[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Notices]
[Pages 57489-57493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27713]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24088; File No. 821-11380]
Great-West Life & Annuity Insurance Company, et al.; Notice of
Application
October 18, 1999.
AGENCY: Securities and Exchange Commission (``SEC. or ``Commission'').
ACTION: Noice of Application for approval under Section 26(b) of the
Investment Company Act of 1940, as amended (the ``1940 Act'').
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SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the Maxim INVESCO Balanced Portfolio of the
Maxim Series Fund for shares of the Fidelity VIP II Asset Manager
Portfolio of the Fidelity Variable Insurance Products Fund II, and the
substitution of shares of Maxim Stock Index Portfolio of the Maxim
Series Fund for shares of the American Century VP Capital Appreciation
Portfolio of American Century Variable Portfolios, Inc.
APPLICANTS: Great-West Life & Annuity Insurance Company (``GWL&A''),
FutureFunds Series Account of GWL&A (the ``FutureFunds Account'') and
Maxim Series Account of GWL&A (the ``Maxim Account'') (together, with
the FutureFunds Account, the ``Separate Accounts'') and BenefitCorp
Equities, Inc. (``BCE'') (hereinafter all parties are collectively
referred to as the ``Applicants'').
FILING DATE: The application was filed on October 29, 1998, and amended
and restated on April 14, 1999, and July 15, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the Application
will be issued unless the commission orders a
[[Page 57490]]
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 November 12, 1999, 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
Boros Cicchetti Berenson & Johnson, LLP, 1025 Thomas Jefferson Street,
NW, Suite 400 East, Washington, DC 20007-0805; Attention: Christopher
Menconi, 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 St. 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 wholly owned by 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, and Guam and in all states of the United States, except New
York.
2. The FutureFunds Account is a distinct investment account of
GWL&A which acts as a funding vehicle for certain group variable
flexible premium deferred annuity contracts (the ``FutureFunds
Contracts'') designed and offered to provide retirement programs that
qualify for special federal income tax treatment for employees of
certain organizations. The FutureFunds Account is a unit investment
trust (``UIT'') and has filed a registration statement on Form N-4
(Registration No 2-89550), as amended) for the purpose of registering
the FutureFunds Account under the 1940 Act and the FutureFunds
Contracts as securities under the Securities Act of 1933, as amended
(the ``1933 Act'').
3. The FutureFunds Contracts have twenty-eight investment divisions
available for allocations of contributions, each of which invest
exclusively in one of the corresponding portfolios of six open-end
management investment companies. Twenty-three of the investment
divisions invest solely in corresponding portfolios of Maxim Series
fund, Inc. (``Maxim Series Fund''); one other investment division
invests solely in a corresponding portfolio of American Century
Variable Portfolios, Inc. (``American Century''); two other investment
divisions invest solely in corresponding portfolios of Fidelity
Variable Insurance Products Fund and Fidelity Variable Insurance
Products Fund II; one other investment division invests solely in a
corresponding portfolio of Janus Aspen Series; and one other investment
division invests solely in a corresponding portfolio of the Stein Roe
Variable Investment Trust.
4. The assets of the FutureFunds Account are kept separate from the
other assets of GWL&A. The income, gains, and losses of the FutureFunds
Account, whether or not realized, are credited to or charged against
the FutureFunds Account without regard to other income, gains, or
losses of any other separate account or arising out of any other
business GWL&A may conduct.
5. The Maxim Account is a distinct investment account of GWL&A
which acts as a funding vehicle for certain flexible premium variable
deferred annuity contracts (the ``Maxim Contracts''). Currently there
are four different Maxim Contracts issued under the Maxim Account. Only
two Maxim Contracts, however, are subject to this Application. Of these
two Maxim Contracts, one is no longer sold, has less than 5,000
participants, and no longer files post-effective amendments in reliance
upon certain precedent (hereinafter the ``MSA-2 Contract''). The MSA-2
Contract has only five investment divisions, each of which invests
exclusively in one of the corresponding portfolios of two open-end
management investment companies. The other Maxim Contract at issue is
the Maximum Value Plan (the ``MVP Contract''). The MVP Contract has
twenty-two investment divisions, each of which invests exclusively in
one of the corresponding portfolios of two open-end management
investment companies.
