[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1192-1195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-382]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24228; File No. 812-11748]
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'').
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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 Growth Opportunities
Series of The GCG Trust.
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''), and First Golden
American Life Insurance Company of New York Separate Account NY-B
(``First Golden Separate Account NY-B'').
FILING DATES: The application was filed on August 13, 1999, and amended
and restated on 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 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 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-B
(collectively,
[[Page 1193]]
``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 A 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 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 Growth Opportunities
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 Montgomery & Associates, Limited as portfolio
manager of the Growth Opportunities 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 Growth
Opportunities 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 Growth
Opportunities 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 Growth Opportunities Series
(``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
Growth Opportunities Series to assure that the essential objectives and
risk expectations of those Contractholders with interest in the Growth
Opportunities Series subaccounts (``Affected Contractholders'') will be
met. Both the Mid-Cap Growth Series and the Growth Opportunity 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 Growth Opportunities 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. The Mid-Cap Growth Series
and the Growth Opportunities Series may invest up to 20% and 35%,
respectively, in foreign issuers. Both may also invest in over-the-
counter securities. The chief distinction between the series is that
the Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Series and Mid-
Cap Growth Series were 1.06% and 0.91%, respectively, and 1.15% and
0.95%, respectively for fiscal year 1998. Unified Fees as of September
30, 1999 based on net assets for that day for the Growth Opportunities
Series and Mid-Cap Growth Series were 1.03% and 0.90%, respectively.
[[Page 1194]]
11. Applicants also state that the better investment performance of
the Mid-Cap Growth Series was considered.
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 GCP Trust to eliminate a
portfolio with poor performance and higher expenses and place
Contractholders in a position to 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
Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities
subaccounts of the Applicant Separate Accounts will be redeemed for
cash. Applicants, on behalf of the Growth Opportunities subaccounts of
Applicant Separate Accounts will simultaneously place a redemption
request with the Growth Opportunities 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
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 Growth Opportunities 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 of 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
Growth Opportunities subaccount accumulation value without incurring
any costs or excessive allocation charges.
16. Immediately following the Substitution, Applicants will cause
the Growth Opportunities 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 no result in any adverse tax
liability on Affected Contractholders, or any change in the economic
interest or contract value of Affected Contractholders.
17. Affected Contractholders were notified of the Application by
means of a supplement to the GCG Trust prospectus on or about August
30, 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 Growth
Opportunities 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 tot he 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 Growth Opportunities 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. Applicants represent that the terms of the redemptions and
purchases 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 will
be done at values consistent with the policies of both the Growth
Opportunities 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
Growth Opportunities Series and the Mid-Cap Growth Series.
4. Applicants represent that the combination of the Mid-Cap Growth
[[Page 1195]]
Series and the Growth Opportunities 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. Thhe 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. 00-382 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M
