subaccounts. The transfer of unit
values could be said to involve purchase and sale transactions between
divisions that
[[Page 1192]]
are affiliated persons. The division investing in the All-Growth Series
could be said to be selling shares of the All-Growth Series to the
division investing in the Mid-Cap Growth Series, in return for units of
that division. Conversely, it could be said that the division investing
in the Mid-Cap Growth Series was purchasing shares of the All-Growth
Series. If Substitution is effected through an in-kind transfer of
securities the All-Growth Series could be said to be selling portfolio
securities from an affiliate and the Mid-Cap Growth Series could be
said to be purchasing portfolio securities from an affiliate.
5. Applicants request an order pursuant to Section 17(b) of the Act
exempting the in-kind transfer of portfolio securities and combination
of subaccounts from the provision of Section 17(a) of that Act. Section
17(b) of the Act provides that the Commission may grant an order
exempting a proposed transaction from Section 17(a) if evidence
establishes that: (i) The terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve over-reaching on the part of any person concerned; (ii)
the proposed transaction is consistent with the investment policy of
each registered investment company concerned; and (iii) the proposed
transaction is consistent with the general purposes of the Act.
6. Applicants represent that the terms of the redemptions and
purchases or the in-kind transfer, including the consideration to be
paid and received, are reasonable and fair and do not involve
overreaching on the part of any person concerned and that the interest
of Contractholders will not be diluted. The redemptions and purchases
or the in-kind transfer will be done at values consistent with the
policies of both the All-Growth Series and the Mid-Cap Growth Series.
Applicant Insurance Companies and DSI will review all the asset
transfers to assure that the assets meet the objectives of the Mid-Cap
Growth Series and that they are valued under the appropriate valuation
procedures of the All-Growth Series and the Mid-Cap Growth Series. The
Applicants represent that the transactions are consistent with Rule
17a-7(d) under the Act, the transactions are consistent with the
policies of each investment company involved and the general purposes
of the Act, and the transactions comply with the requirements of
Section 17(b) of the Act.
7. Applicants represent that the combination of the Mid-Cap Growth
Series and the All-Growth Series subaccounts in the manner set forth in
the Application is intended to reduce expenses and raise investment
return and thereby benefit Contractholders with assets in those
subaccounts. The purchase and sale transactions described in the
Application will be effected based on the net asset value of the
investment company shares held in the subaccounts and the value of the
units of the subaccount involved. Therefore, there will be no change in
value to any Contractholder.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the Substitution and related transactions
involving redemptions and the combination of certain separate account
subaccounts should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-379 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M