6. The Maxim Account is a UIT and has filed a registration
statement on Form N-4 (Registration Nos. 811-3249 and 2-73879 for the
MSA-2 Contract and 33-82610 for the MVP Contract) for the purpose of
registering the Maxim Account under the 1940 Act and the Maxim
Contracts as securities under the 1933 Act. The assets of the Maxim
Account are kept separate from the other assets of GWL&A. The income,
gains, and losses of the Maxim Account, whether or not realized, are
credited to or charged against the Maxim Account without regard to
other income, gains, or losses of any other separate account or arising
out of any other business GWL&A may conduct.
7. With respect to the MSA-2 Contract, four of the available
investment divisions invest solely in corresponding portfolios of Maxim
Series Fund and the remaining investment division invests in a
corresponding portfolio of American Century. In the MVP Contract,
twenty-one of the available investment divisions invest solely in
corresponding portfolios of Maxim Series Fund and the remaining
investment division invests solely in a corresponding portfolio of
American Century.
8. BCE is registered with the Commission under the Securities
Exchange Act of 1934, as amended, as a broker/dealer and is a member of
the National Association of Securities Dealers, Inc. BCE is the
principal underwriter and distributor of the FutureFunds Contracts and
the MVP Contracts. The MSA-2 Contracts are no longer sold and there is
no need for an underwriter. The Maxim Contracts and the FutureFunds
Contracts may collectively be referred to, where appropriate, as the
``Contracts.''
9. Of the underlying investment companies, only Maxim Series Fund
is affiliated with GWL&A or the Separate Accounts. The investment
adviser for Maxim Series Fund is GW Capital Management, Inc., which is
also affiliated with GWL&A, the Separate Accounts, and BCE. No other
underlying investment company or portfolio used in connection with the
Contracts or investment adviser or underwriter for those underlying
investment companies and portfolios is affiliated with GWL&A, the
Separate Accounts, or BCE.
10. The FutureFunds Contracts may be issued in connection with
contributions made by the following organizations: (1) Employers or
employee organizations (such as non-profit entities defined in Section
501(c)
[[Page 57491]]
of the Internal Revenue Code of 1986, as amended, (the ``Code'') and
governmental entities defined in Section 414(d)) to purchase annuities
for their employees under pension or profit sharing plans described in
Section 401(a) of the Code; (2) employers or employee organizations to
purchase annuities for their employees under cash or deferred profit-
sharing plans described in Section 401(k) of the Code, and state
educational organizations and certain tax-exempt organizations to
purchase annuities for their employees under Section 403(b) of the
Code; and (3) certain state and local governmental entities and, for
years beginning after 1986, other tax-exempt organizations to purchase
annuities for their employees under deferred compensation plans
described in Section 457 of the Code.
11. The MVP Contracts are flexible premium annuity contracts which
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. The MSA-2 Contracts are no longer sold.
12. The FutureFunds Contracts have no front-end sales load. The
FutureFunds Contracts have a maximum contingent deferred sales charge
of 6% that applies to surrenders or partial withdrawals during the
first 72 months after a contribution. The Maxim Contracts do not have
front-end sales loads. The MVP Contracts have a maximum contingent
deferred sales charge of 7% that applies to surrenders of partial
withdrawals within the first seven contract years. The MSA-2 Contracts
had a flat contingent deferred sales charge of 5% that applied to
surrenders or withdrawals in the first five contract years after
contribution. The FutureFunds Contracts have an annual contract fee of
$30.00. This charge may vary by group policyholder. The MVP Contracts
have an annual contract fee of $27.00 and the MSA-2 Contracts have an
annual contract fee of $35.00. These charges will not be affected by
the proposed substitution.
13. There are no transfer charges for transfers among investment
divisions offered in any of the Contracts and there are no limits on
the number of transfers a Contract owner/participant can make.
14. 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 portfolios for others in which its
investment divisions are invested or for a new underlying portfolio.
15. GWL&A, on its own behalf and on behalf of the Separate
Accounts, proposes to exercise its contractual right to eliminate the
American Century VP Capital Appreciation Portfolio (the ``Capital
Appreciation Portfolio'') as a funding option under all the Contracts.
