[Federal Register Volume 63, Number 233 (Friday, December 4, 1998)]
[Notices]
[Pages 67152-67154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32326]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23575; File No. 812-11182]
Great-West Life & Annuity Insurance Company, et al.
November 25, 1998.
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 (``1940 Act'').
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SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the American Century VP International Fund
for shares of the Montgomery Variable Series: International Small-Cap
Fund.
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'') (together,
with the GWL&A Account, the ``Accounts'')
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and Charles Schwab & Co., Inc. (``Schwab'').
FILING DATE: The application was filed on June 11, 1998, and amended
and restated on September 18, 1998, and amended on November 24, 1998.
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 December 21, 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 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, N.W., Washington, D.C. 20549. Applicants, c/o Jorden Burt Boros
Cicchetti Berenson & Johnson, LLP, 1025 Thomas Jefferson Street, N.W.,
Suite 400 East, Washington, D.C. 20007-0805, Attention: Tom Mira, Esq.
FOR FURTHER INFORMATION CONTACT: Martha Peterson, Attorney, or Mark
Amorosi, Special Counsel, 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 5th St., N.W.,
Washington, D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. GWL&A, a stock life insurance company organized under the laws
of Colorado, 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, Guam, Puerto Rico, and all states
of the United States except New York. 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.
2. FGWLA, a stock life insurance company organized under the laws
of New York and a wholly owned subsidiary of GWL&A, is principally
engaged in the sale of life insurance, accident and health insurance,
and annuities, and is admitted to do business in the states of New York
and Iowa.
3. The GWL&A Account and the FGWLA Account are separate 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''). Each account is a unit investment
trust (``UIT'') and has filed a registration statement on Form N-4 for
the purpose of registering GWL&A Account and the FGWLA Account,
respectively, under the 1940 Act and the Schwab Contracts as securities
under the Securities Act of 1933, as amended.
4. Schwab is the principal underwriter and distributor of the
Schwab Contracts. Schwab 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.
5. 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 and under other retirement
plans which do not qualify under the Code. The Schwab Contracts
currently offer twenty-five investment divisions each of which invests
exclusively in one of the corresponding portfolios (the ``underlying
portfolios'') of fourteen open-end management investment companies.
6. The Schwab Contracts do not have either contingent deferred or
front-end sales loads. No sales charge applies to the transfer among
investment divisions offered in the Schwab Contracts. Under the Schwab
Contracts there are no limits on the number of transfers a Contract
owner can make. There is a $10 fee for each transfer in excess of
twelve in any calendar year. The Schwab Contracts have an annual
contract fee of $30. This charge is currently waived for Contracts with
an annuity account value of at least $50,000, but may also be waived
for Contracts under certain sponsored arrangements. These charges will
not be affected by the transfer.
7. All of the Schwab Contracts expressly reserve Schwab's, FGWLA's,
and GWL&A's right, both on their own behalf and on behalf of the
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.
8. Schwab, FGWLA, and GWL&A, on their own behalf and on behalf of
the Accounts, propose to exercise their contractual right to eliminate
the Montgomery Variable Series: International Small-Cap Fund
(hereinafter the ``Eliminated Portfolio'') as a funding option under
the Schwab Contracts. By way of sticker, the Schwab Contract
prospectuses will disclose the proposed substitution for several months
prior to the date on which the substitution will be scheduled to occur
(``the Automatic Selection Date''). These stickers will be mailed to
all Contract owners and will advise Schwab Contract owners of their
ability to transfer Contract values allocated to the Eliminated
Portfolio to the remaining investment division(s) of their choice or
remain in the Eliminated Portfolio for an automatic substitution on the
Automatic Selection Date. The Eliminated Portfolio has not accepted
additional premium payments (i.e., new money or transfers) since June
30, 1998.
9. The proposal would result in a reduction in the number of
variable investment options and corresponding portfolios available
under all Schwab Contracts from twenty-five to twenty-four.