GWL&A also proposes, on its behalf and on behalf of the FutureFunds
account, to exercise its contractual right to eliminate the Fidelity
VIP II Asset Manager Portfolio (the ``Asset Manager Portfolio'') as a
funding option under the FutureFunds Contracts. Collectively, the
portfolios being eliminated will hereinafter be referred to as the
``Eliminated Portfolios.'' In all Contracts, GWL&A proposes to
substitute shares of the Maxim Stock Index Portfolio (``Stock index
Portfolio''), an existing investment option under the Contracts, for
shares of the Capital Appreciation Portfolio. In the FutureFunds
Contract, GWL&A also proposes to substitute shares of Maxim INVESCO
Balanced Portfolio (``Balanced Portfolio'' or ``Maxim Balanced
Portfolio''), an existing investment option, for the Asset Manager
Portfolio.
16. When discussed separately or together, the transaction will be
referred to as the ``Substitution.'' Applicants believe the
Substitution will benefit the Contract owners/participants by
eliminating portfolios which, in Applicants' view, have had poor
historical performance returns and replacing them with portfolios
having comparable investment objectives and policies and better
historical performance returns, and which Applicants believe are more
likely to provide Contract owners/participants with favorable
investment performance in the future.
17. The Substitution would result in a reduction in variable
investment options and corresponding portfolios available under all
Contracts. The number of investment divisions in the FutureFunds
Contracts would be reduced from twenty-eight to twenty-six; the number
of investment divisions in the MVP Contracts would be reduced from
twenty-two to twenty-one; and the number of investment divisions in the
MSA-2 Contracts would be reduced from five to four.
18. Applicants represent that each replacement portfolio was the
most comparable to the corresponding eliminated Portfolio as compared
to all other portfolios available under the affected Contracts in that
the replacement portfolios have the investment objectives and policies
that are similar to, and consistent with, those of the eliminated
Portfolios.
19. The Capital Appreciation Portfolio's investment objective is to
seek capital growth by investing in common stocks that, in the opinion
of American Century's management, will increase in value over time. The
Stock Index Portfolio's investment objective is to provide investment
results, before fees, that correspond to the total return of the S&P
500 Index and the S&P Mid-Cap Index, weighted according to their
respective pro-rata shares of the market. Applicants assert that, after
the Substitution, Contract owners/participants who have allocated value
to an investment division which invests in the Capital Appreciation
Portfolio will continue to have their value allocated to an investment
division which invests in an underlying portfolio that seeks capital
growth primarily through investments in common stocks. Applicants point
out that under the MSA-2 Contracts there is no other underlying
portfolio whose investment objective requires that it invest primarily
in common stocks.
20. Applicants represent that the Stock Index Portfolio has
substantially outperformed the Capital Appreciation Portfolio while
assessing lower overall fees. The total expenses of the Stock Index
Portfolio currently are .60%, which is below the 1.00% total expenses
of the Capital Appreciation Portfolio. The average annual total returns
for the one year, three year, five year, ten year, and since inception
periods ending December 31, 1998, for the Stock Index Portfolio were:
26.79%, 26.86%, 22.62%, 16.37% and 15.55% respectively, compared to the
Capital Appreciation Portfolio which had returns of (2.15)%, (3.24)%,
3.25%, 8.70% and 8.24% for the same periods.\1\
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\1\ The Stock Index Portfolio commenced operations on July 1,
1982. The Capital Appreciation Portfolio commenced operations on
November 20, 1987.
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21. Applicants represent that they have considered the fact that,
with respect to the MSA-2 Contracts, the proposed substitution would
reduce the number of available variable investment options from five to
four, and that a previous substitution effected in 1998 had reduced
those options from seven to five. Applicants do not believe MSA-2
Contact owners benefit merely from having an additional investment
option which has historically provided them with poor performance and
have made a determination that MSA-2 Contract owners will be better off
without this option. Applicants believe that the remaining four
investment alternatives
[[Page 57492]]
provide a sufficient range of choices along with sufficient
diversification. Applicants believe, therefore, that the proposed
substitution will be in the best interest of MSA-2 contract owners and
is otherwise consistent with the standards for the granting of an order
under Section 26(b).
22. The Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating
its assets among stocks, bonds, and short-term debt instruments. The
Balanced Portfolio invests in a combination of common stocks and fixed
income securities and seeks, as its investment objective, to achieve
high total return on investment through capital appreciation and
current income. Applicants have concluded that the Balanced Portfolio
offers Contract owners/participants an underlying portfolio with
investment objectives and policies that are the most comparable to
those of the Eliminated Portfolio as compared with all other underlying
portfolios available under the affected Contracts.
23. Applicants represent that the total expenses of the Balanced
Portfolio are 1.00%, while the total expenses of the Asset Manager
Portfolio are .65%. Applicants represent that, notwithstanding its
higher fees, the Balanced Portfolio presents a better investment option
for Contract owners/participants than the Asset Manager Portfolio based
on the similarity of investment objectives and policies, comparative
performance information, and other data. Applicants state that they
carefully examined certain data in considering whether to replace the
Asset Manager Portfolio with the Balanced Portfolio, including the
performance history of the portfolios, as well as the performance of a
similar fund and other information they deemed relevant.
24. GWL&A states that it has been concerned with the relatively
poor performance of the Asset Manager Portfolio. Prior to the inception
of the Balanced Portfolio in October 1996, however, there was no other
(and there continues to be no other) underlying portfolio available
under the affected Contracts whose principal investment strategy
requires that it invest in a mix of debt and equity securities. For the
periods for which the Balanced Portfolio and the Eliminated Portfolio
both have standardized performance returns, namely average annual total
returns for the one year period ended December 31, 1998, and the period
from October 1, 1996 to December 31, 1998, the Balanced Portfolio
outperformed the Eliminated Portfolio by over 3% and over 4%,
respectively. Applicants state that the performance history of the
Balanced Portfolio is somewhat limited, however, they state that the
performance history of the INVESCO Balanced Portfolio, after which the
Maxim Balanced Portfolio was modeled, has additional performance
history. The Maxim Balanced Portfolio and the INVESCO Balanced
Portfolio have the same investment objective, principal investment
strategy, investment adviser (or sub-adviser, as applicable), and
portfolio manager and, therefore, Applicants argue it was appropriate
to consider its performance. The average annual total returns for the
one year, three year, five year, and since inception periods ending
December 31, 1998 were: Maxim Balanced Portfolio--18.42%, N/A, N/A,
22.85%; and Asset Manager Portfolio--15.05%, 16.74%, 11.81%, 12.98%.\2\
The total returns for the INVESCO Balanced Portfolio for all of the
preceding periods were higher than the total returns for the Asset
Manager Portfolio during the same periods. For the period October 1,
1996 (commencement of the Maxim Balanced Portfolio) to December 31,
1998, the average annual total return for the Maxim Balanced Portfolio
was 22.85% as compared with 18.77% for the eliminated portfolio.
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\2\ The Maxim Balanced Portfolio commenced operations on October
1, 1996; the INVESCO Balanced Portfolio commenced operations in
December 1993; the Asset Manager Portfolio commenced operations in
September 1989.
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25. Based on the other information reviewed by Applicants,
Applicants also concluded that the Substituted Portfolio will not
represent an unreasonable risk to investors.
26. As of December 31, 1998, the Maxim Balanced Portfolio had total
assets of $152.83 million and the Asset Manager Portfolio had total
assets of approximately $4,793 million. Applicants represent that the
smaller asset base of the Maxim Balanced Portfolio as compared with the
Asset Manager Portfolio will not disadvantage affected Contract owners/
participants. First, the Maxim Balanced Portfolio assesses an all-
inclusive annual fee of 1.00% under its advisory agreement and,
therefore, the expense ratio cannot be affected by the size of the
asset base. Moreover, Applicants represent that the Maxim Balanced
Portfolio is sufficiently large so as to be capable of being managed
efficiently and effectively in accordance with its investment
objectives and policies. Additionally, if the proposed substitution is
carried out, an additional $31.29 million (as of December 31, 1998)
would be added to the Maxim Balanced Portfolio's asset base.