10. Montgomery Variables Series and its investment adviser,
Montgomery Asset Management, LLC (collectively, ``Montgomery'') intend
to cease offering shares of the Eliminated Portfolio, due to the small
amount of assets and the corresponding absence of economies of scale.
Montgomery has indicated that the small size of the Eliminated
Portfolio makes the Eliminated Portfolio difficult to manage
successfully and makes it difficult to comply with diversification
requirements applicable to variable insurance products and to mutual
funds under the Code and the 1940 Act.
11. As of the Automatic Selection Date, all Contract values
allocated to the Eliminated Portfolio will be reallocated automatically
to the American Century VP International Fund (the ``American Century
International Fund''). The substitution will take place at relative net
asset value with no change in the amount of any Contract owner's
contract value or in the dollar value of his or her investment in such
Contract. Contract owners will not incur any fees or charges as a
result of the proposed substitutions, nor will their rights or FGWLA's
or GWL&A's obligations under the Contract be altered in any way. In
addition, Contract owners will not incur any fees or expenses in
connection with the proposed
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substitutions, including legal, accounting and other fees and expenses.
The proposed substitutions will not cause the contract fees and charges
currently being paid by existing Contract owners to be greater after
the proposed substitutions than before the proposed substitutions.
12. The investment objective of the Eliminated Portfolio is to seek
capital appreciation by investing primarily in equity securities of
companies outside the United States having total market capitalization
of less than $1 billion, sound fundamental values, and potential for
long-term growth at a reasonable price.
13. The investment objective of the American Century International
Fund is to seek capital growth by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards
of selection and have, in the opinion of the investment manager,
potential for appreciation. The American Century International Fund
will invest primarily in common stocks (defined to include depository
receipts for common stock and other equity equivalents) of such
companies.
14. Applicants represent that the total expenses of the American
Century International Fund are currently 1.50%, which is less, absent
the current waiver of such fees and expenses by Montgomery, than the
total operating expenses of the Eliminated Portfolio. The Eliminated
Portfolio has not borne any expenses due to the fact that Montgomery
has waived all fees and absorbed all expenses in light of the very
small asset base of the Portfolio. Applicants represent that if the
substitution is not approved, Montgomery may ultimately be forced to
cease absorbing the Eliminated portfolio's operating expenses, which
would mean an effective annual fee rate of 1.50%.
15. The Contract owners will receive a confirmation of the
Substitution transaction. The confirmation will contain a reminder of
the Contract owner's ability to effect one transfer from the American
Century International Fund 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.
16. No sales load deductions or transfer charges will be assessed
in connection with any transfers among the investment divisions because
of the substitution. For purposes of the $10 fee charged for each
transfer in excess of twelve in any calendar year the proposed
substitution will not count as a transfer.
Applicant's Legal Analysis and Conditions
1. Sections 26(b) of the 1940 Act provides that ``[i]t 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.'' Section 26(b) of the 1940 Act also provides that
the Commission shall issue an order approving such substitution if the
evidence establishes that the substitution 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 shares of the American Century
VP International Fund for shares of the Montgomery Variable Series:
International Small-Cap Fund.
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. Applicants maintain that the American Century VP International
Fund has investment objectives and policies which are consistent with
those of the Eliminated Portfolio and which are sufficiently similar so
as to continue to fulfill the Contract owners' objectives and risk
expectations. Applicants state that any Contract owner who does not
want his or her assets allocated into the American Century
International Fund would be able to transfer assets to any one of the
other investment divisions, available under their Schwab Contract,
without charge. Such transfers could be made prior to or after the
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. In addition, the Substitution is designed to avoid any
adverse federal income tax impact to the Contract owners.
6. The substitution will be effected by redeeming shares of the
Eliminated Portfolio on the Automatic Selection Date at net asset value
and using the proceeds to purchase shares of the American Century
International Fund 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 Portfolio. All contract values will
remain unchanged and fully invested.
Conclusion
In light of the foregoing facts and representations, Applicants
believe that the requested relief to allow the proposed substitution
meets the applicable standards for 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. 98-32326 Filed 12-3-98; 8:45 am]
BILLING CODE 8010-01-M