27. In sum, based on comparative investment objectives and
policies, historical performance information, and other factors deemed
relevant by Applicants, the Applicants believe that the Maxim Balanced
Portfolio will provide Contract owners/participants with an investment
option that (1) has a proven track record of outperforming the
Eliminated Portfolio, (2) has investment objectives and policies which
are comparable to the Eliminated Portfolio, and (3) is not believed to
expose Contract owners/participants to a materially greater risk than
is presented by the Eliminated Portfolio.
28. GWL&A will schedule the Substitution to occur on a date as soon
as practicable following the issuance of an order by the Commission
granting the relief requested in the Application (the ``Automatic
Selection Date''). By way of sticker, the FutureFunds Contract and MVP
Contract prospectuses have disclosed the proposed Substitution for
several months. The stickers also disclose that the investment
divisions relating to the Eliminated Portfolios will not accept
additional contributions (i.e., new money or transfers) on or after
February 5, 1999, and that FutureFunds Contract and MVP Contract values
allocated to the Eliminated Portfolios can be transferred without
assessment of any charges at any time prior to the Automatic Selection
Date. Notifications similar to the stickers were mailed to all current
Contract owners/participants shortly after the initial filing of the
Application. MSA-2 Contract owners also were mailed a similar
notification of the proposed Substitution and the Automatic Selection
Date. After the order is issued, a second notification will be provided
to all Contract owners/participants 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
investment division(s) of their choice (or remain in the Eliminated
Portfolios until the automatic substitution on the Automatic Selection
Date).
29. Affected Contract owners/participants also will receive
confirmation of the Substitution transaction that will be mailed within
five days of the Automatic Selection Date. The confirmation will
contain a reminder that the Contract owners/participants may effect
transfers from the investment divisions corresponding to the Stock
Index Portfolio or Balanced Portfolio, as applicable, to any other
[[Page 57493]]
investment division without incurring any charges.
30. Applicants argue that the Substitution provides Contract
owners/participants investment divisions which are currently available
under the respective Contracts, and which are sufficiently similar so
as to continue to fulfill the Contract owners/participants' objectives
and risk expectations. If a Contract owner/participant with current
allocations in the Eliminated Portfolios determines that another
investment option is more appropriate for his or her needs, he or she
may always transfer his or her assets to any remaining investment
division available under the respective Contracts without incurring any
charges.
31. 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 Stock Index Portfolio and/or the Balanced
Portfolio, as applicable, at net asset value on the same date. Contract
owners/participants will not incur any fees or charges as a result of
the transfer of account values from the Eliminated Portfolios. All
contract values will remain unchanged and fully invested. The
Substitution will not increase Contract or Separate Account fees and
charges after the Substitution and will not alter Contract owners/
participants' rights and GWL&A's obligations under the Contracts. In
addition, Applicants represent that, as of the date of filing the
second amended Application, the Substitution will not result in any
adverse federal income tax consequences for Contract owners/
participants. Following the Substitution, the investment divisions
which invest in the Eliminated Portfolios will be terminated.
Applicant's Legal Analysis and Conditions
1. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the substitutions of securities. Section 26(b) of
the 1940 Act makes it unlawful for any depositor or trustee of a
registered UIT holding the security of a single issuer to substitute
another security for such security unless the Commission approves the
substitution. The Commission will issue an order approving such a
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 represent that the purposes, terms, and conditions of
the Substitution are consistent with the protection for which Section
26(b) was designed and will not result in any of the harms which
Section 26(b) was designed to prevent. Applicants believe the
substitution will benefit Contract owners/participants by eliminating
portfolios with below average historical returns and replacing them
with portfolios that have demonstrated superior performance histories.
3. Any Contract owner/participant who does not want his or her
assets allocated to the Stock Index Portfolio or the Balanced
Portfolio, as applicable, would be able to transfer assets to any one
of the other investment divisions available under their respective
Contracts without charge. Such transfers could be made prior to or
after the Automatic Selection Date.
4. 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/participants will not incur any fees or charges as a
result of the transfer of account values from any investment division.
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, the
Substitution will not result in any adverse federal income tax
consequences for Contract owners/participants.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the Substitution should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27713 Filed 10-22-99; 8:45 am]
BILLING CODE 8010-01-M
